Investment Trends and 2021 Review

“You don’t have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long time”, Charlie Munger

As we start a new year, it is a great time for us to look back at our investment journey in 2021 and also recap the new financial options which emerged last year. This will help us plan our investment journey going forward.

Asset class returns in 2021

2021 saw a divergence in returns across asset classes. We saw stocks/equities (Indian and international) outperform while Gold and fixed income had poor returns

• Very strong India Equity Returns – Investors saw great returns with large caps giving >20% returns, while mid and small caps saw returns between 40 to 60%.
  * 2021 was the sixth year in a row, when the Nifty delivered positive returns. 2011 which was the last time when we had a drop of 25%. We have had two very strong years of returns for mid and small caps, which traditionally are volatile
• Positive International Equity Returns – International equities continued to have a strong year, led by US Equities. Returns exceeded 20%.
  * International equities have comfortably outperformed Indian equities over the last decade. This has been driven by tech stocks with divergence across markets (US has gained while China has struggled recently)
• All time low Fixed Income Returns – Fixed income returns have dropped to 3 to 4% post tax.
  * Such low returns have driven higher investor allocation to equities through mutual funds (SIPs as well as NFOs), direct stocks (we had record IPO investments) etc.
• Gold did not glitter – Gold gave negative returns in 2021, after being a chart topper in 2020. The historical returns have higher volatility than equity (In the last 11 years, Gold has delivered high returns 6 times and has been at the bottom 5 times. There are no half measures!)
• Physical Assets vs Financial Assets – The ratio of Physical assets (real estate, commodities, collectibles) is at a 100 year low as compared to financial assets (stocks, bonds etc)

New Financial assets and investing styles were introduced/became popular in 2021

2021 saw a variety of new investment assets and styles which became available for investors

• New Equity Investment styles – As different investing styles have come into vogue, the emergence of specific funds with a focus of momentum, low volatility, global value, quant models, quality etc. were launched
• Global Investing (outside India) –In 2021 10 new funds were launched that focused on investing overseas. The year saw the launch of funds targeting Europe, Taiwan, Hong Kong, Global funds, Focus US funds etc.
• Fixed Income investments – Low interest rates meant that specific insurance products with tax efficiency, became relevant along with hybrid funds which combine high fixed income allocation with tax efficient equity allocation
• Sovereign Gold Bonds – The appetite for Sovereign Gold Bonds issued by the government of India picked up in 2021. While the bonds have an 8-year lock in, they are tax efficient
• Real Estate investing – Real Estate Investment Trusts (REITS) are popular investment vehicles globally. In 2021, funds which invest in global real estate (covering hotels, assisted living, restaurants etc.) as well as Indian REITS are available
• Crypto currencies – In late 2021, one of the fund houses was on the verge of introducing a global crypto fund. They then had to back out with lack of regulatory clarity in India. In 2022, we will hopefully see guidelines from the regulators which allow the launch of such products
• Silver ETFs and funds – The first week of 2022 saw the launch of Silver ETFs for the first time in India. This will help investors diversify into silver based on their asset allocation without having to
• Thematic Equity Funds – With schemes like PLI driving investments in manufacturing in India, thematic funds which focus on Infrastructure, Auto, Manufacturing etc. will gain traction this year (past track records of such thematic funds have been mixed)

Our Investment Journey in 2022

As stated by Charlie Munger, we only need to be a little bit wiser consistently over the entire journey!! Let us look at some of the things we need to do this year

• Rebalancing of Assets – The single most important thing we need to do this year is to review our current asset allocation due to market movements and make sure that it is aligned with the target asset allocation
• Avoid Recency bias – We should avoid going overboard on the recent winners (equities) and not investing enough in recent underperformers (gold, fixed income)
• Do not be swayed by market volatility/short term movements – 2022 will continue to be volatile with liquidity unwinding by central banks, changing inflation, volatility in geographies (China), sectors (Technology), flood of IPOs and NFOs etc.
• Be open to new ideas – High returns are made by investors who have the courage to explore new ideas and revisiting old ones. As mentioned above many new innovations have come up in the past year. We will be in touch with you when we see specific assets/themes add value

Thank you so much for allowing us to be a part of your investment journey. We look forward to partnering you in 2022 and beyond.