Risk assets concluded 2021 on a strong note in the fourth quarter, capping an extremely solid and surprising rebound from the depths of COVID. Strong returns from equities more than compensated for the negative returns experienced from the fixed income markets.
Investors continuously shrugged off events that in the past would have been market unfriendly – the continuation of a global pandemic, the emergence of the Delta and Omicron variants, geopolitical tensions around China and Russia, a contested US presidential election, an assault on the Capitol, supply chain disruptions, and the return of high inflation.
The belief that historically high inflation may not be transitory and the resulting hawkish approach by global central banks has led to further increases in bond yields over the first six weeks of 2022 and most equity markets experienced volatility and losses in January.
It is highly likely that at some point in the near future, markets will experience some form of mean reversion. While there are legitimate concerns around the valuation of risk assets, geopolitical issues, COVID, inflation, and interest rates, there are some positives as well, including improving growth in corporate earnings, acceleration in consumer spending, and the impact of recent Government infrastructure programs.
Now more than ever, investors cannot afford to be complacent with respect to their investment portfolio. At Anchor Pacific, we are diligently focused on designing and structuring portfolios to be resilient and perform to meet client goals across a wide range of potential economic outcomes, whether they be higher interest rates, mean-reverting and sideways equity markets, or changes in inflation expectations.
We would like to thank you for your continued support and trust that you have placed upon us in being stewards of your capital.