Investment Management - First Quarter 2021

April 22, 2021

We provide a copy of our investment management letter, without enclosures, to keep you up-to-date on the investment markets and West Financial Services.i

Too Hot in the Hot Tub!

Spring is upon us, and temperatures outside are rising.  Investors are noticing that the weather is not the only thing heating up. Economic indicators illustrate that growth in the U.S. economy is accelerating as states continue to relax COVID-related restrictions. Stimulus is also playing a role, as the Federal Reserve continues to provide markets with near-zero, short-term interest rates and liquidity, while the recent fiscal relief package delivers additional spending power to consumers.

To reflect the improved outlook, economists boosted global growth domestic product (GDP) growth forecasts through 2022. As expectations bubbled higher, the yield on the 10-year Treasury rose sharply, reaching 1.75% towards quarter-end. While still low on an absolute basis, the rate of change from under 1% at the beginning of the year caused ripple effects throughout markets during the quarter. 

Overall, it was another sizzling quarter for equity returns, with a number of indices trading at all-time highs. The total return of the S&P 500 was 6.17%, a far cry from the 20% decline seen in the first quarter last year. Medium and small capitalization indices, represented by the S&P 400 and S&P 600, continued to outperform, returning 13.47% and 18.24%, respectively. International equities rose 3.48%, lagging their domestic counterparts due in part to a rebound in the U.S. dollar. 

Performance for various indices for the three-month (not annualized), one-year, three-year, and five-year periods appears below:

Bond Indices

Dates Barclays Credit 1-5 Yr. Barclays Cap US Credit Index Barclays Muni



-0.57% -4.45% -0.35%



5.88% 7.88% 5.51%



4.31% 5.95% 4.91%



3.06% 4.67% 3.49%


Equity Indices

Dates Dow Jones Ind. Avg. NASDAQ Composite S&P 500 (Large) S&P 400 (Medium) S&P 600 (Small) MSCI EAFE (Int'l)



8.29% 2.95% 6.17% 13.47% 18.24% 3.48%



53.78% 73.40% 56.35% 83.46% 95.33% 44.57%



13.61% 24.54% 16.78% 13.40% 13.71% 6.02%



15.99% 23.44% 16.29% 14.37% 15.60% 8.85%

As discussed in our previous letter, there was already a rotation underway into cyclical companies, areas where the ability to grow is tethered to the economy. Cyclical companies include transportation and bank stocks, industrials, housing-related companies, and small capitalization stocks. However, the spike in long-term rates did burn investors using too much borrowed money, or trading in speculative areas of the market. These “long duration,” high-growth stocks, which include recent technology public offerings and special purpose acquisition companies (SPACs), are usually valued on multiples based on sales, not earnings.

Economic news of late has been on fire. As states reopen, unemployment has fallen to 6%, with over 900,000 jobs added in March. The ISM Services Index (18 components), which covers over 80% of the U.S. economy, just posted the highest result on record, at 63.7. The ISM Manufacturing Index for March came in at 64.7, the highest level seen in almost 40 years. Home prices and home sales have experienced large gains over the past year, while auto sales are near a pace not seen since 2017. Consumer confidence hit a level of 109.7, still below the pre-pandemic level of 132.6 of February 2020.

Clearly, the pace of those numbers is not sustainable. Jan Hatzius, the Chief Economist of Goldman Sachs, forecasts the U.S. economy growing over 7% in 2021, decelerating to 5%, then 2% in 2022 and 2023, respectively.ii There is also a question of pent up demand. Consumer spending is important to the recovery, as it accounts for 70% of our economic activity. With 8.4 million fewer people working than in February 2020, the Federal Reserve’s (“Fed”) main objective of full employment is far from met.

