Financial markets ended the year strongly. News of a vaccine, a national election and further stimulus all contributed to investment optimism about an economy being reopened and confidence in new leadership.
Old Economy vs. New Economy
With this renewed optimism about the economy being reopened, the "stay at home" new economy stocks underperformed the "reopening" older economy stocks. Our balanced approach to the old/new economy portfolio provided strong absolute and relative performance to market cap indexes. Looking ahead, we continue to see volatility between investors betting upon what the future will look like and which companies will be the winners and losers. We believe our equity funds are still finding good quality at good prices without concentrating the portfolio into either a new or old economy overweight.
Fund Review Highlights
Vident Core US Equity Fund (VUSE)
VUSE returned 21.84% for Q4 while the S&P 500 index returned 12.10% and the S&P Mid-Cap Value 400 returned 28.69%%. The major contribution to the overperformance to the S&P 500 index was stock selection in the Information Technology and Consumer Discretionary Sectors. The only sector that VUSE didn't outperform in was energy. As the table indicators suggest VUSE's portfolio of lower priced companies along with its stronger balance sheets in our opinion make VUSE will positioned for probability of future success.
Vident International Equity Fund (VIDI)
VIDI returned 21.75% for Q4 while ACWI Ex USA (ACWX) index returned 16.89% and the ACWI Ex USA Value index returned 20.0%. The overperformance to ACWI Ex USA was 1.5% for country allocation, 2.3% for stock selection and 1.3% for currency appreciation. More speciﬁcally, our overweight to Southeast Asia and our stock selection in Europe and China was our biggest contributor. Our currency contributors were a smaller allocation to the Euro and Yen. As the table indicators suggest, our portfolio of lower priced companies along with its stronger balance sheets in our opinion make VIDI well-positioned for probability of future success.
Vident Core U.S. Bond Strategy ETF (VBND)
VBND returned 1.11% for Q4 while the Bloomberg Barclays US Agg (AGG) index returned 0.67%. The overperformance to AGG was primarily in the corporate bond sector where VBND’s corporate bond returns were over 7% while the AGG corporate bond returns were around 3.0%. VBND rebalances every quarter and reviews the spreads⁴ and momentum⁵ in the bond market. The quarterly signal in the index methodology results in the allocation between high yield⁶, TIPs⁷ and treasuries⁸. Currently VBND’s signal is off for TIPs and off for high yield.
PPTY - U.S. Diversified Real Estate ETF
PPTY returned 13.65% in Q4, compared to 11.55% for MSCI USA IMI Real Estate Index (MSCI). This performance differential was driven by a broad range of factors related to PPTY’s focus on traditional real estate. Particularly helpful were the recoveries in hotel, office, and retail real estate seen in Q4. PPTY outperformed MSCI in full year 2020 as well as during the recovery in Q4. Despite the strong performance in Q4, real estate is still down year-over-year. We believe that PPTY is positioned to continue to benefit from the ongoing market recovery.
Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. A prospectus can be obtained by visiting www.videntfunds.com/etfs or by calling 800-617-0004. Please read it carefully before investing.
Investments involve risk. Principal loss is possible. The Funds have the same risks as the underlying securities traded on the exchange throughout the day at market price. Redemptions are limited and often commissions are charged on each trade. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. These risks are greater for investments in emerging markets. A fund that concentrates its investments in the securities of a particular industry or geographic area may be more volatile than a fund that invests in a broader range of industries.
Performance quoted represents past performance, which is no guarantee of future results. The MSCI USA IMI Real Estate Index is designed to capture the large, mid and small cap segments of the US equity universe. To obtain performance data current to the most recent month-end, please call (800) 617-0004 or visit www.videntfunds.com/funds/ppty. The fund’s total annual operating expenses after fee waiver is 0.49%. Effective February 1, 2020, Vident Advisory, LLC, the investment adviser to the Fund, has contractually agreed to waive four basis points (0.04%) of its unified management fee for the Fund until at least December 31, 2021. The MSCI USA IMI Real Estate Index is designed to capture the large, mid and small cap segments of the US equity universe.
To obtain performance data current to the most recent month-end, please call 800-617-0004 or visit www.videntfunds.com/literature. The fund’s total annual operating expense after fee waiver is 0.41%. Effective February 1, 2020, Vident Advisory, LLC, the investment adviser to the Fund, has contractually agreed to waive two basis points (0.02%) of its unified management fee for the Fund until at least December 31, 2021. Performance quoted represents past performance, which is no guarantee of future results. AGG Index (LBUSTRUU) is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. The index tracks IG corporate debt, government debt, mortgage-backed securities (MBS) and asset-backed securities (ABS) to simulate the universe of investable bonds that meet certain criteria.
4A credit spread is the difference in yield between a U.S. Treasury bond and another debt security of the same maturity but different credit quality. 5Momentum is the rate of acceleration of a security's price or volume, the speed at which the price is changing. It refers to the rate of change on price movements for a particular asset and is usually defined as a rate. 6High-yield bonds are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. 7Treasury inflation-protected securities (TIPS) are a type of Treasury security issued by the U.S. government. TIPS are indexed to inflation in order to protect investors from a decline in the purchasing power of their money. 8Treasury bonds (T-bonds) are government debt securities issued by the U.S. Federal government that have maturities greater than 20 years.
The Vident Funds are distributed by ALPS Distributors, Inc. The fund's investment advisor is Vident Advisory, LLC. VIDI, VUSE, PPTY and VBND's sub-advisor is Vident Investment Advisory (VIA). Vident Financial owns the indexes that underlie the funds. ALPS is not affiliated with Vident Financial, Vident Advisory or VIA.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security.