Saxo Morningstar High Dividend USD Q4 2021 commentary

Overall, 2021 will be remembered as a great year for growth investors, but a difficult year for defensive investors. Developed-market stocks delivered exceptional performance while bonds and emerging-market assets delivered muted (and, in some cases, negative) returns. 

In the first half of the year, economic reopening and coronavirus vaccinations drove a rally in value-oriented stocks. Many companies that had been impacted by the pandemic, such as travel companies, began to bounce back, and industrial and materials stocks had strong showings in the first half of the year. Developed-markets financials, energy, and consumer discretionary stocks all increased as confidence in the economic recovery grew, but emerging-markets stocks didn’t keep up in those sectors.

The second half of the year was a different story, as inflationary pressures, the prospect of tightening monetary conditions, and the resurgent pandemic acted as a break to the first half year rally,  especially in emerging markets. Developed-market equities continued to rise but saw greater volatility as the year came to a close. 

Only time will tell what investors remember most about 2021. Perhaps it’ll be the stock market, with some key markets delivering 20%+ gains, but many will likely remember 2021 as the year that inflation returned. Both of these outcomes were considered unlikely by market participants last year, showing the importance of diversified and robust portfolio positioning. 
   

Portfolio performance (net of fees) 

Oct	4.1%
Nov	-3.7%
Dec	6.1%
Inception (July 2018)	33.98%

Top 10 portfolio holdings (as of 31/12/2021)

Name	Weight (%)
ING Group NV	4.05
Hubbell Inc	4.03
Canadian Imperial Bank of Commerce	4.00
National Bank of Canada	3.88
Microsoft Corp	3.69
Sanofi SA	3.07
PPL Corp	3.02
Magellan Midstream Partners LP	2.96
BAE Systems PLC	2.67
Roche Holding AG ADR	0.41

Top Performers

• Pfizer Inc: Pfizer is one of the world's largest pharmaceutical firms, with annual sales close to $50 billion (excluding COVID-19 vaccine sales). While it historically sold many types of healthcare products and chemicals, now, prescription drugs and vaccines account for the majority of sales. Top sellers include pneumococcal vaccine Prevnar 13, cancer drug Ibrance, cardiovascular treatment Eliquis, and immunology drug Xeljanz. Pfizer sells these products globally, with international sales representing close to 50% of its total sales. Within international sales, emerging markets are a major contributor.
  
  
• Microsoft Corp: Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three equally sized broad segments: productivity and business processes (legacy Microsoft Office, cloud-based Office 365, Exchange, SharePoint, Skype, LinkedIn, Dynamics), intelligence cloud (infrastructure- and platform-as-a-service offerings Azure, Windows Server OS, SQL Server), and more personal computing (Windows Client, Xbox, Bing search, display advertising, and Surface laptops, tablets, and desktops).
  
  
• Cisco Systems Inc: Cisco Systems, Inc. is the world's largest hardware and software supplier within the networking solutions sector. The infrastructure platforms group includes hardware and software products for switching, routing, data center, and wireless applications. Its applications portfolio contains collaboration, analytics, and Internet of Things products. The security segment contains Cisco's firewall and software-defined security products. Services are Cisco's technical support and advanced services offerings. The company’s wide array of hardware is complemented with solutions for software-defined networking, analytics, and intent-based networking. In collaboration with Cisco's initiative on growing software and services, its revenue model is focused on increasing subscriptions and recurring sales.
  
  
• The Toronto-Dominion Bank: Toronto-Dominion is one of Canada's two largest banks and operates three business segments: Canadian retail banking, U.S. retail banking, and wholesale banking. The bank’s U.S. operations span from Maine to Florida, with a strong presence in the Northeast. It also has a 42% ownership stake in TD Ameritrade, a discount brokerage.
  
  
• Genuine Parts Co: Genuine Parts sells automotive parts (about two thirds of net sales) and industrial components. The company sells vehicle parts to commercial and retail customers through roughly 9,800 stores worldwide, most of which are independently owned. Its industrial unit, primarily operating under the Motion Industries banner in the United States, supplies bearings, power transmission, industrial automation, hydraulic, and pneumatic components to maintenance, repair, and OEM clients.

Worst Performers:

• ING Group NV: The merger of the Dutch postal bank and NN Insurance in 1991 created ING. Through a series of further acquisitions ING build up a global footprint. The 2008 financial crisis forced ING to seek government support--a precondition of which was that ING should separate its banking and insurance activities, which saw ING revert to being solely a bank. ING has market- leading banking operations in the Netherlands and Belgium, and a range of digital banks across Europe and Australia. Its global wholesale banking operation is primarily focused on lending.
  
  
• Intel Corp: Intel is the world's largest chipmaker. It designs and manufactures microprocessors for the global personal computer and data center markets. Intel pioneered the x86 architecture for microprocessors. It was the prime proponent of Moore's law for advances in semiconductor manufacturing, though the firm has recently faced manufacturing delays. While Intel's server processor business has benefited from the shift to the cloud, the firm has also been expanding into new adjacencies as the personal computer market has stagnated. These include areas such as the Internet of Things, artificial intelligence, and automotive. Intel has been active on the merger and acquisitions front, acquiring Altera, Mobileye, and Habana Labs in order to bolster these efforts in non-PC arenas.
  
  
• AT&T Inc: Wireless is AT&T's largest business, contributing about 40% of revenue. The firm is the third- largest U.S. wireless carrier, connecting 66 million postpaid and 17 million prepaid phone customers. Warner Media contributes a bit less than 20% of revenue with media assets that include HBO, the Turner cable networks, and the Warner Brothers studios. AT&T plans to spin Warner off and merge it with Discovery to create a new stand-alone media firm. The firm recently sold a 30% stake in its traditional television business, which serves 15 million customers and generates about 17% of sales. This business will be removed from AT&T's financials going forward. Fixed-line telecom services provided to businesses and consumers account for about 20% of revenue, serving about 15 million broadband customers.
  
  
• Basf SE: 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. Given its sheer size, BASF has a top-three market position in 70% of its businesses.
  
  
• Compass Minerals International Inc: Compass Minerals produces two primary products: salt and specialty fertilizers. The company's main assets include rock salt mines in Ontario, Louisiana, and the United Kingdom and salt brine operations at the Great Salt Lake in Utah. Compass' salt products are used for de-icing and also by industrial and consumer end markets. The firm also sells sulphate of potash, which is used by growers of high-value crops that are sensitive to standard potash. Compass is expanding its portfolio and plans to enter the fire retardant market, with its magnesium chloride-based product used to combat forest fires. The company also plans to enter the lithium market. Compass will produce magnesium chloride and lithium as by-products from its sulphate of potash operation.
  
   

Outlook

Omicron, inflation, and higher interest rates top the list of investor concerns, while stretched valuations would hint at a narrowed opportunity set. Whatever the economic and market conditions, in every situation, the right approach is to view the future probabilistically and think long term.

Accepting some volatility is a pre-requisite for good returns in any market, but today’s market arguably requires greater care than usual. This necessitates to target the best assets for wealth creation and preservation, with careful sizing and smart diversification.