With the Fed fully engaged to assist in the economic recovery for all Americans, along with the potential for additional fiscal stimulus in the form of an infrastructure bill, investors are becoming increasingly concerned that the economy could overheat. The Fed’s preferred method of viewing inflation, the core-PCE rate, was just 1.4% for February. Core inflation numbers exclude the effects of rising energy and food prices, which they consider transitory. As we have previously written, Fed Chairman Jerome Powell is not concerned about inflation heating up. In fact, the Fed’s goal is to have inflation run modestly above 2% “for some time.”iii

So, is the economy running too hot? Recent data showed that in March, producer prices, including food and energy, rose 4% year-over-year.iv  For a clearer picture, let’s dive deeper. First, comparing the change in price from last year, when lock-downs were in place, does not provide an appropriate basis for comparison. Second, the strength of the recovery has driven many commodity prices higher. Crude oil prices have recovered to pre-pandemic levels. Many other commodities, such as copper, corn, and soybeans are trading at levels not experienced since early last decade, while lumber prices are at all-time highs. There are shorter-term issues that include supply chains not being able to handle how quickly demand is recovering. We have also catalogued how technology and globalization have been a deflationary force over the past 30 years. With those forces still exerting pressure, it’s unlikely that elevated inflation will be a sustainable issue in the future. 

For our client portfolios, we are monitoring inflation and the path of interest rates. Though every client situation is different, we continue to view stocks as attractive relative to bonds, given a still-low interest rate environment and the Fed’s willingness to allow inflation to drift higher. Equity valuations are elevated compared to long-term historical averages, though estimates for earnings this year could prove conservative. Also, our tilt towards secular growth opportunities and dividend payers provide some hedge towards higher rates of inflation. As interest rates rise, bond prices decline. Therefore, the bonds you currently own may reflect paper losses in the short-term. These losses should dissipate as the bonds get closer to maturity, depending on the price at which they were purchased. The positive offset is that we will be able to purchase bonds with higher yields than we were able to at the beginning of the year.

As for the title of this letter, we would like to give credit to Eddie Murphy and his hilarious Saturday Night Live skit.

We are pleased to welcome three new employees to West Financial Services (“WFS”). Glenn Guard, CFA®, joins us as a relationship manager. He has more than 20 years of experience providing a wide range of investment management, consulting, and financial planning services for clients from all walks of life. His clients have included high-net-worth and ultra-high net worth families, pension funds, foundations, endowments, business owners, and retirees. In our client service department, we welcome both Eric Dzik and Kiernan Keller. Eric joined WFS in February as a client service associate and is a recent graduate of George Mason University with a BS in Finance. Kiernan also joined WFS in February as a client service associate and is a recent graduate of the University of Maryland with a BS in Finance and Information Systems.

In March 2021, West Financial Services was named one of the Best Places to Work for Financial Advisersv by InvestmentNews based on workplace policies and practices, and satisfaction surveys that measure the employee experience. This is our 4th consecutive year to receive this recognition. Also, Glen Buco, Kim Cox, and Victoria Grossmann Henry were recognized as Top Fee-Only Financial Plannersvi  by Washingtonian magazine in January 2021.

Our annual disclosure documents, Client Relationship Summary (“Form CRS”) and Form ADV Part 2A, have recently been filed with the SEC. We have amended our Form CRS and Form ADV Part 2A to include a new service offering, the Foundational Planning Program. In accordance with SEC regulations, in the event of any material change, we must provide to all clients our Form CRS and Form ADV Part 2A or the Summary of Material Changes of the Form CRS and Form ADV Part 2A, with an offer to provide the entire Form CRS and Form ADV Part 2A. The Summary of Material Changes of the Form CRS and Form ADV Part 2A can be found at the end of this document. Our current Form CRS and Form ADV Part 2A are available on our website, the SEC’s website (, or can be provided to you in hardcopy form upon request.

Enclosed you will find your portfolio appraisal dated March 31, 2021. We have provided performance numbers for the quarter, one-year, three-year, and five-year periods, where appropriate. Should you have any questions regarding your portfolio, or any financial planning related questions, please call us at any time. Also, contact your relationship team if your risk tolerance or time horizon has changed to ensure your allocation remains appropriate. Thank you for your continued confidence in WFS and please do not hesitate to refer friends, family or co-workers who you feel may benefit from our services. In our 39th year of service, we remain committed to putting your needs first. Please do not hesitate to let us know how we are doing and ways in which we can improve.

