Investment Review of 2021

Date posted: 26th Jan 2022

2021 continued to be dominated by COVID-19 however, on a positive note over seven billion COVID-19 vaccines were administered worldwide over 2021, helping life to return to a semblance of normality.[1]

In the final quarter of the year equities continued to edge higher. As ever this was not without volatility, with the impact of the Omicron COVID variant challenging the narrative of global economic recovery. We remain cautiously optimistic on the outlook and, whilst it is clear that investors are still sensitive to alarming COVID-19 news, the rapid recovery proved that the equity markets remain robust.

Global equities returned an impressive 20.14% in sterling terms over the year.[2] The global economic recovery fuelled equity market returns as companies proved resilient and posted strong earnings growth despite the pandemic lingering on. The US market outperformed global peers increasing 28.1% (total return in GBP terms) boosted by fiscal stimulus passed by Joe Biden’s new administration and scaled back COVID restrictions. Investor confidence continued to increase as the US equity market made 70 new all-time highs throughout the year, the most since 1995.[3] However, these price surges were mostly dominated by the mega caps (Apple, Microsoft, Amazon, Tesla, Alphabet and Meta Platforms, previously known as Facebook). These six companies contributed to 35% of US equity returns for 2021.[4] Staggeringly, Elon Musk gained more wealth in 2021 than Warren Buffet has over his lifetime!

However, economic recovery also saw inflation return to the headlines, pushed upwards by accommodative policy and pent-up demand at a time when global supply chain issues and labour markets became stretched. Consumer price inflation hit multi-decade highs in the US and Eurozone, plus its highest level since 2011 in the UK.

For your reference, we detail here the total returns (in GBP terms) for a range of asset classes over various time periods as at 31st December 2021[5]:

Index
1 Month
3 Months
6 Months
1 Year
3 Year
5 Year
MSCI United Kingdom 4.81% 5.15% 7.42% 19.63% 20.93% 23.33%
MSCI AC World 1.62% 6.29% 7.86% 20.14% 66.46% 83.29%
MSCI AC World ex UK 1.50% 6.33% 7.88% 20.15% 68.88% 86.81%
MSCI USA 1.54% 9.59% 12.74% 28.14% 90.76% 115.46%
MSCI Japan -0.45% -4.37% 2.58% 2.98% 32.38% 39.67%
MSCI AC Asia ex JP -0.95% -1.63% -8.52% -3.58% 33.47% 58.01%
MSCI EM (Emerging Markets) -0.44% -1.69% -7.30% -1.32% 29.73% 48.69%
iBoxx Sterling Gilts -2.64% 2.51% 0.54% -5.21% 10.52% 13.38%
iBoxx Sterling Non-Gilts -1.19% 0.34% -0.64% -3.09% 14.15% 17.28%
iBoxx Sterling Sovereigns -0.39% -0.09% -0.35% -0.83% 23.14% 27.50%

[1] Refinitiv Datastream, data as at 4 January 2022

[1] Refinitiv Datastream, data as at 4 January 2022

[1] Forbes, “2021 stock market year in review”, data as at 3 January 2022

[1] Refinitiv Datastream, data as at 4 January 2022

[1] Factset January 2022

Relative to other equity regions the UK performed well returning 18.7% for the year.[6] The effective COVID vaccination programme in the first half of 2021 helped boost UK equities as restrictions were eased earlier than other countries. Asia ex Japan lagged other markets declining 3.6% for the year.[7] The region was dragged lower owing to the underperformance of China’s equities due to the regulatory crackdown on targeted sectors. Emerging markets outside of Asia consequently struggled throughout the year. A sustained economic recovery was held back by continued surges of COVID cases and the relatively slow vaccine rollout.

On balance, we expect the fundamental tailwind of above average global GDP growth (predicted by the IMF to be 4.9% in 2022), supported by expectations of continued reopening, should mitigate headwinds to drive equities up.[8] Developed economies are showing their robustness in the face of the new variant despite new restrictions which hinder growth to varying extents. Equity markets continue to show their strength and we remain optimistic that they will maintain the upward trend in the coming year. Hopefully the worst of COVID-19 has also passed as an ever-greater proportion of the world population is vaccinated. Risks remain, in particular that of ‘stickier’ inflation and associated monetary policy error, but we remain optimistic that equities will continue their long-term run of performance, as they have a healthy shift to being driven more by fundamentals than policy.

[1] Refinitiv Datastream, data as at 4 January 2022

[2] Refinitiv Datastream, data as at 4 January 2022

[3] Forbes, “2021 stock market year in review”, data as at 3 January 2022

[4] Refinitiv Datastream, data as at 4 January 2022

[5] Factset January 2022

[6] Refinitiv Datastream, data as at 4 January 2022

[7] Refinitiv Datastream, data as at 4 January 2022

[8] Refinitiv Datastream, data as at 4 January 2022

 

 

This blog has been produced by Matthew Burgess, Investment Manager

Email: Matthew.Burgess@tilney.co.uk

For further information about us go to www.tilney.co.uk

Issued by Tilney Investment Management Services Ltd, authorised and regulated by the Financial Conduct Authority. Investments go down as well as up and you may not get back the amount originally invested. Past performance is not an indication of future performance. This article is not a recommendation to take or refrain from taking any course of action. It is based on our opinions which may change If you are in doubt as to the suitability of an investment please contact one of our advisers.


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