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January 2022 Investment Outlook by Tilney’s Head of Multi-Asset Funds, Ben Seager-Scott

Welcome to Investment Outlook. This publication, which replaces our monthly Market & Economic Outlook, covers events during December 2021 as well as providing a look forward. Please read the important information section.

Taking stock of 2021

Last year was undoubtedly a story of big numbers and new records. Over seven billion Covid-19 vaccines were administered worldwide, helping life to return to a semblance of normality.1 Moreover, policy makers added a further $9tn in stimulus (via Quantitative Easing and fiscal policy) to the global economy after $20tn in 20202 . This helped lift global real GDP by 5.9%, the fastest growth rate in over 40 years3.

Economic recovery drove optimism back into stocks and property. Last year, the market value of all global stocks rose by US$13tn to reach $94tn or 100% of global GDP for the first time4. In real estate, the Dallas Fed’s latest measure of real global house prices rose by a record 8% in the third quarter of 2021 from a year ago5. Higher asset prices lifted US aggregate net household worth to an all-time high of eight times annual take-home pay6. Staggeringly, Elon Musk gained more wealth in 2021 than Warren Buffet has over his lifetime!

However, economic recovery also saw inflation return to the headlines, pushed upwards by accommodative policy and pent-up demand at a time when global supply chain issues and labour markets became stretched. Consumer price inflation hit multi-decade highs in the US and eurozone, plus its highest level since 2011 in the UK. Nevertheless, global equities still gained an impressive 20% in GBP terms7. In real terms, US 10-year Treasury bonds fell around 10%, their 6th worst annual performance in a century8

Equities can weather a blustery business cycle in 2022

We remain constructive on equities for 2022 for three reasons. First, the global economy is in a favourable part of the business cycle for equities to rally. Our proprietary business activity indicator using macro and market data suggests the global economy is somewhere between the expansion and the late cycle, or simply put, the mid-cycle. Looking back over the past 35 years, we find that global equities tend to rise by an annualised rate of 21% in the expansion phase and 9% in the late cycle, as compared to -12% during a cycle contraction9. Second, households and businesses are in decent financial shape to drive the global economy. Improving labour markets are helping to lift consumption, while strong demand has meant that companies have been able to raise profit margins by passing on higher wage and energy input costs to end users. Third, restocking from record low levels should boost factory output and support new capital investment to drive the business cycle.

Nonetheless, there are headwinds that could increase market volatility. These include: i) GDP growth disappointing on the downside, as higher inflation risks consumer “demand destruction” and firms fail to restock significantly; ii) investors become increasingly reluctant to pay demanding valuations for mega cap stocks (e.g. Amazon, Apple, Microsoft, Alphabet, Tesla and Meta Platforms, previously known as Facebook) and reduce positions at a time when market leadership is narrowly focused on a few names; iii) economic overheating leads to higher rates that brings forward the contraction phase of the business cycle.

Though that seems a low probability, as Deutsche Bank finds that from 13 different Fed hiking periods since 1955 it takes an average of 31⁄2 years before higher rates tip the US economy into a contraction10.

On balance, we expect the fundamental tailwind of above average global GDP growth (predicted by the IMF to be 4.9% in 2022), supported by expectations of continued reopening, should mitigate headwinds to drive equities up11.

In terms of opportunities, we see a broadening out to the rest of the US equity market from the mega cap stocks, supported by a catch-up in company earnings, cheaper valuations and lower sensitivity to interest rates. Looking at past interest rate hiking cycles, we see that this has tended to favour more value-orientated sectors like industrials, materials and energy. This environment tends to be more challenging for highly valued companies, like the mega caps.

We see room for eurozone stocks to perform too thanks to elevated profit margins, strong operational leverage and its position as a key beneficiary of the restocking theme from an unwind of supply chain bottlenecks.

Our UK domestics theme (see our March 2021 Investment Outlook) does look vulnerable to recent government covid restrictions, due to the recent outbreak of Omicron variant of Covid-19.

If booster shots of existing vaccines can provide protection against new variants, as current evidence suggests, the economy should continue to expand, thus driving equity returns for investors. Assuming government measures are not long lasting and do not damage confidence, pent-up savings and a surprisingly robust job market should add a layer of support for UK-focused stocks.

Emerging Asia and Japan underperformed the market in 2021 from a triple whammy of a strong dollar, supply chain disruption affecting manufacturing and tightening credit in China. However, Beijing has now started to provide policy support by making more cash available for banks to lend. Provided the USD weakens as other central banks (like the BOE recently) raise interest rates, there is potential for Asia to catch-up with other markets from current low valuations.