President Chief Investment Officer Director of Fixed Income

Glen J. Buco, CFP®

Glenn Robinson, CFA®

Norma Graves, CFP®

iEach of the S&P 500 Index, the S&P 400 Index, the S&P 600 Index, the MSCI EAFE Index, the Barclays Credit 1-5 Year Index, the Barclays Cap U.S. Credit Index, the Barclays Capital Municipal Bond Index, the Dow Jones Industrial Average, and the NASDAQ Composite (each, an “Index”) is an unmanaged index of securities that is used as a general measure of market performance. The performance of an Index is not reflective of the performance of any specific investment.  Each Index comparison is provided for informational purposes only and should not be used as the basis for making an investment decision. Further, the performance of your account and each Index may not be comparable. There may be significant differences between the characteristics of your account and each Index, including, but not limited to, risk profile, liquidity, volatility and asset comparison. The performance shown for each Index reflects no adjustment for client additions or withdrawals, and no deduction for fees or expenses.  Accordingly, comparisons against the Index may be of limited use. Investments cannot be made directly into an Index.

ii“The Risk of Overheating (Mericle).” Goldman Sachs Economic Research, 2 April 2021.

iiiPowell, Jerome. Interview with Scott Pelley. 60 Minutes, April 2021,


vIn order for firms to be considered for InvestmentNews’ list of Best Places to Work for Financial Advisers, the firm must meet the following criteria: (1) be a registered investment adviser or an affiliated independent broker-dealer; (2) be in business a minimum of one year; and (3) have at least 15 employees. The Firm must register with and complete a survey that asks questions about the firm’s working environment, benefits, company culture and other key areas. The survey was developed by an outside consultant with the input of InvestmentNews and leading industry executives. Once the survey is completed, employees are invited to fill out a survey that will focus on what they really love about working at the participating firm. InvestmentNews consultants then independently combine the two surveys to come up with a final score that determines whether the firm will be named one of the Best Places to Work for Financial Advisers. Firms do not pay a fee to be considered or placed on the final list of Best Places to Work for Financial Advisers. The only cost is to allow participating firms to view the employee feedback reports.

viTo arrive at the names of the area’s top financial advisers — the fee-only financial planners, fee-based advisers, estate attorneys, tax accountants, and insurance advisers marked with a “best adviser” tag — the Washingtonian distributed surveys to hundreds of people who work in the local financial industry, asking them whom they would trust with their own money. Washingtonian also did their own research, consulting industry experts and publications. The “best adviser” names on this list are the people who received the strongest recommendations. Firms do not pay a fee for employees to be considered or placed on the final list of “Top Fee-Only Financial Planners” or “best adviser.”

West Financial Services, Inc. offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS. The information contained herein does not constitute investment advice or a recommendation for you to purchase or sell any specific security. You are solely responsible for reviewing the content and for any actions you take or choose not to take based on your review of such content.

This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Certain information contained herein was derived from third party sources as indicated.  While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented.  We have not and will not independently verify this information.  Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to West Financial Services, Inc.

Certain statements herein reflect projections or opinions of future financial or economic performance. Such statements are “forward-looking statements” based on various assumptions, which may not prove to be correct.  No representation or warranty can be given that the projections, opinions, or assumptions will prove to be accurate.

Form CRS – Statement of Material Changes

On June 5, 2019, the SEC published “Form CRS Relationship Summary; Amendments to Form ADV” which amends the disclosure document that advisers provide to clients as required by SEC rules. This Form CRS is a document which WFS provides to its clients as required by SEC rules.

The following material changes have been made to this brochure since the filing of the previous amendment on June 15, 2020:

  • Item 2 – What investment services and advice can you provide me? Added a description of Foundational Planning services, a subset of WFS’s personal consulting services; and; 
  • Item 3 – What fees will I pay? Added details with respect to fees for Foundational Planning services. 

Form ADV Part 2A – Item 2 - Statement of Material Changes

On July 28, 2010, the SEC published “Amendments to Form ADV” which amends the disclosure document that advisers provide to clients as required by SEC rules. This Form ADV Part 2A brochure is a document which WFS provides to its clients as required by SEC rules.

The following material changes have been made to this brochure since the filing of the previous amendment on September 17, 2020:

  • Item 4: Details with respect to Foundational Planning services has been added; and
  • Item 5: Details with respect to fees for Foundational Planning services has been added.