Each week, our analysts use the ‘QD view’ articles to highlight interesting developments within the investment companies and real estate sectors. Reading back through the views of 2021, there are some constants – the pandemic, renewable energy, and the extraordinary diversity of new issues for example – but you can also trace the emergence of some themes that have come to dominate investors’ thinking as we head into 2022.
Economics
Looking first at economics. We opened with an observation that the Democrat’s surprise win in the Georgia senate race had created an environment where US government spending could rise. The yield on US 10-year treasury notes jumped above 1%, as investors anticipated that this would contribute towards higher inflation. The yield kept climbing, hitting a peak of just over 1.7% at the end of March, before drifting off to about 1.5% today.
In March we talked about the impact of higher interest rates on the utilities sector. It was one of a number of QD views (on Polar Capital Technology, Herald and Scottish Mortgage) that noted the sell-off in stocks with valuations thought to be sensitive to rising rates. In June, we also drew attention to the declining relative performance of Nick Train’s funds.
In April, we dedicated a QD view to discussing inflation. The Federal Reserve (the US central bank) held off raising interest rates over 2021, even with annual US inflation hitting 6.8% at the end of November. The Bank of England has nudged the UK base rate higher but there is a marked divergence between those that feel that this is too little, too late and those that believe that the root cause of higher inflation is temporary bottlenecks rather than excessive demand. It got a bit technical, but our recent interview with one of the managers of Henderson Diversified Income covered a lot of the ground on this.
Commodity prices higher
One of the drivers of inflation has been soaring power and gas prices. We looked at these in a QD view in October, but there’s also a discussion on the topic in our recent Bluefield Solar note (see page 5). The other half of that QD view noted the resurgence in commodity prices generally. Matthew Read covered this topic in his interview with Rob Crayfourd, manager of CQS Natural Resources Growth & Income.
October was also the month of the budget. In a QD view, Richard Williams criticised a lack of decisive action to support the much- beleaguered high street retail sector. While there was some switchback from online to physical retail once lockdowns eased, the pandemic does appear to have accelerated the shift to online. That is great news for logistics infrastructure- as we highlighted in a QD view in May for example – but, as Richard pointed out in a QD view in June, it pays to be choosy.
Sustainability
In the build up to COP26 (covered in a QD view authored by Jayna Rana) and our ESG conference, we dedicated a few QD views to issues of investing sustainably. Naturally, we welcome the positive impact that many of the funds we cover are having on issues of environmental, social and governance. However, as QD views in January and May intimated, where good ESG credentials were once a differentiator, there’s a risk that investors start to take these for granted.
It wasn’t a great year for the biotech and healthcare sector. We looked at some of the issues affecting the industry in an article in June. However, this past week, we got some much-needed good news from Syncona, as it made its first big disposal since 2019. Additionally, as investors search for alternatives to the standard property sectors, we welcomed Life Sciences REIT as one of a large number of new funds joining the sector.
Outlook
It is hard to read the runes for 2022. Many of the issues overhanging markets at the start of 2021 are still with us, but we remain optimistic over the medium term. We’ll be looking at 2021 in more detail in our first news show of the year and also in our annual roundup of our sectors, which should be published around the middle of January. There are no more QD views, news shows or interviews planned for the remainder of 2021. So, we’ll take this opportunity to wish all our readers a very happy Christmas and a prosperous New Year!