The Fed continues to accommodate recovery by keeping short-term rates low. At the same time, economic fundamentals are improved on both the labor and activity fronts.
New convertible issuance was very robust during the period and offered numerous investment opportunities, as this market provided access to capital for many new issuers over the course of the economic dislocation resulting from the pandemic. Convertible issuance has been supported by strong equity prices, elevated volatility, and low-but-rising interest rates. This fostered strong performance of convertibles during the period. Our expectation is that robust convertible issuance will continue in 2021.
For bonds during the period, new issue markets continued to trade strongly. Consistently high volumes of new debt were met with healthy demand, owing in large measure to the liquidity conditions driven by Fed and fiscal stimulus. Credit spreads, which narrowed in 2020, continued to do so in 2021, which added to positive returns for high-yield bonds during the period.
Although European equities advanced, recent eurozone data pointed to mixed dynamics in the broad economy. Manufacturing activity increased significantly, while services activity and consumer confidence were tepid because of pandemic restrictions and a deficient vaccine rollout.
That said, the Fund can invest in a range of strategies including convertible securities, high yield, U.S. equities, international equities and convertible arbitrage. This enables us to participate in a myriad of opportunities on behalf of our shareholders. Given this flexibility, we can mitigate the risks from the impact of COVID-19 on financial markets by adjusting our exposures across these multiple strategies, in both domestic and global equity and fixed-income markets. This flexibility enables us to not only mitigate risks across vulnerable areas of financial markets, but also take advantage of opportunities that may present themselves around the globe amid the economic recovery.
The Fund’s U.S. equity sleeve underperformed relative to the S&P 500 Index, as an underweight in consumer staples, especially avoiding household products, contributed to performance. In addition, our underweight in utilities, namely no exposure to multi-utilities, was additive.
Conversely, our selection in energy (integrated oil & gas) impeded performance relative to the index. In addition, our selection and overweight in consumer discretionary, mainly in apparel, accessories & luxury Goods, was not helpful.
The Fund’s global equity sleeve underperformed relative to the MSCI World Index. Our selection and overweight in consumer discretionary, namely in hotels, resorts and cruise lines was helpful. Our selection and underweight in consumer staples, specifically no household products, also proved beneficial.
Conversely, our selection and underweight in financials with respect to diversified banks weighed on performance. In addition, our selection in information technology, specifically an overweight in application software, weighed on results.
From a regional standpoint, an underweight allocation in Japan added value to Fund performance, while security selection in the U.S. was not helpful.
The Fund’s international sleeve underperformed relative to the MSCI EAFE Index. Our overweight and selection in energy, namely oil & gas exploration and production, was beneficial relative to the index. An underweight and selection in health care, namely steering clear of health care equipment, was also helpful.
Conversely, an overweight and selection in utilities, namely in electric utilities, impeded performance relative to the MSCI EAFE Index. In addition, our selection in materials, notably an overweight in gold, hindered returns.