Despite the ongoing pandemic with record numbers of COVID cases seen in almost every country, equity markets continued to surge ahead breaking records of their own. The S&P500 notched up 70 new all-time highs in 2021, the largest number in a single year since 1995.
Sharp drawdowns were notably absent from equity markets in 2021, just five trading days posted losses of two percent or more. The biggest pullback in 2021 was just 5.6% in September.
US markets were the strongest performer over the year driven mainly by a big recovery in cyclical sectors. Australian equities lagged the rest of the developed world as the materials sector weighed on returns locally. Emerging market equities were crippled by regulatory crackdowns in China for much of the year.
Bond markets produced their first negative year in over 20 years. As inflation concerns dominated headlines for much of the year, rising yields and a flattening yield curve meant volatility remained elevated throughout 2021.
The removal of accommodative policy that supported investment grade credit and high yield markets in 2020 weighed on returns for these markets last year.
Cash markets continued to offer no return for investors highlighting the need to look to other asset classes for income focused investors.
The dispersion of returns across asset classes was the widest since 2017, emphasising the importance of remaining diversified. As markets continue to rotate at rapid speed, having an allocation to a diverse set of assets will add additional protection for investors during periods of volatility.