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Quarterly investment review - Q1 2022

By Gavin Haynes
Reading time: 6 minutes

As we go into 2022, we look at how different asset classes and stock markets have been performing, which funds and sectors have been the winners and losers in the last quarter of 2021 and what’s on the mind of some of our fund managers.

As we go into 2022, we look at how different asset classes and stock markets have been performing, which funds and sectors have been the winners and losers in the last quarter of 2021 and what’s on the mind of some of our fund managers.

Asset classes

The final quarter of 2021 provided positive returns from many stock markets as corporate earnings bounced back and profitability boosted investor sentiment. The MSCI World Index posted a quarterly return of 8.4%, which translated to a very healthy annual return of 24.5%.

Stock markets did see a wobble in December as the year ended with a tidal wave of Omicron, reminding us that the COVID-19 pandemic is not yet over. But we have travelled a long way in 12 months. The efficacy and speed with which vaccines have been rolled out has been a game changer and the economic impact of each wave has diminished over time as consumers and businesses have adapted.

However, it was another challenging quarter for bond markets due to concerns over the effect of inflation and rising interest rates. The Bloomberg Global Aggregate index, a widely used benchmark for government and corporate bonds around the world, produced a negative return of -0.9% over the quarter. This translated into -4.9% for the year – the worst year since 19991, with bond yields rising and prices falling as economic conditions improved and we saw inflation levels not experienced for many years.

Commodity markets on the other hand had a good quarter and gold in particular posted a strong return of 3.9%. This was driven by inflationary pressures and a desire for safe haven assets due to Omicron concerns. Yet looking across the year, the precious metal still fell by 4.3% as traditional safe haven assets were shunned in line with improved investor confidence in 2021. Oil continued its stellar run with the Bloomberg WTI Oil Price index rising by 4.4% in the final quarter, posting a remarkable return of 65.3% for 2021. Increased economic activity has seen strong demand with supply chain issues pushing up the price even further.


Global stock market performance has been driven by the exceptional performance of the US stock market over the past quarter. The S&P 500 was the standout developed market (again) rising 10.9% as the technology sector, which is integral to the US benchmark, has continued to rally. In 2021 the US was the strongest performing major stock market posting 28.1%.

Most western developed markets have rallied over the past quarter to complete a good year. European stock market returns have been strong, with the benchmark up 7.0% in the final quarter, resulting in a healthy 23.6% return for the year. The UK stock market wasn’t as strong with the CBOE UK All Share index generating a 3.9% return for the quarter and a total return of 18.3% for 2021. The Japanese stock market trailed other developed markets in the quarter with the TOPIX index falling by -1.7%, but it still generated a double-digit return for the year at 12.4%.

At the other end of the spectrum, China has continued to have a torrid time with a sell-off in in the technology sector, fears over regulation, and the Evergrande crisis resulting in the MSCI China Index falling -7.9% in the in Q4, resulting in a total loss of -23.1% for 2021.

The heavy falls in Chinese markets weighed heavily on both Asian and emerging market benchmarks in 2021. But there was one standout stock market in emerging markets – India, with MSCI India returning 28.4% for 2021, despite a slight fall of -0.1% in the final quarter. It’s easy to forget how badly COVID-19 hit India in the spring, yet now over 800 million vaccine doses have been administered and the economy has bounced back strongly as a result.

Tillit universe

It’s no surprise to see US and technology funds dominating the top of performance tables for Q4, and that was the case for two of the top five funds in the Tillit universe as well. The best performing fund for Q4 was the L&G Global Technology Index, returning 12.1%. This is a low-cost passive fund that tracks the technology sector which benefited from strong returns by US based tech heavyweights. A high weighting in US tech stocks also saw the AB Concentrated US Equity fund as one of the top performers in Q4, returning 9.6% for the period.

In a reversal of the previous quarter, the Jupiter Gold and Silver fund moved from laggard to leader, posting a return of 11.7% in Q4. The strong bounce back was driven by nervousness over Omicron, a weaker US dollar, and inflationary pressures.

Another top performer was Pantheon International, which returned a healthy 11.6% return in Q4. The private equity trust has significant exposure to private technology companies, which have continued to be highly sought after. The performance of this trust has demonstrated how the addition of private companies can benefit a more traditional portfolio.

Finally, Montanaro European Smaller Companies Trust found itself in the top five performers for a second quarter in a row, returning 9.9% in Q4. High quality small-caps have benefitted from the post-pandemic recovery across continental Europe, which has contributed to this trust’s performance during the period.

At the other end of the spectrum, it’s been a difficult quarter for funds investing in Japan with three out of the five worst performing funds for Q4 in the Tillit universe being Japanese equity funds. The Japanese stock market has struggled overall and the weakening yen has compounded the losses for sterling priced funds. The FTF Martin Currie Japan Equity fund has been hit particularly hard, falling by 15.9% in the quarter. It’s preference for small and mid-caps has likely contributed to the poor performance as investors have moved into lower risk assets. A further two Japanese funds were in the bottom performers with GLG Japan Core Alpha and the HSBC Japan Index falling 6.5% and 4.6% respectively in Q4. With valuations now looking very cheap relative to many other developed markets, Japan could prove an interesting contrarian opportunity in 2022.

Baillie Gifford Positive Change and Scottish Mortgage Investment Trust also made the bottom 5 performers in Q4, falling 6.4% and 6.3% respectively. Both have material weightings in healthcare, including biotechnology stocks, which saw significant volatility during the quarter.

Looking ahead

Going into 2022 there are good reasons for why many fund managers we’ve spoken to believe that the backdrop remains supportive for investors. Although economic growth will likely be more subdued after the sharp bounce back in 2021, the economic recovery is forecast to continue. The IMF projects that the global economy will grow at a healthy 4.9% in 2022 (versus the expected 5.9% for 20212).

These projections were made before Omicron took hold, but the latest wave of COVID-19 is likely to delay, rather than destroy consumer and business activity, and the environment is likely to remain positive for corporate earnings and profitability.

Inflation remains a concern and the latest UK CPI reading of 5.1%3 is the highest we’ve seen in a decade. Significant fluctuations in headline inflation are to be expected throughout the year and it’s likely to remain above the levels we have become accustomed to. But if the commodity price rises we have seen recently moderate, this should not be overly concerning for investors. However, one side effect of rising inflation is that bonds and cash are likely to yield significantly below the rate of inflation in 2022. This may encourage investors to favour higher-risk assets if they aim to protect their portfolio from inflation and generate a return in real terms.

There is now more of a consensus that we are entering an environment with rising interest rates. It’s now just a question of by how much and how quickly. Central banks will walk a tight rope between controlling inflation and avoiding aggressive interest rate rises that may derail economic growth in 2022. Many investors are keeping a close eye on Central bank activity and moderate interest rate rises are already priced in some areas of the market.

2021 has been an interesting year and it’s important not to become complacent given the strong recovery we have seen in many parts of the market. Volatility may well increase in 2022 but for long-term investors there appear to be many enticing investment opportunities across global investment markets to explore in 2022.

Sources: FE Analytics (quarterly performance figures for funds and market 30/9/21 to 31/12/21 and annual performance figures for markets 31/12/20 to 31/12/21). Qualitative commentary from Tillit meetings with fund managers.

Date of publication: 7 January 2022

The information in this post is not financial advice, it is provided solely to help you make your own investment decisions. If you are unsure about whether an investment is appropriate for you, please seek professional financial advice. You can find more information here.

When you invest you should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return.

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