The trends that have made the best backgrounds of 2021 shine

The year now ending has been marked by a great disparity in the evolution of financial assets. While investment in oil companies or the US stock market has generated returns above 25%, investment in sovereign debt or listed companies in China has caused significant losses.

Manuel Gutiérrez-Mellado, head of BlackRock's institutional business and fund managers in Spain and Portugal, explains the great anomaly that has occurred this year with bonds and shares, and that it could continue in 2022. “In 2021 we have seen how, in general, equities rose and fixed income fell. The same thing happened in 2020. There had never been two consecutive years in this situation in five decades, and next year we could see the same thing, ”he explains.

The explosive cocktail for this result comes from the central banks' attempt to revitalize the economies to emerge from the Covid-19 crisis. The colossal monetary and fiscal policies deployed have encouraged the stock markets, but have contributed to keeping sovereign debt yields frozen or below zero. Nadège Dufossé, head of multi-assets at the manager Candriam (a subsidiary of New York Life, which manages 150,000 million dollars), recalls that almost all sovereign bonds have lost value in 2021. “...German debt, US debt, high-risk corporate debt funds, European corporate debt... It's been a difficult year for fixed income”.

In contrast, investing in stocks has done very well. The stock markets of the United States, France or Switzerland have risen strongly in the year. Also those of India or Vietnam. In general, small and medium-sized European companies have appreciated strongly, as well as oil and gas companies, driven by the sharp increase in the price of these raw materials.

Energy sector

Funds dedicated to investing in the oil and gas industry have been the big winners. This sector, which has been reviled by the boom in sustainable investment, has appreciated strongly as the price of oil and gas soared. The Schroders International Selection Fund, which invests in crude oil producers such as Royal Dutch Shell, BP or Eni, has risen 50% in the year. A similar advance to the BlackRock World Energy Fund (with Exxon, Chevron and Total in portfolio).

On the other hand, the funds dedicated to renewable energies have had a more modest year. After soaring in 2020, due to the strong commitment of the United States and Europe to develop this type of less polluting energy, the industry has experienced a certain normalization in its valuations. The best in the category has been the Pictet Clean Energy, which has rented 18.4% in the year. But there are others who ended up in losses. “We believe that this is not a matter of fashion or strategic investment, the transition to a zero-emissions economy is unstoppable. Many investment opportunities will be created in the companies that are leading this change, ”says Paul Bodnar, head of sustainable investments at BlackRock, in a report.

Emerging countries

Another of the keys to the markets this year has been the collapse of the Chinese stock market. After several years of strong growth, the Asian giant's stock market has given investors a scare. First, because the Chinese government has begun to adopt stricter measures with large corporations, and this has affected large distribution groups, such as Alibaba, or media and social networks, such as Tencent. In addition, the Evergrande real estate company, one of the largest in the country, has been on the verge of defaulting for months, which raises questions about the degree of indebtedness and the reliability of the accounts of large corporations.

Anton Brender is the Chief Economist at Candriam. In his opinion, “the Chinese authorities have decided to bet on a more inclusive, more prudent growth. This may cause the country to grow less in the short term, but in the long term it will be stronger economic growth, which will benefit the world economy.”

Investment funds specializing in China have suffered greatly this year. The fund of the prestigious French boutique Carmignac China New Economy, specialized in the Asian country, has lost 32%, and the UBS China Opportunity, 20%. However, this last vehicle had such a high level of revaluation that its average annual return in the last five years still exceeds 10% (the best Spanish Stock Exchange funds do not reach 8% average annual return in five years).

The great surprise within the emerging countries has been the stock markets of India and Vietnam. The specialized funds Nomura Funds India or Vietnam Equity have returned 44% and 65%, respectively, in the year. The funds dedicated to the Taiwan Stock Exchange have also flown, such as that of JP Morgan, which has risen by 40% in the year.

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Likewise, the funds dedicated to the so-called border countries, those that are developing, but that do not have the size or the economy to be considered emerging countries, have caused a furor. The HSBC Frontier Markets fund has achieved returns of 48% this year by investing in banks in Bahrain, Kazakhstan or Romania. Schroders also has a similar vehicle, which has achieved a return of 38%.

However, the world of emerging countries and frontier countries always implies considerable risks and the stock markets of countries such as Brazil will close the year with significant falls. The best specialized funds in Latin America have only achieved returns of 11%, such as Renta 4 Latin America (but others have lost more than 15%, such as Bestinver or EDM).

small companies

A constant that has been repeated in various stock markets around the world is that small and mid-cap companies have performed well, especially in Europe. There are several Spanish funds specialized in this segment of the market that have had an excellent year. This is the case of the True Value Small Caps, which had increased in value by 39% until December 17. In fact, the vehicle had to close and not accept any more contributions, after having reached its target size. The Magallanes Microcaps fund has returned 43% in that period.

In Japan, the M&G Japan Smaller Companies fund has returned 30%. And in Switzerland, BlackRock's Swiss Small & MidCap Opportunities fund has gained 32%.

In the United States, the S&P 500 index has risen a lot, but above all due to the evolution of the technological giants, such as Alphabet (Google), Nvidia, Apple or Tesla. Small and medium-sized companies, belonging to more diverse sectors, are still affected by some restrictions and inertia caused by the pandemic.

All in all, some investors are convinced that, as the virus recedes, many industries and sectors will normalize their activity and the price of many US companies will recover. “Companies with more cyclical profiles, and The small ones have been doing worse for years than the large and more technological ones in the United States, but in 2022 I think their time will definitely come," says Gerard O'Reilly, director of investments at Dimensional Fund Advisors.

In fact, being a very large universe, some managers have achieved notable returns in 2021, such as the T. Rowe Price US Smaller Companies fund, which has achieved a 20% appreciation, double that of the reference index. The equivalent of Artemis has rented 19%.

quality signatures

In the world of investment there are strong advocates of value investing, a strategy that consists of buying cheap companies that have a hidden value that the market does not perceive. Another strategy is to invest in so-called growth stocks, companies that are in the expansion phase and that are expected to continue to grow strongly in the coming years (such as the big technology companies). However, in recent years, investment in high-quality companies has been consolidating: they are companies that are not cheap, but have demonstrated a sustained ability to generate profits.

This is the policy of Javier Galán, who this year has achieved a 19% return with his Renta 4 Valor Europa fund, or Josep Prats' Abante Global Funds European Quality, with 24% this year. "Investment in quality seeks to invest in the few businesses that escape capital cycles due to their competitive advantages," explains Tomás Maraver, who has just launched the Nartex fund with this approach.