Welcome back! After another year suffering multiple lockdowns it was great to have some freedom and enjoy some fantastic summer weather. Two of Pie’s international employees contracted Covid-19 (Omicron variant) over the break, but I’m pleased to say both have recovered after having just mild symptoms. They were double vaxxed.
2021 was an outstanding year for a couple of our funds, namely the Pie Australasian Dividend Growth Fund which took out the award for Australasian Equities Fund of the Year by Research IP. It returned 36.3% YTD to 31 December. Performance here was driven by a diverse range of holdings and some adroit stock calls by Portfolio Manager Mike Ross. Pie Global Growth and Pie UK & Europe funds are also worthy of mention, up 21.9% & 20.8% respectively YTD to 31 December. Our funds exposed to pure growth in Australasia struggled with a 4th quarter sell-off in tech which was quite brutal and eroded most of their gains for 2021.
So, what worked in 2021?
Despite vaccines being deployed globally, the year was once again dominated by Covid and the economic effects – inflation, supply chain constraints and labour shortages (which unsurprisingly are some of the same challenges that faced Europe after the Black Death in the 1300s). For investors in the 21st century dealing with the second year of a pandemic, being underweight bonds and overweight US mega cap tech stocks, like Tesla and Apple, was the most fruitful.
And what didn’t work?
Any exposure to Asian equities, particularly Chinese stocks; trying to time the market around Covid news; and sticking with some of the 2020 Covid winners, especially hardware beneficiaries like Peloton or JB HiFi. Also, after September high growth tech companies like Salesforce, Afterpay, Square or Docusign – many of which have fallen 50% from their 2020 highs.
What’s the plan for 2022?
What we know. Short-term interest rates have already moved in NZ, but still have a way to go in the US. In NZ, 2-year rates are over 2% now but the US is still catching up, being around 0.85% at the time of writing. Tech valuations will likely continue to struggle under a rising rate environment. Cryptocurrency will again be volatile and provide plenty of headline grabbing opportunities. The Dow Jones will probably outperform the Nasdaq.
What we don’t know? How far can US (and global) interest rates go before the pain kicks in? Will Omicron be the last meaningful Covid variant that effectively ends the pandemic by the end of March and officially (from WHO) by June 2022? Will the Federal Reserve make a policy mistake or manage to thread the needle? They are not the oracle and history shows they are like an amateur rally driver constantly over-correcting.
What do I think will work in 2022?
My view for 2022 is that US tech will struggle with Fed policy and rates normalisation, but will present trading opportunities for specific stocks that get thrown out with the bathwater. Commodities will stay strong and oil will break US$100 a barrel as we recover from Covid. I remain an oil bull because I think the compound effect of a lack of exploration investment in the last five years, Covid recovery, and a slow switch to alternative energy could drive oil prices significantly higher, until they reach a price point which forces change. Inflation will come off its high but remain above 2%.
Equity performance will be split. US tech continues its current sell-off until valuations become more reasonable. But value, and Covid recovery names linked to services, will do well. Finance and energy should outperform.
As usual, Pie will navigate the shifting sands of the investment world, always striving towards our mission – outperformance and outstanding client service to provide a premium investor experience.
Thank you again for your support. If you have any questions please don’t hesitate to call me on (09) 486 1701, or email me, [email protected]
Mike Taylor, Founder and CEO
Information is current as at 31 December 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.