After one of the most volatile years in history, financial markets began 2021 in relatively quiet fashion. Equity markets around the world generated solid returns in the quarter. U.S. stocks, as measured by the S&P 500 index, were up 5.8% (excluding dividends), while developed and emerging international equities were up 2.8% and 1.9%, respectively. In a continuation of a trend that began in 4Q20, small company stocks materially outperformed the S&P 500, and after years of lagging the performance of growth stocks, so-called value stocks (stocks that trade at a lower price relative to corporate fundamentals such as revenue, earnings, and/or cash flow), led the way among both domestic and international indices. Since our investment approach focuses on more established, high quality companies and our valuation discipline emphasizes paying a reasonable price for growth, this shift in market sentiment has helped our relative performance. Probably the most notable development during the quarter was that the 10-year Treasury yield rose from 0.92% at the start of the year (which itself was up from 0.52% in August 2020) to as high as 1.77% before finishing the quarter at 1.74%. Since bond prices fall when interest rates rise, U.S. bonds, as measured by the Bloomberg Barclays Aggregate Bond Index, were down 3.4% for the first three months of the year. Hence, it was
the worst quarter for bonds in 40 years.
