It Was a Strong Year for Stocks and Other Risk Assets in 2021 - Alaska Permanent Capital Management

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It Was a Strong Year for Stocks and Other Risk Assets in 2021

If someone had laid out for you what would happen in 2021 – new variants, a continuing supply chain snarl slowing the economy, and inflation well above the target of 2% – at the beginning of the year and gave you a guess as to what was going to happen; it probably was not this outcome. However, the continued benefits of massive global monetary and fiscal stimulus and the emerging hope that we are finally getting a handle on the COVID crisis were able to outweigh those seemingly insurmountable hurdles. This resulted in a very strong year for the stock market and other real assets such as commodities and real estate.

The APCM Advantage

*Please note a couple of key items: the returns are preliminary calendar year performance as December is not yet officially available, 2021 was a year of transition for institutional clients so the model allocation was not held for the entire year

Our team at APCM was able to navigate these tricky market dynamics to our clients’ benefit quite deftly. 2021 was a strong year for client portfolios. From an absolute return perspective, year-to-date through November 30 institutional multi-asset clients have seen returns between 4.0% and 14.9% and have outperformed their respective benchmarks by 0.10% to 1.23%, depending on the risk level. Risk on positioning at the beginning of the year, plus a reduction in the overweight to stocks and other risk assets as volatility increased, drove the outperformance. 

Many stocks have had violent corrections and/or are well below their 2021 highs (60% of Russell 2000 and 35% of NASDAQ 100 stocks have had drawdowns of at least 20% at some time during the past 100 days), but APCM clients experienced a very strong year based on the powerful benefits of indexing and diversification.  This is not a consequence, but rather it is intentional management.  Two key pillars of our investment philosophy are diversification and controlling expenses.  APCM’s asset allocation program is designed to recognize the difference between idiosyncratic and systematic risk.   Idiosyncratic risk refers to the inherent factors that can negatively impact individual securities or a very specific group of assets. The opposite of idiosyncratic risk is a systematic risk, which refers to broader trends that impact the overall financial system or a very broad market.

We diversify away idiosyncratic risks by owning thousands of different securities.  This ensures that one individual company will not derail the ability of our clients to meet their stated goals and objectives.  No one can diversify away systematic risk, so we manage this risk through rigorous modeling and analysis as we design each portfolio.  The goal is to accept only the level of systematic risk necessary to meet the desired return goal.

We have a more in depth 2022 Outlook that will be available to our clients, if you would like us to email you a copy upon release please reach out to blake@apcm.net or Mickela@apcm.net for institutional clients and for AWMI clients please reach out to your Advisor.

Brandy Niclai, CFA®
CIO – Multi-Asset Strategies

 

1/11/22

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