The highly-anticipated rollout of COVID-19 vaccines Supply chain disruptions and an ongoing semiconductor shortage Record-setting stimulus spending and debt accumulation by governments around the world The emergence of new variants of concern such as Delta and Omicron Big political upsets and the Capitol riots Rising evidence of (non-transitory) inflation
Let’s take a look at which sectors thrived during the twists and turns of 2021—and which couldn’t stomach the volatility.
Winners and Losers of 2021, by Sector
Our visualization today uses an augmented screenshot of the FinViz treemap, showing the final numbers posted for major U.S.-listed companies, sorted by sector and industry.
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Here are the big beneficiaries of last year, along with those that got left behind.
The Winners
Over recent years, it’s been no surprise to see Big Tech near the top of any list. In 2021, Alphabet continued its tear, soaring 65% to hit a $2 trillion market cap. Who benefitted most from the ongoing semiconductor shortage? Those that design or manufacture them, of course. Nvidia, for example, more than doubled its share price over the course of the year, with 125% growth. Other companies in the semiconductor equipment and materials space, such as ASML and Applied Materials, saw gains above 60%. 2020 was touch-and-go for oil prices, with futures even sliding negative at one point. However, the most recent year was much kinder to those in the energy industry. The WTI price started the year below $50 per barrel, but finished the year at $75 per barrel—a swing that makes a big difference in the economics of each barrel. It was one of the biggest years in decades for REITs, which saw the FTSE Nareit All Equity REITs index have its best performance since 1976. Those that know REITs are aware that returns vary by property sector, and this remains the case here. Specifically, it was industrial REITs—and especially self-storage REITs—that outperformed. Extra Space Storage, a REIT that invests in self-storage units, finished up the year 96% and is the perfect example of this. With record-low interest rates and continued upheaval from COVID-19, it sets a perfect stage for opportunistic private equity firms. The asset management industry as a whole did well in 2021, but specifically it was PE firms like Blackstone and KKR that took advantage, posting gains of 99% and 84% respectfully. Honorable Mentions: Banks, Retail Home Improvement, Building Materials, Healthcare Plans, Engineering & Construction
The Losers
Inflation took off in 2021, and a usual beneficiary of this is the precious metals sector. However, in the last 12 months, this has not been the case. Both gold and silver finished with negative returns on the year, which hurt precious metal miners. Beijing has been cracking down on China’s domestic tech sector as of late, and this has had a knock-on effect on companies like Pinduoduo, Alibaba, Baidu, and JD.com, which saw a collective collapse in their share prices. All were down double digits, but Pinduoduo—the largest agriculture-focused technology platform in China—saw the highest amount of drag, falling over 67% on the year. Solar installations in the U.S. are chugging along at a record pace, as expected. However, both regulatory uncertainty and supply chain problems have hampered stock prices in the short term. That’s why companies like Sunrun, a residential solar panel company, saw a 51% dip in stock performance in 2021. Big tech continued its surge, but other tech-enabled content and information companies saw tougher years. One example of this is Zillow, which shuttered the doors on its home flipping operation after realizing losses of $500 million. Zillow stock was down 54% on the year, and has laid off a quarter of its staff. It was a mediocre year for the big credit card companies like Visa and Mastercard, which were both flat in terms of stock market performance. Meanwhile, PayPal fell 19%. According to billionaire investor Chamath Palihapitiya, 2022 may not be any better. Days ago, he predicted that both Visa and Mastercard will be the biggest business failures in the coming year. on Last year, stock and bond returns tumbled after the Federal Reserve hiked interest rates at the fastest speed in 40 years. It was the first time in decades that both asset classes posted negative annual investment returns in tandem. Over four decades, this has happened 2.4% of the time across any 12-month rolling period. To look at how various stock and bond asset allocations have performed over history—and their broader correlations—the above graphic charts their best, worst, and average returns, using data from Vanguard.
How Has Asset Allocation Impacted Returns?
Based on data between 1926 and 2019, the table below looks at the spectrum of market returns of different asset allocations:
We can see that a portfolio made entirely of stocks returned 10.3% on average, the highest across all asset allocations. Of course, this came with wider return variance, hitting an annual low of -43% and a high of 54%.
A traditional 60/40 portfolio—which has lost its luster in recent years as low interest rates have led to lower bond returns—saw an average historical return of 8.8%. As interest rates have climbed in recent years, this may widen its appeal once again as bond returns may rise.
Meanwhile, a 100% bond portfolio averaged 5.3% in annual returns over the period. Bonds typically serve as a hedge against portfolio losses thanks to their typically negative historical correlation to stocks.
A Closer Look at Historical Correlations
To understand how 2022 was an outlier in terms of asset correlations we can look at the graphic below:
The last time stocks and bonds moved together in a negative direction was in 1969. At the time, inflation was accelerating and the Fed was hiking interest rates to cool rising costs. In fact, historically, when inflation surges, stocks and bonds have often moved in similar directions. Underscoring this divergence is real interest rate volatility. When real interest rates are a driving force in the market, as we have seen in the last year, it hurts both stock and bond returns. This is because higher interest rates can reduce the future cash flows of these investments. Adding another layer is the level of risk appetite among investors. When the economic outlook is uncertain and interest rate volatility is high, investors are more likely to take risk off their portfolios and demand higher returns for taking on higher risk. This can push down equity and bond prices. On the other hand, if the economic outlook is positive, investors may be willing to take on more risk, in turn potentially boosting equity prices.
Current Investment Returns in Context
Today, financial markets are seeing sharp swings as the ripple effects of higher interest rates are sinking in. For investors, historical data provides insight on long-term asset allocation trends. Over the last century, cycles of high interest rates have come and gone. Both equity and bond investment returns have been resilient for investors who stay the course.