1,3,4,5,6,7,11 Refinitiv, 4 January 2022
2 The Thundering Word, Fin de Siècle, BofA, 21 November 2021
8 Deutsche Bank Chart of the Day, 16 December 2021
9 Tilney Investment Management LLP, 4 January 2022
10 When the Fed hikes: what happens next? Deutsche Bank, 13 December 2021


2021 was a bumper year for equity markets. The global economic recovery fuelled equity market returns as companies proved resilient and posted strong earnings growth despite the pandemic lingering on. The US market outperformed global peers increasing 28.1% and made 70 all-time highs, the most since 1995, boosted by fiscal stimulus passed by Joe Biden’s new administration and scaled back COVID restrictions. However, these price surges were mostly dominated by the mega caps (Apple, Microsoft, Amazon, Tesla, Alphabet and Meta). These six companies contributed to 35% of US equity returns for 2021.

Relative to other equity regions the UK performed well returning 18.7% for the year. The effective COVID vaccination programme in the first half of 2021 helped boost UK equities as restrictions were eased earlier than other countries. Asia ex Japan lagged other markets declining 3.6% for the year, affected by a regulatory crackdown on targeted sectors in China. Emerging markets outside of Asia struggled throughout the year. A sustained economic recovery was held back by continued surges of COVID cases and the relatively slow vaccine rollout.


Bond markets had a tumultuous 2021 as inflation surged and forthcoming changes to monetary policy became an increasing concern. Long duration assets performed especially poorly as the global economy continued to recover. The UK 10-year Gilt fell 5.7% and the US 10-year Treasury fell 1.5%. In real terms, US 10-year Treasury bond fell 10%, their 6th worst annual performance in a century. Shorter duration assets such as global high yield bonds performed better and increased by 2.9%. Companies issued a record amount of debt in 2021, high yield bond issuance in the US was the largest since 2012. Inflation remained the hot topic over the year as annual CPI hit 6.8%% in the US, and 5.1% in the UK at the end of 2021. Inflation-protected bonds gained 6.8% in the US and 4% in the UK as investors became increasingly concerned about higher and stickier inflation.


Commodities in 2021 experienced large price fluctuations with energy creating the most headlines. Oil demand dropped dramatically when the pandemic hit, however, as economies opened demand started to outpace supply. The oil price increased 52% over the last year and reached $86 in October, its highest price since 2014 before supply increased causing price to fall. In currency markets USD remained relatively strong against other currencies, with its trade-weighted index rising 6.7% over the year. The Euro weakened 7.1% against USD as growth looked stronger in the US compared to Europe, where the vaccination programme was slow to start and stricter COVID restrictions owing to the spread of the Omicron variant have been reimposed recently. Sterling soared to highs of $1.42 in May its highest level since 2018. However, Brexit concerns weighed on GBP strength and a more dovish than expected central bank dragged the currency lower to close out the year at $1.35.

Market commentary

Equities recovered in December, up 1.6% globally, as investors took on more risk amid increasing expectation that Omicron may be less disruptive than expected. The UK outperformed peers, rising 4.8% for the month despite a Bank of England rate hike to 0.25% from 0.1% at the meeting on 16 December. In the US, reassurances regarding vaccine efficacy against Omicron was deemed of greater importance than a more hawkish Federal Reserve and led the market to all-time highs. Europe ex UK equities rose by 3.9% but gains were constrained as stricter COVID rules came into force before Christmas. 10-year UK gilt and US treasury bond yields rose by 7bps and 16bps respectively to keep pace with central bank monetary tightening prospects.


Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

This document contains information believed to be reliable but no guarantee, warranty or representation, express or implied, is given as to their accuracy or completeness. This is neither an offer nor a solicitation to buy or sell any investment referred to in this document. Tilney documents may contain future statements which are based on our current opinions, expectations and projections. Tilney does not undertake any obligation to update or revise any future statements. Actual results could differ materially from those anticipated. Appropriate advice should be taken before entering into transactions. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. The officers, partners and employees of Tilney, and affiliated companies and/or their officers, directors and employees may own or have positions in any investment mentioned herein or any investment related thereto and may trade in any such investment.


MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

The Bank of England base rate, Retail Price Index (RPI), Consumer Price Index (CPI) and Sterling Overnight Index Average (SONIA) are public sector information licensed under the Open Government Licence,

Issued by Tilney Investment Management Services Limited (Reg. No: 02830297), which is authorised and regulated by the Financial Conduct Authority. Financial services are provided by Tilney Investment Management Services Limited and other companies in the Group, further details of which are available at© Tilney Smith & Williamson Ltd 2022

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