Markets in a nutshell — December 2021
Global equities were buoyed by signs that the highly transmissible Omicron COVID-19 variant appears to be substantially less virulent than previous variants. Optimistic investors rotated back into more cyclical European markets, despite lockdowns across several EU countries while the tech-heavy US market underperformed.
Emerging markets also rose but fared worse than their developed market peers as continued regulatory pressure and property developer worries weighed on Chinese bourses. Energy-centric Russian markets also declined, despite a sharp increase in the dollar oil price.
Interestingly, the US 10-year bond yield was little changed despite indication from Fed Chairman Powell that retraction of current policy stimulus would happen faster than expected. An acknowledgement that inflation is likely to be more persistent than previously thought (the Fed dropped the much talked about word “transitory” from its communication) also had little impact on bond yields.
Industrial commodities copper, iron ore and oil rebounded as investors re-engaged with economically-sensitive cyclical commodities. Precious metals, silver and gold, also rose, with negative real interest rates decreasing the opportunity cost and increasing the attraction of holding them as an alternative store of value.
Foreign assets contributed positively to the Foord multi-asset funds’ returns on rising markets and a slightly weaker rand. The global equity allocation underperformed the benchmark index, with holdings in Chinese tech names more than offsetting the positive contributions from companies in the materials sector. The managers continue to have high conviction in select foreign equities with pricing power, combined with derivative-based market protection on the relatively expensive US S&P 500 index.
The FTSE/JSE Capped All Share Index rose on broad based strength with resources, industrials and financials all stronger into the year end. The relatively limited domestic economic impact of the Omicron variant provided some support. Fund returns were bolstered by core holdings in FirstRand, BHP Group and Annheuser-Busch InBev. Aspen pharmaceuticals was the only significant detractor on some consolidation following several months of strong price appreciation.
The All Bond Index gained on lower bond yields with holdings in the medium-term 7–12 year sector contributing the most. South African government bonds continue to offer relatively attractive real yields at comparatively low risk, in addition to balancing the meaningful allocation to international companies.
The rand weakened in line with the weaker global emerging market sentiment. The longer term fundamentals for the currency are poor.
The Foord multi-asset funds have not performed as well as their respective peer groups in 2021, but have delivered meaningful, inflation-beating returns for investors, which is our primary objective. Given the funds’ strategic priority to protect against mounting risks to the downside, the returns for the year are within expectation. The long-term compounding effects of protecting capital through periods of market volatility (most recently demonstrated in 2020) should keep Foord investors’ returns at the top of the relative performance tables in the fullness of time.
The funds are exceptionally well positioned for the uncertainties and opportunities that lie ahead.