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Saxo Morningstar High Dividend USD Q4 2022 commentary

SaxoSelect Commentaries
Instruments tradedStocks
Asset classesGlobal equities (excluding emerging markets)
Investment style High quality stocks offering attractive dividends
Dividend yield
Quarterly return12% (net of fees)
Annualised volatility (since inception)16%

Market overview

Quarter at a glance

  • Stocks and bonds recovered in a volatile quarter, although most markets remain well below their peaks. 
  • Fears of a global recession have taken center stage, with corporate earnings showing vulnerabilities. 
  • There are some signs inflation may have peaked, with the year-on-year inflation rate slowing down 

Year at a glance

  • Stocks and bonds both fell considerably over the year, despite the recovery in the last quarter. On many measures, it was one of the most challenging environments for investors.
  • Central banks became increasingly serious about bringing down inflation, causing investor sentiment to deteriorate. 
  • The exception of the year was energy-related assets, which had one of its best years on record.  
  • U.S. dollar strength has been a feature of 2022, rising to its highest levels in two decades at one point in the year. 
  • On a positive note, valuations of stocks and bonds improved meaningfully, sowing the seeds for future returns. 

Important perspective

2022 will go down as a very difficult one for investors, following several years of market strength. The S&P 500 lost 18.1% for the year, its biggest calendar-year loss since 2008. This came despite stocks and bonds both having a great fourth quarter, making up for the losses built generated earlier in the year. 

Among the challenges noted were inflation, rising interest rates and geopolitical risk. In the fourth quarter, inflation showed signs of peaking, which may allow central banks to reduce their aggressive interest-rate increases. The Federal Reserve in USA (along with many other central banks) raised interest rates seven times in 2022, but the one in December was smaller than the previous increases (50-basis-point), perhaps offering a small sign the worst of inflation is behind us.

Among equities, the sectors that suffered the most throughout the year were: technology, consumer discretionary, and communications services. Value stocks benefited from a revitalized energy sector and a collection of defensive stocks in the healthcare, consumer staples and utilities sectors. In contrast to growth stocks, the year-end left the Morningstar US Value index down just 0.7% in 2022. Emerging markets suffered from Russian stocks becoming un-investable, along with weakness in the Chinese market as well as in South Korea. European stocks also suffered amid the Ukraine-Russia war.

While bonds have been a key diversifier for investors during many stock market downturns, that wasn’t the case in 2022. Rising interest rates caused bond prices to fall. On many measures, bonds had their worst year in decades, with much of the damage attributed to higher interest rates. That said, the fourth quarter saw a meaningful comeback for bonds, especially at the riskier end, including high yield and emerging-markets bonds.

Portfolio performance (net of fees)

Since inception (Jul 2018)

Top 10 portfolio holdings (as of 31 December 2022)

NameWeight (%)
British American Tobacco PLC3.89
BCE Inc3.69
Microsoft Corp3.66
ING Groep NV3.60
Roche Holding AG ADR3.48
Philip Morris International Inc3.47
Holcim Ltd3.33
Deutsche Post AG3.33
Cisco Systems Inc3.33
Pinnacle West Capital Corp3.33

Top performers

ING Groep NV 

  • ING Group is a Banking Institution based in Amsterdam, Netherlands. Established in 1991, the bank offers products like savings, payments, investments, loans, and mortgages in retail markets. For Wholesale Banking clients, it provides specialized lending, tailored corporate finance, debt and equity market solutions, payments & cash management, and trade and treasury services. The assets are managed by the supervisory board.


  • Founded in 1865 and based in Germany, BASF is the world's largest chemical company, with products spanning the full spectrum of commodities to specialties. In addition, the company is a strong player in agricultural crop protection chemicals and emissions control catalysts for cars and trucks. Given its sheer size, BASF has a top-three market position in roughly 70% of its businesses. 
  • BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major chemical category. It serves such a wide range of end markets that it could be considered a proxy for GDP growth. In the future, BASF will dedicate more focus to agricultural chemicals and consumer goods, which allow for premium pricing and tend to be less cyclical. This strategic pivot toward specialty and customizable solutions falls in line with its European peers. BASF is also diversifying its geographical exposures. On average, Europe drives around one third of BASF’s total revenue, but the firm is targeting Asia—especially China—to increase its exposure to higher-growth markets.

Sanofi SA

  • Sanofi develops and markets drugs with a concentration in oncology, immunology, cardiovascular disease, diabetes, and vaccines.The company offers a diverse array of drugs with its highest revenue generator, Dupixent, representing just over 10% of total sales, but profits are shared with Regeneron. About 30% of total revenue comes from the United States and 25% from Europe. Emerging markets represent the majority of the remainder of revenue. 
  • Sanofi’s discontinuation of cancer drug, “Amcenstrant” does not have a major impact on the firm’s fair value. However, the string of bad news (including the recent clinical hold on multiple sclerosis drug) in the late-stage development is concerning. Nevertheless, drug development is risky, and failures are common. These pipeline setbacks are not overly concerning, and the expectation is that Sanofi will be able to develop the next generation of drugs to offset eventual patent losses. Also, the limited patent losses over the next several years also provide time for Sanofi to refill its late-stage pipeline with several early-stage drugs that look encouraging.

Holcim Ltd

  • Holcim is a global manufacturer of construction materials such as cement, aggregates and concrete. The company is the result of a merger between Lafarge and Holcim, completed in 2015, which created a leader in the building materials sector. Holcim has a global presence, operating in over 70 countries with 72,000 employees.

