Vector 2021 Annual Review

31 Dec 2021

Dear investors,

Despite several severe covid-waves due to the Delta and towards the end of the year Omicron variant equity markets rallied wih 27.5% in 2021. In Euro-terms the United States was helped by the appreciation of the USD and as a result the region had another amazing year compared to Europe and especially Emerging Asia, which suffered severely under Beijing's crackdown on technology companies and the real-estate crisis.

While the year started of very promising for value stocks and small caps, this reversed later on due to a comeback off large growth stocks. As a result, the dispersion of returns of different investment styles was relatively muted and most factors ended up within a couple of percentage points from one another as well as the broad equity market. The sole exception was ‘momentum’: after outperforming the market by an impressive 14.7% in 2020, the factor reversed during the year as last year’s winners generally became 2021’s laggards. Consequently, the investment style underperformed the market by 11.2% during the year.

When looking at the up- and down capture ratios of the different investment styles over the past two years we see an interesting reversal pattern: while growth and momentum tended to be styles everyone fled to in 2020 when markets fell, in 2021 value and low volatility stocks were the safe havens of choice.

_{The table above shows how much of the benchmark (MSCI ACWI) the different style indices captured during up- or downwards markets. (i.e., when the benchmark increased by 1% in 2021 value stocks only gained 0.85%, but when the benchmark fell by 1% value stocks only fell by 0.61%)}

While the stock selection functioned quite well in 2021, our overweight in Asia detracted from our performance. Overall, Vector Navigator ended the year 27.53% higher – a performance exactly in line with the benchmark. As most commonly considered factor indices underperformed their parent index, this is a satisfactory result for a multifactor approach to investing as the end result was greater than the sum of the parts. Vector Flexible earned a return of 10.96% during the year, beating about 2/3^rd of our Morningstar category competition.

Looking forward to 2022, we are mildly optimistic: a booster shot seems to be effective against the mutations in the Omicron variant and as more and more antiviral pills are being produced it is unlikely that markets will experience a similar selloff as we have seen in the past. Yet, the virus coupled with a rising CPI and more hawkish central bankers might also make it much less likely that we will see double digit gains any time soon.

Best regards,

Werner, Thierry & Nils