4th Quarter 2020 Newsletter

Market Update

Welcome back readers. We hope everyone is doing well and staying healthy. Although it is not quite time for the year-end newsletter, given the difficulties of 2020 we thought it would make sense to share early. We have quite bit to cover here, so we apologize right up front on the length, but we do feel the information is important for investors to digest.

After nine long months, we do feel that there is light at the end of the Covid tunnel. The pandemic accelerated many significant shifts that had been taking place, albeit slower, in how economies, businesses and societies operate. Portfolios and individual positions were rebalanced, reallocated to reflect a rapidly changing landscape caused by these accelerated shifts. There is no playbook for providing portfolio management services during an unprecedented pandemic. Our extensive experiences from 2001 and the financial crisis of 2009 allowed us to personalize strategies for each and every client, and revise plans based on these new market realities.

What was interesting to us was that many investors were more concerned with the effect of the U.S elections rather than the real transformational shifts taking place in the economy. Markets like certainty, which we had at the end of the U.S election. In November and December the markets held steady on the election results and further rallied because of the incredibly positive vaccine news which came on three consecutive Mondays in November and early December.

North America Technology and Megatrends

Our readers are most likely aware that we have had an “overweight” positioning and outlook on North America technology over the past few years. This has proved to be a solid holding, and one we continued to add to as we went through Covid-19 spring/summer/fall. North America technology, and the companies that make up the sector, have been the largest growth driver and wealth creator in the U.S economy over the past decade. We all realize the importance of this sector over past year, as technology has allowed us to work, attend school and maintain many of life’s daily rhythms that would have been unthinkable 5 or 10 years ago. The importance of this sector cannot be understated.

Because of this sectors size and diversity, we like to break investable options further down into various investment sub groupings. Some of our favorite sub grouping in North America technology are 5G, Electronic Payments, Cloud Computing and Cybersecurity. Investing in these subsectors by holding baskets of stocks in an ETF wrapper gives investors broad exposure to these “Technology Megatrends” and also eliminates single stock risk.

Other Megatrends to consider in 2021 for investors would be Clean Energy to include Lithium and Battery technologies, Fin Tech, Data Center Reits, Aerospace and Biotech. Investing in Megatrends or asset classes that have tremendous growth, and are changing the way we live, is an important strategy for investors to consider, and a core theme at this firm. Broad asset class diversification alone may not be sufficient to achieve long term results. Detailed analysis and positioning at the country, sector, industry group and trend level will be crucial to achieve long term results.

Megatrends at a glance

Bonds and Private Equity

At Copper River we maintain a modest pro-risk stance going into 2021, but we will always look to give fixed income and private equity their fair share of weighting inside an investor’s portfolio. Fixed income, which is the firm’s background, had an impressive start to the year due to investor demand for high quality risk averse interest producing instruments. However, due to market mechanics and the Federal Reserve cutting interest rates to zero, bonds will most likely struggle to produce a respectable income stream for most investors in 2021. We still believe in the asset class for those that are at or near retirement. But, with yields again at historic lows, the attractiveness of the asset class has dimmed a bit for the next year. While the depth and constitution of the bond market is unique depending on the issuance and sector, it is now in a “hold and wait position” for 2021 due to low yields.

Fed rate moves

As an asset class Private Equity (PE) can be illiquid and not suitable for all investors. But, in our view it should play a role in any investors long-term portfolio. Many investors remain under-invested in private markets and may underappreciate their ability to take on some liquidity risk. We see private markets playing an important role in portfolio resilience in a world where bonds may no longer serve as diversifiers. They allow investors to build exposures to underlying trends not always available in public markets.

We also find that total return opportunities can be greater in private markets than publicly traded markets. These returns are often achieved by PE managers who can negotiate stronger debt covenants in the assets they are buying. As we went through 2020 we continued to use PE as an asset diversifier in the industrial real estate and credit markets space. Special mention to Blackstone, world’s largest private equity firm, for its work in the RIA space and for with working closely with this firm on several private equity offerings.


What does 2021 look like?

As a result, we favor looking through any near-term market volatility and continue to rebalance and deploy cash on dips. We increased our overall stance by weighting equities and focusing on some of the “megatrends” mentioned above. We continue to like tech, healthcare, industrials, transports, and clean energy due to the pandemic’s transformative shifts and pricing opportunities in sectors that have negative returns in 2020. Portfolio positions such as emerging market (EM) equities and U.S. small caps are back in favor.

While we are optimistic on the 2021 market returns, we need to mention that 80% of small business owners have been deeply impacted by Covid-19. It is estimated 100k small businesses will go out of business. Small businesses are the backbone of the U.S economy. We all need small businesses to recover, and continue to have the opportunities to grow into large businesses for a steady and even recovery to take place. We ask that readers support their local small business during the holidays and throughout 2021.

Tactical trend lines for 2021 are as follows for the firm.


Firm Update

We want to let our readers know we have updated our website: www.copperriveradvisors.com

A few changes we wanted to capture on the new website is the firm’s continued growth and highlight our new advisory committee as well as partnerships. Please look when you have a moment and feel free to provide any feedback.
Thank you for your business, and the trust you place in your team. We look forward to 2021 with great optimism.

Team Copper River