Q4 2021 Capital Markets – Recap

Hello All,

The last time you saw portfolio performance over a 12-month period as positive as we did in 2021, was coming out of the trough period in March 2009, after the global financial crisis. 2021 was the best equity market we have seen in over a decade!

Most major global equity indices posted very strong 2021 returns:

Sources: Sun Life Global Investments – insights and commentary for Q4 2021

In our portfolios we have only seen one negative calendar year since March 2009, which was the calendar year of 2018. That 12-month period had a drawdown of ~ – 3% to – 6% Said differently, there was only one negative portfolio year over the prior decade (2011-2021). Historically speaking, significant bear markets happen more frequently and are often much deeper in nature.

With most things in life, we tend to expect more of the same, once we have become accustomed to a similar outcome year over year. This also includes expected portfolio returns. After achieving a positive return 90% of the time over the last decade, it is human nature to expect a similar outcome for the next period. However, global equity markets are neither that predictable, nor that simple. Large, well-funded, quality stocks do not grow at 20-25% rates year over year as they did in 2021.

When using a long-term investment time frame to assess portfolios (10-year economic cycle) you average:

• 6 years of returns that align with the long-term portfolio risk. These are the years you are indifferent, neither concerned nor excited.
• 2 years of significant outperformance. These years you are in the excited phase.
• 2 years of significant underperformance. These years you wonder what Christian is doing to stop the bleeding.

We do not know in what order these returns will occur and neither does anyone else for that matter. In times like these, it’s normal to be worried. There are currently a lot of unknowns around the spread of the virus, and the potential long-term effects on the economy. We do not know exactly how inflation will play into portfolios or if the central banks will follow their rate increase plans. In times of stress, it is always a good plan to stick to the basics. Knee jerk reactions tend to have more negative effects than positive over the long run. Unexpected shocks can push investors to trade more actively around news flow and emotion, often at their own peril.

A long-range and well-diversified strategy, the kind that we’ve built together, is the best way to help meet your long-term goals. Your portfolios were structured in preparation for turbulent times. If you would like to discuss recent events or have any questions, please let me know. It is business as usual for us. We are open, meeting clients face to face if they choose, over the phone or virtually. We are here to serve your portfolio and financial planning needs.

If you would like to connect for a full review or a quick call to discuss your financial plans, you can reach Sum, Kayla or myself anytime. You can also schedule a convenient time directly in my calendar using our online meeting scheduling tool.

Kind Regards,

Christian

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