Philip Morris International Inc

  • Philip Morris International is an international tobacco company with a product portfolio primarily consisting of cigarettes and reduced-risk products, including heat-not-burn, vapor and oral nicotine products, which are sold in markets outside the United States. The company diversified away from nicotine products with the acquisition of Vectura, a provider of innovative inhaled drug delivery solutions, in 2021.
  • Philip Morris International reported decent third-quarter results that on an organic basis. The underlying business appears to be robust, with the consumer so far hanging in there amid higher inflation. The stock, on the other hand, had a poor third quarter and underperformed the S&P 500 by around 4 percentage points, most likely due to the continuing strength of the U.S. dollar and rising interest rates, which have closed the gap between the dividend yields on consumer staples companies and the yields available on other asset classes. 

Worst performers:

TC Energy Corp

  • TC Energy operates natural gas, oil, and power generation assets in Canada and the United States. The firm operates more than 60,000 miles of oil and gas pipelines, more than 650 billion cubic feet of natural gas storage, and about 4,200 megawatts of electric power. 
  • TC Energy’s 2022 investor day was more disappointing than not, as it revealed that the high-profile Coastal GasLink project will see another round of higher costs in 2023. The firm last updated its estimates in July 2022 when costs for the troubled project nearly doubled to CAD 11.2 billion from CAD 6.6 billion. Prior cost increases have been due primarily to COVID-19 delays, weather, and lost productivity. Beyond the negative update on GasLink, TC Energy also shared materially higher capital spending plans than previously estimated. While it is positive that TC Energy has a robust backlog of work, the earnings contributions from those efforts seem more backdated and further out than originally estimated, reducing near-term returns and increasing interest expense due to higher debt levels. The strongest areas of near-term growth are Mexico and U.S. natural gas pipelines. Mexican earnings are expected to more than double between 2022-26, thanks to the recent new agreement with the Mexican state owned utility to resolve disputes over existing projects and clear the regulatory pathway for new efforts. U.S. natural gas pipeline earnings are expected to increase by about 25% over the same timeframe, mainly due to leverage to U.S. LNG exports.

Williams-Sonoma Inc

  • With a wide retail and direct-to-consumer presence, Williams-Sonoma is a leader in the $300 billion domestic home category, focused on expanding its exposure in the B2B, marketplace, and franchise areas. Namesake Williams-Sonoma (175 stores) offers high-end cooking essentials, while Pottery Barn (189 stores) provides casual home accessories. Brand extensions include Pottery Barn Kids (52 stores) and PBteen. West Elm (122 stores) is an emerging concept for young professionals, and Rejuvenation (9 stores) offers lighting and house parts. Williams-Sonoma also has a business-to-business team that supports projects that range from residential to large-scale commercial.

Coterra Energy Inc  

  • Coterra is an independent exploration and production company with operations in Appalachia and the Permian Basin. It was formed after the 2021 merger with Cabot and Cimarex. At year-end 2021, Coterra's proved reserves were 2.9 billion barrels of oil equivalent, with net production that year of approximately 431 million barrels of oil equivalent per day (of which 70% was natural gas). 
  • Coterra is the outlier among upstream stocks which are generally overvalued, most likely due to unwarranted optimism about long-term oil and gas prices (which are both currently trading well above marginal cost thresholds, tempting investors to project the current boom too far forward). 

Roche Holding AG

  • Roche is a Swiss biopharmaceutical and diagnostic company. The firm's best-selling pharmaceutical products include a variety of oncology therapies from acquired partner Genentech, and its diagnostics group was bolstered by the acquisition of Ventana in 2008. Oncology products account for 50% of pharmaceutical sales, and centralized and point-of-care diagnostics for more than half of diagnostic-related sales. 

  • Roche’s Alzheimer’s disease drug candidate, “gantenerumab” has failed to slow cognitive decline in two large phase 3 studies. Despite “gantenerumab’s” failure, Roche has an established portfolio and strong pipeline in oncology, as well as continued solid growth prospects for other key drugs in immunology and haematology. 

    Canadian Imperial Bank of Commerce

    • Canadian Imperial Bank Of Commerce is a Canadian financial institution that provides a full suite of financial products and services through three major business units including retail and business banking, wealth management, and capital markets. Founded in 1961 through the merger of The Canadian Bank of Commerce and Imperial Bank of Canada, the bank offers a full range of products and services through its electronic banking network, branches, and offices across Canada with offices in the United States and around the world. The bank is headquartered in Toronto, Canada.


    It is hard to imagine a more brutal year than 2022, which saw global stocks down by double digits, although the longer-term picture is much more balanced. A key variable that many investors are watching in 2023 is the degree to which corporate earnings are able to remain resilient, or if expectations are too high, which could spell more trouble for the market. That said, a potential burst of optimism is that central banks might be able to pause its rate hikes and “pivot” to lowering rates. 

    Much of these macro issues are unknowable and it is therefore dangerous to presume a certain pathway. To overcome these temptations, an investor must think probabilistically. The correct question is not “what is the market going to do next?” but rather “are assets priced reasonably for the current environment?” 

    Heading into 2023, bearish sentiment among investors is at the highest it’s been since tracking such data started 35 years ago. With a contrarian lens, this could be a positive. However, while the overall valuation landscape has undoubtedly improved, there are many assets which remain around fair value.


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