2021 Asset Performance - Year in Review

January 07, 2022

One of the rewarding things about capitalism, or more specifically investing, is that it's clear in hindsight who won and who lost. Because money generally is used as a scorecard in a capitalist system, there is a common reference point.

This is one of the reasons political debates aren't satisfying. When your wayward Uncle Darryl says something super-dumb politically at Christmas dinner, and it doesn't work out the way he thought, at Easter you can be like "Look Darryl, I love you as an uncle, and don't take this the wrong way, but your idea was a dumpster fire." And Darryl then says "No, the thing you are talking about didn't even exist." And you're dumbfounded: "What? Huh? I had you on that. Now you deny existence?"

In investing it's clear who won and who lost. In 2021 the real estate index won the big trophy. It delivered a 40% return over the year. This is especially fun because at the start of the year the news was negative about real estate. "New York City is on its knees and begging to survive." "Offices are going the way of the typewriter." And more. It turns out the savvy managers who run REITs, like many homeowners, were able to refinance their cheap debt into dirt-cheap debt, and inflation helped them raise rents. And because they pay out their earnings at roughly a 90% rate, REITs are one of the few places left that generate decent dividend yields.

Coming in second place as an asset class was small cap value. Also a lot of fun on this one, as most of the headlines, yet again, were on tech and growth. But quietly small cap value had, as my daughters would say, "a banger of a year," blasting out returns just over 34%. Index member firms like Assured Guaranty Ltd and Owens & Minor really delivered. Macy's, the largest position in some of these indexes, more than doubled.

Bringing up the rear, down around 8%, was the long Treasury index. In some ways it's surprising this is not down more, given the inflation around us and the 20+ year commitment to a small income stream. The value here resides in the crisis insurance, and unfortunately we can only let that go completely in rare cases.

Remember that performance percentages depend a lot on start dates. But we have to use something, and annualized returns have endposts as good as any.

Welcome to 2022,

Dan Cunningham

<sup>1. "Darryl" is in homage to the show Newhart, set in Vermont.
2. Indexes mentioned here are represented by Blackrock and Vanguard ETFs. Returns included dividends reinvested.</sup>