2021 Performance: A Year in Review

By admin_45 in Blog

For “Data” today we have a 2021 year-end rap up of global equity performance as well as a reminder of what we like going into 2022. All returns are price-only (no dividends) and dollar-based.

Starting off with whole-world, regional and US major markets:

• MSCI All-World Equity Index: +16.6 percent
• MSCI All-World ex-US Equity Index: +4.8 pct

• S&P 500: +26.9 percent
• Russell 2000: +13.7 pct
• NASDAQ Composite: +21.4 pct
• NASDAQ 100 (the QQQs): +26.8 pct

• MSCI EAFE (non-US developed economies): +7.8 percent
• MSCI Europe: +13.4 pct
• MSCI Emerging Markets: -5.5 pct

Comment: returns were all over the map (literally and figuratively) last year. US large caps led, Emerging Markets brought up the rear, and everything else was in the middle. We continue to favor US large caps for their best-in-class earnings leverage and exposure to a still-growing US economy.

Moving on now to individual country returns, clustered by major developed/emerging markets and ordered best to worst:

• S&P 500: +26.9 percent
• MSCI Switzerland: +18.0 pct
• MSCI France: +16.9 pct
• MSCI United Kingdom: +13.1 pct
• MSCI Australia: +3.7 pct
• MSCI Germany: +3.2 pct
• MSCI Japan: -0.9 pct

• MSCI Taiwan: +25.5 percent MSCI Russia: +14.9 pct
• MSCI India: +14.0 pct
• MSCI South Korea: -9.5 pct
• MSCI China: -22.5 pct
• MSCI Brazil: -24.3 pct

Comment: US large caps beat every major global equity market, developed or emerging, last year. China, which even after its 2021 drubbing is still 32 percent of MSCI Emerging Markets, was the most important laggard in terms of its effect on global equity returns. We continue to like the UK for its exposure to Financials and Energy and still believe an “anything but China” approach to Emerging Markets will outperform MSCI EM overall.

Now, here are US large cap sector returns, ordered by best to worst 2021 returns:

• Energy: +46.4 percent
• Real Estate: +41.7 pct
• Financials: +32.5 pct
• Technology: +33.7 pct
• Consumer Discretionary: +27.6 pct
• S&P 500: +26.9 percent

• Materials: +25.2 percent
• Health Care: +24.2 pct
• Industrials: +19.5 pct
• Communication Services: +15.2 pct
• Consumer Staples: +14.3 pct
• Utilities: +14.2 pct

Comment: 2021 was a classic cyclical recovery market in US large caps, with Energy, Real Estate and Financials leading the way and “safe” sectors like Staples and Utilities at the bottom of the stack. Technology, because of its weighting (29 percent at the end of the year), was a major contributor to the index’s return as well. We still like Energy and Financials going into 2022, as well as Health Care for a defensive sector pick. We would still underweight Staples and Utilities.

Finally, here is how US Growth/Value styles performed in 2021:

• Large Cap Growth: +31.1 percent
• Large Cap Value: +22.4 percent

• Small Cap (Russell 2000) Growth: +2.2 percent
• Small Cap (Russell 2000) Value: +26.0 percent

Comment: small cap Growth was the only truly disappointing strategy in 2021, largely due its overweight in Health Care. This sector was by far the worst performing small cap group last year (S&P Small Cap Health Care only +5.8 percent) and represents 26 percent of Growth but just 10 percent of Value. We do not, as a rule, recommend investing based on Growth or Value criteria but rather prefer to look for sectors we believe have incremental earnings leverage based on where we are in a given investment cycle.

Final thought: the performance difference between US large caps and everything else last year is simply remarkable. The worst group in the S&P 500 (Utilities, +14.2 pct) still did better than the Russell, MSCI Europe, and all but 2 large EM markets. We doubt such a gap is repeatable in 2022 if overall returns are lower (as we expect).