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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.

2021

ACWI VALUE

ACWI GROWTH

ACWI MVOL

ACWI MOMENTUM

ACWI SMALL

Up-capture

85%

115%

68%

116%

102%

Down-capture

61%

138%

39%

178%

114%

           

2020

 

 

 

 

 

Up-capture

94%

106%

55%

101%

120%

Down-capture

119%

83%

74%

77%

119%

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 2/3rd 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