As go January & February … So too 2022?

From a focus on the implications of a full reopening – two years into a crippling global COVID-19 pandemic – including the need to remove all manners of emergency liquidity measures, respectively address inflation levels not seen in 40 years …

TO … well, WAR IN EUROPE. Sadly.

The implications of that, what happens in the days, weeks, and months ahead, and what the end game is … well, who knows. We all I think realize though that what is happening in the Ukraine cannot be allowed to continue with the West not standing up strongly, united, and by Ukraine’s side, against what Russia is engaging in. Tolerating it would only encourage more such ruthless acts – the history of the 20th century and its painful lessons, surely cannot be forgotten!

As for investing in 2022 … Well, the first two months of this new year, if anything are reminding investors that markets don’t just simply and always move higher. In terms of contribution to Asset growth, unfortunately January and February haven’t been positive – with markets producing net negative performance numbers (-$910.7 Million in February, respectively – $1,539 Million in January) at Vanguard Canada. Net new unit creations offset most of that, leaving AUM as at Feb 28, 2022 only marginally lower than where it stood as at Dec 31, 2021 (CAD 48.59 Billion, versus CAD 48.75 Billion as at end of 2021).

Putting this in perspective – as shown in this updated chart looking at monthly contribution to AUM (performance and in/outflows) – effectively Jan and Feb 2022 in terms of negative performance contribution, combined, matched the drawdown in $ terms experienced in March 2020 (-CAD2.454 Million Jan/Feb 2022; -2.464 Million Mar 2020).

For now, Markets which have been mostly orderly, if I had to put a descriptive on it, (save for Russia’s stock market and currency, both of whom plummeted in dramatic fashion) look to remain volatile and challenged/challenging, given the overall context. When will the outlook improve? Anyone’s guess, as everything is dynamic, and in flux, including very much so expectations as to what the FED will do overall in terms of the upcoming rate hikes cycle, starting at their March 15-16 FOMC meeting. At time of writing, the 50 bps hike spoken about recently was … most likely OFF the table.

Broadly speaking, the tenor of February’s inflows at Vanguard remained bullish, with a continued bias toward growth and equities as far as inflows into one ticket solutions (the $ going into Conservative and Conservative income solutions being but a fraction of what has gone full equity, growth, or balanced).

As well, in terms of geographies, US, Canada, and All developed, as well as Canadian dividends were the primary “destinations” for new $ of units issued.

If investors started to worry further about the outlook for stocks in general, I’d say that wasn’t obvious, given flows into bonds were rather modest – less than 14% (13.9%) of total net creates.

In the aggregate, AUM at Vanguard Canada grew 40.6% y/o/y to Feb 28, 2021, with Asset Allocation solutions growing by 63.2%; equities focussed ETFs up 44.9%; and fixed income up 10.7%.

Here is the breakdown by category, as at end of Feb 2022 versus end of Feb 2021:

regarding the “tilt” or bias toward equities/growth asset allocation solutions, Balanced; Equities; and growth represent 86.5% of 1 ticket solutions AUM as at 28 Feb, with conservative and income allocation solutions growing at rates substantially lower than the overall category.

In terms of performance, here is how the top and bottom 10 performing ETFs performed last month, respectively YTD:

  • rare since November 2020 (vaccine news then …) to have mostly negative performance across both top and bottom 10 performing ETFs for the month
  • Canada / Canada dividends / Value (on global basis) outperforming

 

  • stark performance contrast between Canada and the US over the past two months – likely a reflection of the weightings of  Energy and Materials in particular in Canadian equity indices vs their US counterparts
  • Long bonds presumably suffering from their duration (interest rate risk) … although that – should the interest rate cycle be could short, could set the stage for them outperforming in a risk off environment later on …
  • Emerging – NOT able to turn longer term growth fundamentals to its benefit … as never seem to “enjoy” relative performance when rate hike cycle in the cards …
  • Dividend and Value – likely in my opinion – to continue to perform well on a relative basis … (fingers crossed, as investors need “safer” exposures / positioning in more of a “risk off” environment / context).