Plan for Performance
Pie Funds CEO Mike Taylor looks back at what worked last year and looks forward to strategies to help your portfolio perform this year.
25 May 2022
The new year is under way, and this is a great time to review your investment goals.
With market volatility still a part of the journey this year, it’s good to remind yourself how to stay rational in times of ups and downs and stay on track with your long-term strategy.
Despite vaccines being deployed globally, 2021 was once again dominated by Covid-19 and its economic effects – inflation, supply chain constraints and labour shortages.
For investors in the 21st century dealing with the second year of a pandemic, the most fruitful strategy was being underweight in bonds and overweight in US mega cap tech stocks, like Tesla and Apple.
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 per cent from their 2020 highs.
So, what will happen in 2022?
What we know
Short-term interest rates have already moved in New Zealand, but still have a way to go in the US.
In New Zealand, two-year rates are over 2 per cent now but the US is still catching up, at around 0.85 per cent in early February.
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 the Omicron strain be the last meaningful Covid variant that effectively ends the pandemic by the end of March and officially (from the World Health Organisation) by June 2022?
Will the Federal Reserve make a policy mistake or manage to thread the needle? The Fed is not the oracle and history shows it is like an amateur rally driver constantly over-correcting.
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 per cent.
Equity performance will be split. US tech will continue its current selloff until valuations become more reasonable. But value, and Covid recovery names linked to services, will do well. Finance and energy should outperform.
At Pie, we have been managing our funds for over a decade and during that time investment markets have navigated all kinds of scenarios, such as the European debt crisis, trade wars and Covid-19, to name a few.
As investment managers, when in work mode we are realists more than optimists. We let the numbers and the data do the talking.
So, what does all this mean for investors? How can you plan for performance in 2022?
Be adaptable, because no two situations are the same. History rhymes, it doesn’t repeat. Have a strategy and a plan.
The start of the new year is a great time to do a review and check everything still aligns, to help you stay on track. Do you have new goals you’d like to achieve this year? What are your short and long-term goals? Are you still on target to meet any current goals?
Enlist a qualified expert to help if you need to
Experts can help get you on track to reach your goals in the first instance. After that, they can provide insights and ongoing support when there’s volatility in your investments. If there’s a market downturn, having an expert on your side can really help.
Be a rational investor
It’s hard to stay calm sometimes if your investments fall. But having a calm, long-term approach to your investment can help you. Stay up to date but avoid getting caught up in attention-grabbing headlines and online speculation. Be prepared for ongoing volatility as the pandemic continues.
Focus on the long term
Be prepared for market highs and lows but remember that investing is for the long term. Ensure your portfolio is diversified and its risk level matches your risk tolerance. Remind yourself of your long-term goals and how your strategy can help you achieve these.
Correct as at 20 January 2022. Mike Taylor is the CEO and Founder of Pie Funds Management Limited. You can view our disclosure documents on the Pie Funds website. For personalised financial advice, please speak to a financial adviser.
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