Santander Investment Services
Quarterly Market Update

Santander Investment Services provides a Quarterly Market Update prepared Brinker Capital Investments (formerly CLS Investments) for our customers to stay up-to-date on the latest insights.

The following commentary - provided by Santander Investment Services' Investment Thought Leadership partner, Brinker Capital Investments (formerly CLS Investments) - summarizes prior financial market activity, and uses data obtained from public sources. This commentary is intended for one-on-one use with a client's financial advisor only, as a resource to manage assets and evaluate investment portfolio performance.

  • Quarterly Review
  • Market Observations
  • Market Insights

Quarterly Review

Happy New Year!

As we close the books on another year in investing, let’s review the returns in our major markets for 2020. Even though we saw several instances of quick and ferocious drawdowns, we also saw quick and longer increases in stock and bond markets, as every major market ended higher for the year. Most of the returns came in the 4th quarter, as global stocks rose close to 15%!

International stocks outpaced U.S. stocks and Value stocks outpaced Growth Stocks in Quarter four, a big shift from the first three quarters in the year. Small cap stocks had an amazing quarter, up close to 30% and over 16% on the year.

The only markets that finished lower in 2020 were Commodities, Global Real Estate and Diversified Alternatives.

Asset Class Chart

Market Observations

Taking a Bite Out of FANG

FANG, FAANG or FANMAG, – whichever acronym you prefer – refers to the high-flying Big Tech stocks dominating the U.S. stock market. Facebook, Apple, Amazon, Netflix, Microsoft and Google are some of the top market capitalization-weighted companies, which have recently generated higher returns than the overall market. The acronym fails to account for Tesla, so throw in a “T” somewhere to round out the group.

It’s undeniable these companies have had tremendous stock performance, coupled with rich valuations. That combination, as well as the general trend of the market, has led to extreme spreads between value and growth. If you read CLS commentary, you’re likely familiar with that spread and know it continues to widen.

Just how wide is the value-growth spread? As of November 19, the Russell 1000 Growth Index has outperformed the Russell 1000 Value Index by 32% in 2020. This is a pretty incredible statistic, especially on the back of a period when growth has dramatically outperformed value, and FANG stocks have largely contributed to this phenomenon. Even more staggering, this spread is nothing compared to what is happening in emerging market economies.

In emerging markets, the value-growth spread is far more dramatic. Using a fundamentally weighted ETF that favors value (PXH), and an internet and ecommerce ETF (EMQQ) to represent growth, the spread of value and growth in emerging markets is 74% so far this year! That is more than double the spread we’re seeing domestically.

YTD Return Gap (%)


What impact do the high-flying stocks mentioned above have on the broader index for each region? For the Russell 3000 (3,000 largest domestic stocks) the top six holdings (AAPL, MSFT, AMZN, FB, GOOGL, GOOG) make up 18.18% of the index. This is a significant amount, and it’s commonly understood these stocks are causing a concentration risk in market-weighted indices. In the broad emerging market index (MSCI Emerging Markets), the top six holdings make up more than 23% of the index!

Top Holdings Weight (%)

So while the U.S. market gets a lot of attention for its high valuations and concentration risk, other pockets of the market are exhibiting similar characteristics. Much like how value stocks in the U.S. are far more attractively priced for forward returns, a similar story plays out in emerging markets.

The average stock in the MSCI Emerging Market Index is dramatically cheaper than the average U.S. stock in the Russell 3000 Index. Many of these more attractively valued stocks are based in emerging market Asian countries and are found in commodity producing economies.

While commodities have been a loss leader for portfolios over the past five years, the future appears to be potentially bright. As the world recovers from the COVID-19 crisis and economic activity continues to pick up, demand will likely increase for these products. The U.S. dollar continues to weaken, providing a tailwind for emerging markets and their severely undervalued currencies. The combination of both factors could lead to outperformance from the value portion of emerging markets moving forward.

Market Insights

To Better Times

While we may have turned the page on 2020, some challenges and uncertainties of the old year have followed us into the new year – the coronavirus continues to ravage our country and we have Democratic control of the Presidency and Congress, which hasn’t occurred since the Obama Administration in 2009. As a result, potential changes to US fiscal policy come to the forefront as significant unknowns in 2021. That said, at the risk of sounding Pollyanna-ish and in no way seeking to minimize the ongoing suffering caused by the coronavirus, we are very optimistic on the outlook for our country and our economy as we move into the new year. The most important datapoint supporting an optimistic worldview is progress on the COVID-19 vaccination front; we can see the light at the end of the pandemic tunnel. Beyond that, we believe that other positive factors are in place: exceptionally supportive monetary policy, home prices at record levels (but without the excess supply that marked the housing bubble of the late 2000s), an elevated consumer savings rate, and record levels of cash on corporate balance sheets. In addition, interest rates are low, which historically have tended to support spending, keep borrowing costs low and flatter risk assets, particularly stocks (observations in this paragraph were formed from economic data obtained from Bloomberg and Morningstar Direct, as of 12/31/2020).

Why we are optimistic on the economy in 2021?

As the economy reopens in 2021, we expect to see a surge in consumer and corporate spending. According to economic information provider IHS Markit (as of 12/16/2020), it is quite possible our economy grows at 5% in 2021, a rate of growth we have not seen since the early 1980s. We do see better days ahead. And while we all likely want to move on from 2020, it might be worth considering for a moment what our country faced and came through last year – a global pandemic, civil unrest, the most divisive election in a hundred years or more and the sharpest economic downturn since the Great Depression.

As we said often in 2020, hard times come, but hard times go. Here is to better times.

Thank You.

As always, a sincere thank you for reading. If you have any questions or feedback, please reach out to your Santander Investment Services Financial Consultant

Stay balanced, and stay the course.


This material is authored by Brinker Capital Investments (formerly CLS Investments) and is being presented by Santander Investment Services. The information contained in this material should not be construed as an endorsement or adoption of any kind by Santander Investment Services or Santander Securities LLC, who are not affiliated with Brinker Capital Investments. The views expressed herein are exclusively those of Brinker Capital Investments, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of Brinker Capital Investments Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation, and the particular needs of any specific person. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed here and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security's price or value may rise or fall.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The Morningstar Global Market Large-Mid Index measures the performance of the Global Markets’ equity markets targeting the top 90% of stocks by market capitalization. All indices are unmanaged and investors cannot invest directly into an index.

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Past performance is not a guide to future performance.


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