2021 was a strong year for the global equity markets with the U.S. equity markets leading the way; this was mainly driven by strong corporate earnings, fiscal and monetary stimulus, and optimism about the resilience of the global economy. The market did experience headwinds as investors were concerned about the increasing cases of the Omicron variant, which was discovered by scientists in South Africa, and the increase in the Federal Reserve’s asset tapering which will impact all financial assets. However, the market calmed down once it was discovered that even though Omicron was more contagious than Delta, it was less deadly, meaning that economic disruptions will be less.
Overall, for 2021, total-returns for the major indices in USD were up 28.7% for S&P 500, Nasdaq 100 up 27.5%, MSCI World up 22.3% and Russel 2000 up 14.8%. Locally, in rand terms the listed property was the best performer for 2021 with gains of 36.9%, Resources +32.4%, Financials up 27.4, the FTSE/JSE Capped SWIX ALSI Index up 27.1% and Industrials up 24.7%. However, the rand depreciated 8% against the U.S. Dollar and 0.9% against the Euro. For the fund, the best performers were Nvidia which was up 125.5% for the year, Nova Measuring up 107.5% and Straumann Holdings which was up 77.7%.
Covid-19 impacts will continue to an important factor to considering during the year as they form part of the global economic risks. The Fed will remain the center-of-attention for 2022, as they continue with tapering and tightening the monetary policy while ensuring the economy is kept stable for sustainable growth. The market is concerned with the potential of a Fed policy mistake, after the Fed acknowledged that they mischaracterized inflation as just “transitory”. One of the concerns is that the Fed will start tapering too soon; or they may have to reset interest rate expectations higher. The U.S. mid-term elections on 8th November will also be a big factor for 2022 as this will have potential impacts for the U.S. fiscal policies. Therefore, as time nears the market’s focus will shift to this because if Biden loses control of the House or Senate there will be policy uncertainty for the companies and investors. The market is sensitive towards any uncertainty; therefore, we’ll be preparing for volatility in the market. The fund will continue to regularly retest our asset allocation to ensure that our views are reflected.
With rates expected to increase in 2022, valuation multiples will also start playing a bigger role; so, the battle between growth and value can be expected to continue. We’ll continue to be guided by our investment themes and stick with our core stocks. Our core stocks are quality companies with strong margins, pricing power and strong cash flows, this is important as some companies may not be able to sustain their earnings once supply chain challenges are eliminated.