Quarterly investment update - December 2021
Daniel Selioutine - 14 Jan 2022
Daniel Selioutine, Head of Investments, provides economic and market commentary for the October to December 2021 period.
The final quarter of 2021 saw equity markets deliver strong positive returns as companies reported higher than expected earnings growth.
Overview
Although the emergence of the highly infectious Omicron COVID-19 variant led to heightened market volatility, investor concerns were partly allayed as health authorities indicated the variant posed a lower risk of severe illness than the prevailing Delta variant.
Global mass vaccination efforts continue to be underway as countries race to inoculate their populations. As at 10 January 2022, more than 9.4 billion doses have been administered across 184 countries (equivalent to approximately 50% global population being fully vaccinated).
While the threat of Omicron has slightly dampened the global economic recovery, overall economic sentiment remains resilient and positive. Most advanced economies are on track to return to their pre-pandemic levels of output. The Purchasing Managers' Index in the United States (US), United Kingdom (UK) and Eurozone remains above 50 points, indicating a healthy expansion in manufacturing activity. Global unemployment rates have also largely declined with the US unemployment rate at its lowest since the beginning of the pandemic in early 2020.
Equity markets remain vigilant as global central banks announce gradual tapering of monetary support as ongoing supply chain constraints, elevated household savings and tightening labour market conditions fuel further inflationary pressures. In the UK, the Bank of England responded to persistently high inflation figures by raising interest rates from 0.10% p.a. to 0.25% p.a. in December 2021. The Reserve Bank of Australia (RBA) also acknowledged strong domestic economic recovery, albeit decided to maintain the cash rate at 0.10%, citing relatively lower levels of inflation than other countries.
Market performance
2021 proved to be stellar year for global equity markets, which remained resilient in the December quarter despite concerns over the new Omicron variant. The ASX 300 returned 17.5% (AUD) for the year ending December, with most of the final quarter's gains coming from cyclical sectors such as Materials, Utilities and Real Estate. The FTSE 100 and S&P 500 also delivered strong positive returns of 18.4% (GBP) and 28.7% (USD) respectively over the same period.
Although bonds generated very low positive returns for the quarter, the global bond index finished the year weaker, detracting -1.5% over 2021. Australian cash delivered only 0.03% for the year and cash returns are expected to remain low while the RBA maintains its accommodative monetary policy.
Accumulation Plan performance
The Accumulation Plan performed strongly in the three years to 31 December 2021, with all investment options outperforming their investment objectives.
Cash* |
0.8 |
0.6 |
Defensive |
2.9 |
1.8 |
Conservative |
4.9 |
2.8 |
Balanced |
7.3 |
3.8 |
Growth |
9.3 |
4.8 |
Ethically Minded |
11.6 |
4.8 |
Basic Growth |
12.2 |
4.8 |
High Growth |
12.4 |
5.8 |
Shares Only |
15.4 |
5.8 |