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Market Update

“Deciding what not to do is as important as deciding what to do” (Steve Jobs)
 
Happy New Year
So we wave goodbye to December and 2021, many with a sense of relief in what has been a challenging year. One area that should have been less challenging was watching your portfolio grow, with developed markets having a very good year, raw data being….
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And on the currencies, a mixed month for the US Dollar but a generally positive year, data being..

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⭐ So where to start when reflecting back at 2021? As with every year, there will be winners and there will be losers. Our job is to maximise the winners and minimise the losers.

⭐ Developed markets were most certainly the winners as illustrated by a 27% increase in the S&P 500, capping a hat trick of very fruitful years for the index which has seen an increase of 72% since January 2019.

⭐ The US was third overall, behind Saudi Arabia with a 39% increase in its market and Vietnam with 33%. The latter great news for many of my friends, readers and colleagues based there.

⭐ On the losers, Turkey -25%, China -23% and Brazil -17% were the markets to avoid.

⭐ We do though always need to scratch the surface on this data which is derived through ETFs. Take the China example, as you can see the Shanghai Exchange had a positive year, albeit with more modest growth than other markets. Yet China as a whole was down heavily.  Much of this can be attributed to the hundreds of billions of dollars wiped off in just three companies. Ali Baba and Tencent suffered with government regulation intervention and Evergrande the property giant struggling to pay its enormous debts. Similar to the S&P now where the powerhouses of Meta Platforms, Tesla, Alphabet, Apple, Microsoft and Amazon count for over a quarter of the market’s capitalisation – gains or falls in the value of these businesses has a wider macro effect.

⭐ Many small to mid cap companies in the Emerging Market space, China included  did grow and funds owned by clients benefitted from this.

⭐ Taiwan, being just 160km from China just missed out on a podium position being the 4th biggest winner, the comparison to its big neighbour being stark. Understanding why this is, the semi conductor business,  which will continue to thrive as global demand increases and this one country is responsible for 63% of the supply.

⭐ Moving away from geographical analysis and onto sector performance, Energy +54%, Real Estate +44% and Technology +36% were the sectors where you got the most bang for your buck in 21. Regular readers will know that Energy and Real Estate are not in my favoured sectors and perhaps clients have missed out here given their performance. Perhaps yes, but when looking at the three year return on Energy you would be flat as it is so volatile. Whilst Consumer Staples, a favoured sector of mine may have looked a relatively poor performer at 16% compared to those mentioned above, take its three year performance at 50%, that’s 50% better than Energy. Understanding these numbers is key to getting it right.

⭐ So all of these gains have been and gone, you either made them or you didn’t and of course the question on everyone’s lips is where will we see growth in 2022 and where do you position yourself to get this growth?

⭐ Many analysts are bullish on Technology, over time this sector remains the stand out performer for consistency despite many value investors seeing it over priced. Companies with a focus on more innovative technologies such as Metaverse and Internet of Things  (“IOT”) will be the winners for me.

⭐ IOT has been talked about for many years, without quite establishing itself in our lives, perhaps now is the time for it to do so.

⭐ Blockchain technology will also have its part to play in this “Next Generation” technology so looking for opportunities here will be fruitful.

⭐ Ethical, Social and Governance (ESG) , in particular Renewable Energy is an area which has to benefit from the big commitments being made by governments globally as they tackle climate change. I’ve been investing here for around two years now and whilst some dismiss it as a fad and accuse of jumping on the bandwagon, I strongly believe having your hard earned cash invested the right areas in the ESG space will get you better returns.

⭐ It’s very important when looking at this sector to once again look in more detail. “Green Washing” is a term which is often used now as many funds and ETFs meet certain ESG guidelines but by no means do they own companies where Green is a key driver. An example o of this is the “IShares MSCI ESG” – an ETF no doubt owned by many in pensions etc and popular choice for the passive fans

⭐ Four out of the five largest holdings are these mentioned above re S&P and the fifth largest is Home Depot. Unsurprisingly the performance of this fund has pretty much matched the S&P. No one would be unhappy with 27% and owning S&P tracker is a good idea, just don’t be fooled by the ESG tag if you are looking to put your money into genuine game changers in the climate change fight.

⭐ So I hope that 2022 is a successful year for you all. No one has all the answers, no one can tell you with certainty what the markets will do in the next day, month, year but having conviction in businesses, areas and sectors with strong fundamentals will in the long term serve you well. 

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