SPDR® SSGA Multi-Asset Real Return ETF – Q4 2020 Commentary
During the fourth quarter of 2020, RLY finished up in absolute returns, but underperformed its custom strategic benchmark. The fund finished the quarter with overweights to natural resource equities, commodities, global infrastructure and gold.
Performance The main drivers of underperformance were an overweight to gold and positioning within inflation-linked bonds. Elsewhere, positioning within global natural resource equities proved beneficial. While the underweight allocation to core commodities aided relative performance, negative tracking from the underlying fund offset gains.
Gold remained attractive across most technical factors we monitor while real yields also supported our targeted overweight. The precious metal offered a tactical hedge given uncertainties around the looming US election, ongoing Brexit negotiations, and rising COVID-19 cases and the resulting mitigation measures. Unfortunately, gold encountered headwinds as rates started to rise on vaccine-induced optimism for economic recovery in 2021 and the overweight dented performance.
Although we started to eliminate our overweight to inflation-linked bonds in November, our targeted allocation to begin the quarter detracted from performance. US TIPS advanced on the quarter as the increase in oil prices, as well as a modest increase in US inflation expectations on the back of better-than-expected incoming economic data supported the bonds, but they still lagged other assets in the portfolio. Global natural resource equities benefited from the continuation of a reflation trade which lifted assets tied to the recovery in economic growth.