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Foster Denovo|News & blogs|News|Market Briefing (no.42) – 13th December 2021

Market Briefing (no.42) – 13th December 2021

We will look back on 2021 as a year of recovery and subsequent retrenchment in terms of the pandemic and its effect on all aspects of our lives including economies and global investment markets.

Covid 19 continued to dominate the news, but differently from the majority of 2020. Events on 8th December 2020 in a Coventry hospital provided a positive outlook when Margaret Keenan became the first patient to receive the vaccine ‘jab’ into her arm.

As the year progressed all four UK nations have managed to roll out the first two vaccine jabs with exemplary speed, with the third booster jab now following quickly to top up immunity levels, as well as to combat the recently discovered Omicron variant. The coming weeks will tell how effective this strategy has been.

Afghanistan saw US, UK and other Western troops withdraw at the beginning of August to leave the Taliban regime to take over. Whatever your political views, the loss of Afghan life was, and is, an ongoing tragedy.

And the year drew to a close with the UN COP26 in Glasgow achieving some of its aims in attempting to mitigate climate disaster over the coming years and for future generations.

On a sporting front, three events delayed from 2020 took place inOlympics 2021; the Tokyo Olympics, Football’s Euro 2020 and Golf’s Ryder Cup matches. 2021 saw a historic Test Series between the British & Irish Lions and South African Springboks with no fans present. All events served to distract sporting lovers from the tedium of pandemic soaked news.

Equity markets continued to recover from their Spring 2020 falls but towards the end of 2021 saw renewed anxiety and volatility due to the uncertainty of the impact of the latest Covid variant.

Source: FE Fundinfo (1)

A patchwork of performance

As we approach the end of another year, focus begins to turn towards the next one. So how have different markets in terms of geographies, styles and investment philosophies performed over the last decade or so?

As the graph shows – which covers the period 30.11.11 to

30.11.21 – the US market dominates as a country or region in returns. But is this the case every year?

Looking back over the last decade, plus 2021 up to the end of last month, an analysis year on year

– known as discrete performance – is enlightening.

A patchwork quilt – geographies

Showing total return performance for some of the main global geographical equity sectors, the US appears top in six of the eleven years covered below, including up to the end of November this year…

Table

Source: FE Fundinfo (1). All indices are total return. Past performance is not a reliable indicator of current and future results. Data as of 30th November 2021.

… and in three of the remaining five years, in second place.

Asia (excluding Japan) shows inconsistency by appearing at the top in three years and either second from bottom or bottom in five of the years.

Moving to Japan, ‘mid table mediocrity’ appears to be the story appearing either third or fourth in eight of the eleven years with one top spot in 2015.

Emerging markets, so often the most volatile sector, appears in all positions except fourth, so doesn’t disappoint in this regard, with one top spot in 2016.

Moving across to Europe, a mixed bag by appearing at least once in all but the top spot with three second positions and three bottom positions.

And back here in the UK? A picture paints a thousand words, and it certainly does when we look at the UK. Although only one appearance at the bottom (2020), there are no top spots, disappointingly, appearing either in fourth or fifth in six of the eleven years. Last year’s bottom finish, however, has improved this year, with a second place so far, the first since 2011.

A patchwork quilt – assets and investment philosophies

Except for Value investing, each asset type or investment philosophy appears in the top spot at least once, with Growth investing appearing four times out of the eleven years considered. Growth investing’s excellent returns continue with only one finishing (2016) outside the top three.

Source: FE Fundinfo (1). All indices are total return, except for ‘Global Agg’ (2) which is an index of aggregate investment grade fixed interest securities (bonds). Past performance is not a reliable indicator of current and future results. Data as of 30th November 2021.

Property – with three appearances and second only to Growth in the number of top spot finishes – appears three times in second place, evidencing consistent returns.

Small Cap (small market capitalisation) returns a ‘mixed bag’ by appearing in all positions at least once, including five second finishes and one top spot.

Turning to Growth’s most obvious alternative, Value investing, mid table consistency is the message, appearing either third or fourth in ten of the eleven years.

And finally, both Commodities and Global Agg (Bonds) in the main languish at the bottom with Commodities and Global Agg both appearing five times.

What should this tell you?

Remembering that ‘past performance is no guide to future returns, no matter what annual statistics show, from an investment perspective, investors should ignore short-term durations.

Focus should be on ‘smart diversification’. In other words, investing should be across different asset types, such as bonds as well as equities and across geographical jurisdictions, so they are not confined to one or two countries or regions. It should also involve investing across investment styles, that should include active management and index/passive investing, and across different investment philosophies that includes growth and value.

Although ‘smart diversification’ doesn’t guarantee performance in any way, and does not eliminate risk completely, having a diversified portfolio across asset types, geographical jurisdictions, investment styles and philosophies can help investors minimise their risks.

It is also important to remember that it is often the case that investors have a long-term investment time horizon. So, although ‘smart diversification’ does not guarantee against loss, it will likely help with the most important component of reaching long-range financial goals whilst minimising risk.

As we have said many times before, we will continue to monitor the current financial situation and keep you notified of any significant changes that are made. Please contact your Foster Denovo Partner if you wish to discuss your financial situation further.

At times like these, it is even more important that you are taking advice on your finances by a qualified and experienced financial planner. If you think any of your friends, family or colleagues would benefit from speaking to us, especially in the current situation, then please introduce them to your Foster Denovo Partner who would be happy to help.

This week in history …

13th December 2003:  Former Iraqi President Saddam Hussein is captured near his home town of Tikrit, during Operation Red Dawn by US forces (3)

14th December 1911:  Norwegian Roald Amundsen’s expedition is the first to reach the South Pole (3)

15th December 1944: Bandleader Major Glenn Miller, lost over the English Channel (3)

16th December 1921: The Anglo-Irish Treaty, agreed to by the British Parliament and Sinn Féin, is ratified (3)

17th December 1538:   Pope Paul II excommunicates King Henry VIII (3)

18th December 1969: House of Lords votes to abolish the death penalty in England, Wales and Scotland (Northern Ireland 25th July 1973) (3)

19th December 1843:   “A Christmas Carol” by Charles Dickens is published, 6,000 copies sold (3)

20th December 1955 : Cardiff is proclaimed the capital city of Wales (3)

Sources

  • FE Fundinfo
  • Bloomberg Barclays Global Aggregate
  • https://onthisday.com
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