Year end musings

With few remaining trading days to 2021, and liquidity likely drying up as those in charge of desks, etc focus on last minute shopping, respectively hope to join festivities before everything gets shut down to avoid the latest cold (Aka OMICRON …), I figured I’d try  to come up with a few summarizing comments regarding 2021, and possibly attempt to peer into 2022.

Unfortunately, many, many such musings can be expected pretty much everywhere, and mine very much risk being drowned in the noise. That said, I feel they might be an important exercise for me as I try to wrap up my head around what the future might hold, respectively what I might be able to do about it, or how I could position so as to be ready 🙂

Anyways, here we go, for the moment in no particular order:

  • Volatility – has been quite volatile in 2021, and we’re wrapping up the year with the latest spike of it, courtesy OMICRON. If I were to attempt a prognosis, I’d say one should anticipate continued volatility in the level of volatility, with spikes possibly petering out in H2, 2022, IF/WHEN markets have had a chance to recalibrate for policy changes, respectively re-opening (fingers very much crossed) is the newfound “Normal”. Let’s hope!
  • China – Has got to have been a huge disappointment for those embracing its mid-longer term potential, respectively fans of its scale, and ascending economic importance in the World. I’d very much echo that, to which I’d add that it would have to also be very much of a disappointment to those hoping it will and can be made to embrace democracy and its values. Good luck with the latter … and I guess, it probably can’t get a whole heck of a lot worse in a massive bull market for equities generally – underpinned by formerly unfathomable stimulus, both monetary and now fiscal as well – than to see TR on a 1, 2, and 3 year basis all in the negative (+ the 5 years at a compound +1.29% for XCH) … That leaves the question of China and ESG, which … well, could be a bit of a contraction in terms, if you ask me, seeing China is a) a huge polluter, and b) effectively a world bully seeking to intimidate its critics into submission (incl. Canada …). Talking about China and ESG, BMO ETFs recently left behind its BMO China Equity Index ETF (ZCH which to the end of November 2021 had fared rather poorly at -37.59% YTD, versus XHC at -16.95%) in favour of an ESG index => Read HERE! Where you can see both the old index it used to track, and the new ESG one. On a side note, in the US, KWEB has gotten sizeable inflows in 2021, while performance has continued to be dismal … (Contrarian play?)
  • Talking about ESG => Read HERE! Great Globe Article today bringing us up-to-date on the state of ESG exiting 2021 and into 2022. Bottom line: Huge strides in 2021, by the sounds of it, and very significant inflows. Prime time, as it were – incidentally covered off extensively during Mindpath Virtual 2021, with VOD postview available here!
  • Peloton – I have got to hit that one here … Latest analysis from CITI: “Peloton has an attractive business model and may have many years of growth ahead. But the COVID pandemic may have caused an acceleration in growth. Street estimates have extrapolated recent strength for the next few years. We are concerned that moderating growth is possible as the pandemic fades (and gym visits resume), said the analyst …

How about a fun rewording? I like all the other analyst got really excited about the acceleration in growth during the pandemic, which is why I had to slash all of my estimates now and trash my target price to back to earth, as … “da ya think …???” moderating growth is possible??? Yeah, that would have been helpful written back in September October time frame … AFTER the collapse of the past 2 months, that is closing the door after the barn has burnt down lol.

  • Innovation and disruption – 2020 was Cathie Wood’s and her ARKinvest colleagues year, in my book, no doubt. 2021 came with possibly a “be careful what you wish for” start, as money poured into ARK, likely rendering ARK vulnerable to its own success, which is probably in hindsight what 2021 demonstrated. And to be fair, the environment has been incredibly challenging. That said, holders can certainly hope or wish to look forward to a better 2022 overall performance, as 2021 wasn’t … well, exactly stellar. Yesterday, as an aside, I observed that $TSLA was moving up nicely, and yet $ARKK was down. THAT … you don’t see everyday. Likely more challenging is a recent report speaking not about the stellar long term performance numbers at ARK, but about the experience of the money overall that found its way into it. There is certainly a sizable gap – going back to that what was for them likely the curse of too much success in 2020. Still some of the very brightest, smartest, visionary, and forward looking people anyone can hope to have on their side investing … BUT, perhaps pointing yet again to the challenge presented by markets, and day in day out fighting for performance against other very smart people … Click HERE for that Morningstar analysis.
  • Factors and Themes – I recall with regards to Factors the discussion around whether Factors would “always” work, respectively what it takes for factors to work … AND the answer was … so long as investors make “mistakes”, there would be room for “Smart Beta” (Factors) … In other words, so long as there are investors making not so smart decisions … we could expect that disciplined factors strategies would succeed over time (which sometime can be a long time …) at capitalizing on the Factors in question. That … imo remains the case. Flipping into the Thematic space, I guess what we are increasingly witnessing is the just because something has great thematic appeal, it is no guarantee of success. As Morningstar likes to say (Ben Johnson) – what it takes is correctly identifying a theme. second, ensure the names able to capitalize or capture the theme are properly incorporated, and finally hope also that upon entry, the valuations side of the equation doesn’t already more than capture the opportunity (in other words are you overpaying going in …). Bottom line: Just like factors, thematics have the potential to add alpha in my books, on a diversified basis, BUT one might have to be prepared to be a bit of a contrarian at times, respectively pick one’s spots carefully going in.
  • Bitcoin – Acceptance seems to continue to grow. And of course, this year, Canada saw several spot (as opposed to US Futures) based ETFs launched, the first one by Purpose Investments preceding competitor’s Evolve ETF by 1 (!!!) Day. I continue to hold the view that if not owning some Bitcoin has you experiencing bouts of FOMO, then by all means, look at a 2-5 % allocation, and then try to rebalance on strength/.weakness. In addition to this, I would have to say that clearly, whether I like it or not, the market is increasingly assigning value to Bitcoin. It is expensive to make, presumably, it – like Gold – doesn’t inherently have an undisputed value … BUT that won’t prevent it from being acknowledged and accepted by some (increasing) participants, and thus something that can’t be ignored. I have never owned any, but got into some Blockchain this year … and even if I don’t personally care for it … does it mean I will never own any? I am not going to say never here.
  • Weed ETFsHMMJ – what are we talking about now? 1/3 or 1/4 peak AUM in that ETF? At this time last year, market participants got excited again, and weed stocks went up sharply only to through the course of 2021 disappoint and pull back sharply (off close to 60%! from the year’s high reached in February 2021 … a potential repeat in 2022 as far as excitement entering the NY?)
  • Inflation – “Evidently” we appear to have a tad of an inflation issue at the moment … will it all prove Transitory, now that the FED has – likely for political considerations (aka nomination for JP) – finally acknowledged it needs to start dealing with it sooner rather than later? We’ll find out in 6-12 months presumably, as by then, bottleneck issues etc should be resolved … in the meantime, many out there talking about possible “fixes” or ETF solutions that could help. Also worthwhile, because some perform the same function, Low correlation ETFs => click HERE for some of BMO’s!

Happy, Safe Holidays – more later!