Originally published January 2022
Not unlike most of the 2021 world Covid dumpster fire, the investment world has also been really volatile, which has been both good and bad. How can it be both? Well, my 19% portfolio return is nothing to sneeze at until you factor in that the SP500 USA index returned about 28% in total. It was a weird year where about 5 big companies (Apple, Tesla, Facebook, Google, and Microsoft) pushed the market up.
This situation will play a huge role in the underperformance of active portfolio managers and small investors. Said another way, unless you were lucky and concentrated on those exact stocks or were heavily invested in one particular winning sector you likely underperformed. But to be honest, it’s sort of like that every year, just worse this year. The reality is that if my portfolio had been more like the index in composition, I would be a lot closer in performance.
Guess what? If you were invested in market index ETFs, Congratulations! With little effort, you had a fantastic year. Holding any one or combination of market index ETFs provided you with the following returns: TSX 24%, SP500 28%, or a world index like the URTH ETF at 22%. The argument for market ETFs continues to play out in favour of this style of investing.
Marc’s Portfolio 2021 Final Returns
- Portfolio return 18.3% (Including currency losses/gains)
- Portfolio return 19% (without currency losses/gains)
- SP 500 return 26.89% plus 1% est. dividends = 28%
- Tsx return 21.74% plus 2.25% est. dividends = 24%
Overall, the portfolio underperformed against the S&P500 by -9%.
2021 S&P500 Return Breakdown by Sector
- Energy 48%
- Real estate 42.5%
- Information tech 33%
- Financials 33%
- Materials 25%
- Health Care 24%
- Consumer Discretionary 24%
- Communications 20.5%
- Industrials 19%
- Consumer stapes 15.5%
- Utilities 14%
Energy is the big winner, but its effect on the index was muted because it’s such a small component. If you had an oversized amount of these (you know who you are) you had a fantastic year.
Real estate is also a small component and its performance was a big surprise due to the expectation that Covid would crush real estate companies. Real estate companies were busy revamping their world due to new Covid space requirements. Oddly, this created lots of work for these companies.
Information Tech had another big year and considering it’s the biggest sector it’s also where the game is won or lost for most investors. It also begs the question… will its high returns continue after such a long run? Will growth stocks, in general, continue to outperform? No one knows for sure in the short run but they are getting really expensive.
For Berkshire fans, BRK.B finally outperformed the sp500 by about 1%. This is great news considering it has been underperforming for almost a decade and was a recent addition to my portfolio.
My New Strategy
Is there a new strategy moving forwards? Maybe, sort of. I recognize that there are lots of new risks in the market and moving to a more defensive strategy was likely overdone for 2021. A 9% underperformance is just too expensive a price to guard against tail risks like a crash that may take years to materialize. The new strategy is rather boring, it likely means the same strategy as before except I will bring my sector allocations a little closer to the index. Be more like the Index! At the same time, I need to pay more attention to diversification as well as be more strategic with individual stock picks. I will make adjustments going forwards… slowly but surely.
How did you do in 2021? Did anyone beat the market?
Happy investing.
Money with Marc 