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2021 – a year of recovery and awakening

Although 2021 marked a further year of uncertainty there were definite signs of a return to a more normal life following the onset of the COVID-19 pandemic in 2020. Stock markets continued to climb higher (and showed, yet again, there just ain’t no crystal ball when it comes to investing!), whilst here at Brett Investment we cut the carbon footprint of your portfolios by investing your money more sustainably.

Coming out of a volatile 2020, investors perhaps understandably were nervous not knowing which way the global economy was headed.

You might recall that with vaccines  coming on stream and lockdowns being eased we saw an economic rebound, but with the emergence of new variants more uncertainty abounded.

Despite these challenges, the world’s economy grew, and global stock markets responded in kind.

Value stocks

Value stocks, or those with lower relative prices, began the year strong as the economy reopened and interest rates were rising.

This trend has continued into 2022 with Dimensional’s UK Value fund (at the time of writing) up by 8% (for context, over the same period, the S&P 500 Index is down by 7.5% – source Yahoo finance).

Looking back value stocks have generally outperformed growth stocks over the longer term – and we know that on average this outperformance has been between 2% and 3% pa* so it worthwhile holding that bit extra, as we do, in your portfolio. Be aware though that this value outperformance doesn’t always happen through every time period – it instead tends to come in, unpredictable,  periodic spurts – so maintaining a disciplined exposure to value, through all time periods, is a big part of our investment strategy.

*source Dimensional

Going Green!

2021 marked our shift towards investing more sustainably with nearly every single client shifting towards our low carbon portfolio.

Investing this way has cut the carbon footprint of our typical portfolio by 25% (source: Dimensional). Looking ahead we anticipate reducing our carbon footprint even further as new sustainable evidence-based investment vehicles (funds) come on stream.

Winners and Losers in 2021

Since 2015 we have captured for you the kaleidoscope of investment returns (see table below). By now you will see that no two years are the same and this is why we use what we call a BUY and HOLD strategy. Interestingly (and this trend seems to happen often) the bottom performers have turned into this year’s best performers!

BUY and HOLD by the way means that we never try and chase returns and we never invest in the latest investment fad (Bitcoin for example!).

Instead our approach is based on evidence and discipline and could in fact be described as being quite DULL – but do you know what history is on our side and tells us that it works… and over time it works very profitably.

The Kaleidoscope of returns from 2015 to 2021

*since its inception on 26th June 2013 the DFA Global Sustainability Core Equity Fund has delivered an annualised return of 13.44% (as at 31.12.2021)
**since its inception on 17th December 2019 the DFA Global Sustainability Fixed Income Fund has delivered an annualised return of 1.85% (as at 31.12.2021)

Sticking with Your Plan

So lastly, one final point. When markets reach record highs (as the S & P 500 has done towards the end of 2021) there is often a tendency that this is a signal that stocks are overvalued or have approached a ceiling.

However, you may be surprised to find that the average returns for the one, three, and five year periods after a new month-end market high are similar to the average returns for ANY one, three, or five-year period.

Shares, at any time, are priced to deliver a positive expected return for investors, so reaching record highs regularly is the outcome one would expect.

This is a good reminder of the power of markets. Investors can’t predict the nature or timing of the next crisis, or the end of any existing ones. But markets are forward-looking and reflect optimism. New challenges will await, but rather than guessing at what will happen, you as an investor can choose to trust markets and their long-term prospects.

The year 2021 was one that emphasised the benefits of discipline and diversification in a market that was uncertain (like markets in all the years before it).

Now as we enter 2022, the lessons learnt from the past (coupled with the impact we/you are now having on the planet’s future) can leave us not only feeling optimistic for ourselves but also for the future of Planet Earth too!

Sources – Dimensional Fund Advisers / Vanguard / Yahoo Finance

This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.

It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. There is no guarantee strategies will be successful. Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful. Diversification neither assures a profit nor guarantees against loss in a declining market.

Errors and omissions excepted.