Market commentary: Dec 2021

Portfolio returns

Shares continue to drive returns in client portfolios with international shares doing most of the work pushed along by the US share market (which is 56% of global markets). Prices for the 5 largest companies on the US market (Apple, Microsoft, Google, Amazon, and Facebook) increased by a whopping average of 38% over the year. The returns on fixed interest investments are slightly negative for the year as the market value of bonds has fallen over the last few months overwhelming returns from interest. Investors have priced in expected interest rate increases. As the direction of interest rates becomes clearer positive returns will resume - albeit at low levels.

Strategy for 2022

Our view is that the coming 12 months could see either further gains or a major correction. If you hear investors expressing strong opinions at the moment, it probably means they are either in ‘marketing mode’ or they are unaware of today’s complexities. Issues that are influencing market direction are the uncertainty around Omicron on public health and the economy, high rates of inflation and possible interest rate increases, and global supply constraints. It’s anyone’s guess which way markets will go in 2022. The best strategy – as always – is to approach investing with a medium to long term outlook and invest in high-quality companies with enduring competitive advantage.

A good investment while doing good

Xcel Energy, a US electricity and gas utility leading the drive against climate change, has declared it will provide 100% carbon-free electricity by 2050. By the end of 2020 about 47% of the energy Xcel Energy produced came from carbon-free sources (mainly wind) and the company intends to increase that to 80% by 2030.

Xcel Energy is included in our portfolios via the Magellan Global Fund and is a promising investment because it’s a quality company now backed by a regulatory regime that encourages capital investment that alleviates damage from climate change. Company climate goals are driven by financial self-interest that aligns with society’s desire to mitigate global warming. As with all investments there are risks but weighing up the pros and cons indicates Xcel Energy will stay a good investment while doing good.

Richard Grimes, Director and Financial Adviser