My family played a lot of board games over the holiday break, including Chutes and Ladders, a game with play reminiscent of 2020’s market activity: Positive movement marked by big up days (landing on a ladder) as well as down days (hitting a chute), but overall, more up movement than down.
In the fourth quarter, bolstered by positive vaccine news and a resolution of election uncertainty, it seemed to be all ladders as the broader global equity markets posted their eighth-best quarterly return ever, pushing 2020 returns well into double digits (+14.3%). The strong returns, however, occurred only a few months after the market “hit a chute” and experienced the second-worst quarterly return on record when the pandemic first gripped the global economy in Q1.
As a result of this boom/bust activity, 2020 is the only calendar year to ever see global stocks post a quarterly return in both the top ten (Q4) and bottom ten (Q1) of all time. Yet not all investors had the same experience. To new entrants into the retail day-trading community, stocks seemingly only went up. Value investors witnessed losses in a year of outsized gains as they couldn’t pull themselves out of the Q1 chute before the year was over.1 Standard sixty-forty portfolios, despite a few bumps, steadily navigated the year, never finishing in the bottom but never winning, either.2
Overall, Chutes and Ladders is a game of chance predicated upon a spin of the wheel. With the pandemic creating outsized idiosyncratic macro risk, this spin-of-the-wheel mentality was very much on display in 2020, as the CBOE VIX Index registered 218 days above a level of 20—a day-count figure that is more than the past eight years combined. And just because the calendar has flipped to 2021, it doesn’t mean the game of Chutes and Ladders we played in 2020 will change.
Asset class ETF flows: A banner year for fixed income and gold ETFs
In December, markets struck a decidedly risk-on tone and investors turned to ETFs to implement positions quickly and with precision. ETFs registered their third-largest month of inflows ever, gathering more than $64 billion. This comes after posting a record $94 billion in November, leading to the best back-to-back months on record for ETF fund flows and the best quarter ever. Notably, full-year figures zoomed to a record $505 billion. This record haul drew heavily on strength in fixed income and gold ETF flows. As shown below, fixed income ETFs took in a record $212 billion thanks to an ongoing secular shift into the asset class. Gold-backed ETFs took in a record $29 billion—a staggering 148% more than the previous record haul from 2009.