Investment Portfolio Update – 2021

Another year of strong returns, supported by outperformance in both Australian and international equities.

  • Australian equities returned 33.7%, outperforming the ASX 200, which returned 13.0%.

  • The international equities allocation returned 19.6%, driven by another year of outperformance in the U.S. share market.

  • Property exposure provided an 11.3% return, as investors focused on the economic recovery story.

The Kauri Wealth Model Portfolio returned +16.1% over the 2021 calendar year – another strong outperformance against the major asset classes.

The return for the six months to December 2021 was +6.8%.

All asset classes in the Kauri Wealth model portfolio provided positive returns.

Kauri Wealth Model Portfolio
6 months to 31 December 2021
Calendar Year 2021
Fixed Interest
Australian Property
Australian Shares
International Shares
Total Portfolio Return

Note: The returns from actual client portfolios will differ depending on the individual stocks held and the weightings held in each stock

Fixed Interest +2.0%

The return from this allocation resulted from maintaining a majority of the investments in floating-rate securities, which benefited from the increase in interest rates over the period.

Maintaining no exposure to fixed-rate government bonds has also served the portfolio well.

Australian Property +11.3%

Once again, the holding in Rural Funds Group was the primary provider of returns from this allocation, with the stock up 29.9% over the year. The company’s investments in quality agricultural land continue to be attractive to long-term investors.

Dexus also boosted the returns, with shares up 14.9% since being added to the portfolio in April.

Australian Shares +33.7%

Another outstanding period of returns from Australian equities. The majority of holdings in this allocation outperformed the benchmark. This sector exceeded the ASX 200 by an impressive 20.7%.

The best performing investments were GrainCorp +104.7%, Incitec Pivot +41.3%, National Australia Bank +36.6% and +36.7%.

International Shares +19.6%

This allocation provides exposure to a diversified portfolio of fund managers with different investment styles and mandates, from U.S. growth stocks (Arrowstreet), environmental and sustainability (Nanuk New World Fund), emerging markets (Legg Mason), and global value stocks (Orbis Global Equity).

The best performing investments in this allocation were Nanuk New World Fund +32.4% and Arrowstreet Global Equity Fund +32.4%.

Asset Allocation of the Kauri Wealth Model Portfolio

Asset Allocation
Portfolio Weight
Target Weight
Australian Cash
Australian Fixed Interest
Total Defensive
Australian Property
Australian Shares
International Shares
Total Growth

Equity Market returns – 2021

Global Share Markets
2021 CY
Australia – ASX 200
US – Dow Jones
US – S&P 500
US – Nasdaq
United Kingdom – FTSE
Japan – Nikkei
China – Shanghai Composite

Outlook for 2022

This time last year, I looked towards 2021 as being a good year for investors. My view was based on several key drivers:

  • COVID vaccines had commenced being rolled out globally;

  • The outcome of the U.S. Presidential election removed a key uncertainty weighing on investment markets;

  • Interest rates remained at historic low levels across the world;

  • Governments everywhere were implementing significant fiscal expenditure;

  • Consumer and business confidence were picking up strongly;

  • Residential property markets were strong; and

  • Merger and acquisition activity was strengthening. Private equity and large global pension funds were taking advantage of cheap money and embarking on an acquisition spree.

Returns over 2021 realised the opportunism at the start of the year and provided decent returns to investors.

The Australian benchmark index ASX 200 was up 13% for the year. Even better returns were generated in the U.S., with the S&P 500 up 27%.

2022 brings new challenges because sections of the economy and markets are out of balance. Labour demand exceeds supply, financial conditions are exceptionally loose (even when compared with improved economic fundamentals), and monetary policy accommodation remains extraordinary.

The gradual removal of monetary policy support and stimulus packages enacted to combat the pandemic-driven downturn will pose new challenges for policymakers and a source of risk for financial markets.

Key Points

Global economics: The global economic recovery is likely to normalise over 2022. It is expected that global GDP growth will slow over the year to reach 4.7%. This level of growth remains above both trend and consensus.

Ongoing supply disruptions continue to impact prices but should peak mid-2022 and then gradually ease. The U.S. Fed should make its first move in hiking interest rates late in 2022. Australia is expected to see several rate hikes in the cash rate in 2022.

Financial markets: Despite solid fundamentals, a backdrop of low bond yields, reduced policy support, and stretched valuations in some share markets sets up a challenging environment. Analysts are projecting the lowest 10-year annualised returns for global equities since the early 2000s, with more attractive returns expected outside the U.S.

Australia: The easing of lockdowns and reopening of border restrictions should see a strong demand recovery through 2022, helped by a stimulatory federal election.

The slow recovery in temporary and permanent migration will continue to support the tightening in our labour market, causing higher movements in wages and inflation.

The core risks for investors in 2022:

Negative Risks

  • Governments rein in their budget deficits via corporate tax hikes.

  • Regulators commence implementing regulatory/tax changes against the global technology giants.

  • COVID-19 virus mutations.

  • Geopolitics – Ukraine, Iran and the Middle East, China and U.S. tensions multiply – ‘Cold War 2’.

  • Inflation resurfaces faster than expected, and supply-side squeeze constrains global growth.

  • Inflation proves higher and more prolonged, clearly not transitory.

  • Global stimulus triggers asset bubbles.

Positive Risks

  • Consumer relief – euphoria and pent up demand boom.

  • Corporate capital expenditure boom.

  • Global fiscal expenditure by governments is higher than expected (infrastructure and climate-related).

Kauri Wealth Management is a Fee for Service investment advisory business and as such my advice is built around ongoing personal relationships with my client base. Personalised independent advice is backed up by a breadth of industry knowledge.

I accept a limited number of new clients each year and would be happy to discuss this further with you. Please don’t hesitate to contact me.

Russell Lees
Senior Adviser
Phone: +61 439 852 963

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