While constructive on the market, Portfolio Manager Nick Schommer explains why it is crucial for investors to stay versatile during the economy’s volatile recovery.

Key takeaways

• The third quarter saw a return of volatility to markets, driven by the rise of the COVID Delta variant, widening supply chain disruptions and the Federal Reserve’s (Fed) plans to taper its asset purchases.
• Despite these challenges, we remain constructive on the market, as elevated savings rates and generally strong consumer balance sheets can help fuel growth as the Delta variant wanes and supply chains are repaired.
• Still, the processes of economic reopening and repairing supply chains could be uneven. Investors may do well to stay versatile and look beyond areas of the market that now appear crowded.

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Nick Schommer: During the third quarter of 2021, we saw a return of some volatility to the markets. It’s really driven by a few factors. One was the Delta variant of COVID, which impacted consumers’ willingness to engage with the economy. The second is we’re seeing supply chain disruptions, particularly with global supply chains that reach deep into Asia, where some of the lockdown measures have been more significant than what we’re experiencing today in the developed world. And then lastly, what we saw late in the quarter is the Fed outlining their plans for tapering and really starting to remove some of the extremely accommodative measures they had put in place during the heart of the pandemic in March and April of 2020.

During the quarter, what we saw was large-cap growth begin to take leadership in the market as people were concerned about the Delta variant and the impact it would have on the reopening of the economy. During periods of when people begin to debate the impact of the Delta variant or supply chain disruptions, and give us those opportunities. We really do seek uncorrelated sources of risk and return, lean into opportunity, and use volatility to our advantage.

On the surface, people think of a copper mine as just being a play on global GDP. And during periods of stronger growth, that’s positive for copper prices. But when we think about copper, we think about the long-term transition that’s taking place in terms of how we consume power and moving away from a fossil fuel-based grid and toward a renewable-based grid economy. One of the key inputs in that transition is copper. And when we look out over the next decade, we’re very positive on the long-term demand for copper as a result of this transition in how we consume power. Using market volatility, using stress around the global pandemic, we’ve seen copper prices increase since that time period but remain very positive on the story continued today due to the strong supply and demand factors that are in place for the end material of copper.

In our case, we continue to be more constructive on the market than most and remain positive on equities for the remainder of the year. We’re seeing a healthy U.S. consumer that has been supported by strong equity market appreciation, home price appreciation as well as direct stimulus payments during the pandemic. The consumer has started to work down their savings rates, but savings rates remained at very high levels and we expect that to continue to be a strong driver of GDP growth for the remainder of the year and into 2022. There are some challenges in the market, which will lead to this continued level of volatility. Some of those being the supply chain disruptions that are taking place and there’s just some bottlenecks that need to be worked through as we reopen the economy on a global basis.