What might lie ahead as we enter the vaccine era? FundVisualizer can help you explore risk

Putnam Investments, 01/19/21


At the end of a long and trying year defined by the COVID-19 pandemic, the country received a shot of hope as the first doses of vaccine began making their way to healthcare workers and residents of long-term care facilities.

When pharmaceutical companies announced vaccines showing more than 90% effectiveness, people began talking with optimism about rounding the corner on the global pandemic.

But, with phase one of the national vaccine rollout happening more slowly than predicted and record-setting numbers of new infections being reported across the country, important questions remain about what a post-vaccine world might actually look like:

  • Will the vaccine be a silver bullet for returning to business and life as usual, or will economic disruptions of the past year continue?
  • How long will it take for widespread benefits of the vaccine to be realized?
  • How might the vaccine affect markets in 2021?

As we enter a new year, these and other questions about the path to a post-pandemic recovery are likely to be top-of-mind for you and clients. Here are some things to consider about possible impacts of the vaccine and ways that FundVisualizer can help you explore potential risks in client investments.

A brightening outlook, but risks remain

In its Summary of Economic Projections released in late December, the Federal Reserve brightened its outlook for the U.S. economy in 2021. The Fed raised its forecast for real GDP growth in 2021 to 4.2%, up from 4.0%. The central bank also predicted that unemployment will continue to fall in 2021 to a rate of 5.0%, from an earlier estimate of 5.5%.

Internationally, the World Bank foresees that, after a collapse of 4.3% in 2020, global economic output will expand by 4% in 2021 — still well below pre-pandemic estimates (https://www.worldbank.org/en/publication/global-economic-prospects). But even amid optimism that the economy will begin to bounce back in 2021 as the vaccine rolls out, uncertainties remain about how economic hope will turn into reality.

In its 2021 Global Economic Prospects report, the World Bank raises the prospect of a “lost decade” ahead in global growth, led by concerns about reduced trade and investment from pandemic uncertainties.

Other post-vaccine concerns include:

  • How a slow plan or uneven distribution might disrupt economic recovery
  • How economic powerhouses like the United States, China, and the EU might experience recovery differently
  • How countries and regions that are dependent on travel will recover — and when.

Importantly, there are ongoing questions about what recovery will look like for businesses and workers hardest hit by the pandemic: small businesses, restaurants, hospitality and travel, and other businesses that rely on in–person interaction.

Like the vaccine rollout, these issues are likely to evolve throughout the course of the year.

Use FundVisualizer comparison tool to examine risk

As you consider how the rollout and recovery might be affecting investments, FundVisualizer’s comparison feature can help you examine risk metrics.

FundVisualizer’s explore feature lets you filter through 80 performance and risk metrics including alpha, beta, and upside capture ratio.

Begin by clicking "Compare" and search by fund name or ticker. Select “X/Y” chart to evaluate key risk metrics, including:

Alpha

Alpha measures how a portfolio has outperformed a market index on a risk-adjusted basis. As you consider current risks to an investment, alpha can help you see how a specific fund or portfolio manager has weathered previous periods of market uncertainty.

Beta

Beta measures a fund's sensitivity to market movements and can help you evaluate market-related risk. A beta above 1 indicates a fund might be more volatile than the market, and a beta less than 1 might be less volatile.

Upside capture ratio

Upside capture ratio uses a series of returns to compare how a fund did versus an index in periods when the market had a positive gain. While looking for funds with an upside capture ratio as high as possible — above 100% — you might also consider the measure in context with down capture ratio.

To begin exploring these risk measures, go to FundVisualizer. You can also learn more about these and other features by visiting our video tutorials and other resources.

Disclosures:

Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility of a mutual fund and compares its risk-adjusted performance with a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

Beta is defined as a fund's sensitivity to market movements and is used to evaluate market-related, or systematic, risk. It is a historical measure of the variability of return earned by an investment portfolio. Beta shown is calculated based on a regression of daily returns since fund inception.

Capture ratios are used to evaluate how well an investment manager performed relative to an index during specific periods (periods of positive return in the case of up capture, negative return in the case of down capture). The ratio is calculated by dividing the manager's returns by the returns of the index during the period and multiplying that factor by 100.

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