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Vident Financial's Quarterly Commentary (Q1 2021)

Posted by Vident Financial on 4/16/21 1:25 PM

We believe that interest rates, fiscal stimulus and the vaccine rollouts may all signal stronger GDP growth in 2021 lifting stocks and hurting bond returns.

SPECULATION & PRINCPLES

In our assessment, sectors and stocks that benefited early from the pandemic “stay at home” trade struggled in the first quarter while the sectors and stocks tied to the economy “reopening” trade did much better. In addition, in our observation of the market’s view that the economy will reopen and the Fed’s desire for reflation, ten-year interest rates also rose making the more speculative “stay at home” stocks with little to no profits less attractive. In our assessment, real estate also had a good quarter while bonds returns turned negative for the quarter.

In our opinion, after the pandemic there was a lot of hype pushing some companies into prices that required investors to depend on a lot of speculation about the future. We believe adhering to our principles of seeking to invest in quality company performance with quality leadership and governance at reasonable valuations with disciplined diversification is a timeless approach to wise investing. We are pleased that this approach has worked so well for our US Equity Fund investors over the last two quarters*.

Fund Review Highlights

Vident Core US Equity Fund (VUSE)

VUSE returned 20.10% for Q1 while the S&P 500 index returned 6.58% and the S&P Mid-Cap Value 400 returned 18.43%. The major contribution to the overperformance to the S&P 500 index's return was stock selection in the Information Technology and Consumer Discretionary Sectors. VUSE’s stock selection was positive relative to the S&P 500 index in all sectors. It is our assessment that VUSE's portfolio of lower priced companies along with its stronger balance sheets may contribute to VUSE being well positioned for success.

VUSEperformanceQ12021

*VUSE returned 21.84% in Q4 2021

Vident International Equity Fund (VIDI)

VIDI returned 10.50% for Q1 while ACWI Ex USA (ACWX) index returned 4.01% and the ACWI Ex USA Value index returned 8.54%. The contributions to the overperformance of ACWI Ex USA index's return were .95% for country allocation, 5.2% for stock selection and .33% for currency appreciation. More specifically, our underweight to China and overweight to Singapore, Norway and Sweden were our biggest contributors. Our stock selections in all but four of our countries were superior to the index due to what we believe was our focus on high quality companies and avoiding the high valuation companies. In our assessment, our portfolio of lower priced companies along with its stronger balance sheets in our opinion may make VIDI well-positioned for probability of success.

VIDIperformanceQ12021-1
Vident Core U.S. Bond Strategy ETF (VBND)

VBND returned -2.85% for Q1 while the Bloomberg Barclays US Agg (AGG) index returned -3.37%. The overperformance to AGG index's return was primarily in the corporate bond sector where VBND’s corporate bond returns were the strongest. VBND's index (VUBDX) 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 the signal is on for TIPs and off for high yield.

VBNDperformanceQ12021

PPTY - U.S. Diversified Real Estate ETF

PPTY returned 9.32% in Q1, compared to 8.76% for MSCI US REIT Index (RMZ). In our opinion, this performance differential was driven by a broad range of factors related to PPTY’s focus on traditional real estate. Particularly helpful were the continued recoveries in residential, hotel, office, and retail real estate seen in Q1. PPTY outperformed RMZ through the pandemic, as well as during the recovery. Despite strong recent performance, real estate is still down vs before COVID-19 (12/31/2019 – 03/31/2021: Price change of -2.38% for PPTY vs -4.10% for RMZ; total returns for the same period are 1.43% for PPTY vs 0.59% for RMZ). We believe that PPTY is positioned to continue to benefit from the ongoing market recovery.

PPTYperformanceQ12021

 

Download Quarterly Commentary PDF Here:

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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.

S&P 500 Index measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. The S&P 500 index is a capitalization-weighted index and the 10 largest companies in the index account for 26% of the market capitalization of the index. The Dow Jones S&P Mid-Cap 400 Value serves as a barometer for the U.S. mid-cap equities sector and is the most widely followed mid-cap index. To be included in the index, a stock must have a total market capitalization that ranges from $2.4 billion to $8.2 billion at the time of addition to the index. The fund’s total annual operating expenses after fee waiver is 0.48% and the total annual operating expenses 0.50%. 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.

MSCI ACWI ex USA Index (ACWX) is a market-cap-weighted index, designed to provide a broad measure of global stock performance, with the exception of U.S.-based companies. ACWX includes both developed and emerging markets. MSCI ACWI ex USA Value Index captures large and mid cap securities exhibiting overall value style characteristics across 22 Developed and 26 Emerging Markets countries. The fund’s total annual operating expenses after fee waiver is 0.59% and the total annual operating expense 0.61%. 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.

AGG 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. The fund’s total annual operating expense after fee waiver is 0.39% and the total annual operating expense 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.

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% and the total annual operating expense is 0.53%. 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.

Topics: US Equities, Principles-Based Investing, ETFs

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