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Quarterly investment review - Q4 2021

By Gavin Haynes
Reading time: 5 minutes

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

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

Asset classes

The past quarter has proved more challenging for stock markets as we have started to see bumps in the road of the recovery phase. Ongoing COVID-19 worries, inflationary concerns and turbulence in China has dampened investor enthusiasm. As a result, the MSCI World index generated only a modest 0.6% return but it’s still showing healthy double digit returns year to date.

Bond markets have continued to struggle due to inflationary concerns. 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. With bond yields still low and increasing pressure for interest rate rises, the risk/reward profile has continued to prove unappealing.

In commodity markets, gold had a lacklustre quarter whereas oil continued its stellar run with the Bloomberg WTI Oil Price index rising by 4.6%. Energy price rises are fuelled (pun intended) by a combination of supply constraints and strong demand as economies continue to open up.


Japan was the best performing developed stock market in the quarter with the TOPIX index rallying 5.2%. The recent bounce is being branded as the “Suga rush” on the back of Prime Minister Yoshihide Suga standing down earlier in September. Suga’s handling of COVID-19 had been widely criticised and a change of leadership to new Prime Minister Fumiko Kishida brings hope of a stronger recovery from the pandemic.

The UK stock market also outperformed the global benchmark, with CBOE UK All Companies index generating a 1.9% return in for the quarter. Apart from positive sentiment around a domestic recovery, driven by vaccine rollouts and Brexit resolutions, the UK stock market also happens to be heavily tilted toward cyclical stocks that tend to perform well during economic recovery.

At the other end of the spectrum, Chinese stocks fell significantly in the quarter with the MSCI China index dropping by -18.0%. There has been a raft of bad news hitting the Chinese market with power shortages, concerns over the financial health of property developer Evergrande, and regulatory changes hitting the education sector and large internet companies, spooking investors.

Tillit universe

With US and technology focused funds having dominated the top of performance tables for so long it was interesting to see that it was those investing in Europe and Japan taking three of the top five positions.

Montanaro European Smaller Companies Trust was the top performer in the quarter, driven by stocks benefitting from the post-pandemic recovery across continental Europe. Alquity Indian Subcontinent was another standout performer, supported by a resilient economy and stabilising inflation. Pantheon International investment trust also performed strongly in the quarter. The private equity trust has significant exposure to private technology and healthcare companies, which have continued to perform strongly.

At the other end of the spectrum, it has been a torrid time for China funds in general given the developments discussed earlier. Within the Tillit universe, Fidelity China Special Situations suffered the heaviest fall with gearing and a widening of the discount exacerbating the losses.

Another area that has experienced significant volatility over the summer months is silver, with the price falling to its lowest level in the last 12 months during the quarter. A stronger US dollar, concerns that interest rates could rise sooner than expected, and increasing investor confidence have had a negative impact on the price of silver and a number of mining companies. These developments pushed Jupiter Gold and Silver fund and Invesco Physical Silver ETC into the bottom 5 performers.

Looking ahead

Two themes are at the forefront of many fund managers' minds going into the final quarter of 2021: China and inflation. However, interestingly views on both topics vary significantly.

Whilst some managers worry that the carnage in the Chinese stock market is a sign that China may be uninvestable, others view it as an opportunity to buy stocks now that valuations have become much more attractive.

Inflation is a no less polarising topic. No one is disputing that it is with us in the short-term, but where views diverge is whether it is a short-term phenomenon or a structural change in the economic backdrop. We have heard compelling cases for both sides of the argument and perhaps the only thing that is clear is that the jury is still out. So, it makes sense to have insurance against either scenario in your portfolio. It certainly should not be ignored as some believe that it could be the biggest investment decision point for asset allocation in 20 years.

To finish on a more positive note, the importance of considering sustainability in the investment philosophy and process continues to gather momentum. It is now very rare to speak to a fund manager who doesn’t mention ESG at all. It seems to be moving beyond personal beliefs and becoming part of the fundamentals of investment decision making, in stock and bond markets alike.

Sources: FE Analytics (Quarterly performance figures for funds and market 30/6/21 to 30/9/21), qualitative commentary from Tillit meetings with fund managers.

Date of publication: 11 October 2021

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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