Everlake Investment Portfolios & 2022 Performance Review

By Marc Westlake

Published on: January 5, 2023

Having clearly defined and articulated their goals, we work with our clients to implement a bespoke investment portfolio that is aligned to their objectives, values and philosophy about money. We offer investors a choice of portfolios with a common philosophy applied to all – low cost, tax efficient, and globally diversified.

At Everlake, we always seek to ensure that your values are reflected as fully as possible in the financial planning and investment approach that we recommend.

We offer our clients a range of investment portfolio options, specifically designed to meet a strict set of objectives and match with client values, preferences, and requirements.

These portfolios will behave very differently from one another, as illustrated in the table below.

YTD Return

Source: FE as at 26th December 2022

Note the Sustainable Market (US ETF) portfolio does not have a 1-year track record.

Review of Investment Portfolio Performance in 2022

Breaking down our portfolios into their constituent parts, let’s examine if it really was all doom and gloom for investors last year.

Starting with equities, the graph below shows that the Stock Market is comprised of different asset classes which perform differently from one another from time to time.

Year to date returns to 23rd December 2022

Year to Date 23.12.22

Source: FE

The clear ‘winner’ of 2022 was the value investor, represented here by an investment in Global Smaller Value stocks.

In contrast the ‘losing’ investment was the growth investor, represented here by the NASDAQ index comprised predominantly of US tech stocks.

However, if we take a step back and look at these same investments over a longer time period, we see a different picture. The value investor consistently underperformed the market, whilst the NASDAQ averaged a little over 20% pa for the last decade in Euro terms.

Over the last 10 years the picture looks like this

Last ten year picture

Last ten year picture 2

Source: FE

Over the last 10 years, Emerging Markets have provided a relatively pedestrian 4.26% pa for a Euro investor.

Looking the ratio between price and earnings below, it shows that many parts of the market, and Emerging Markets in particular, are now relatively cheap by historic measures.

Price Earnings Ratio

Source: Morningstar as of 22nd December 2022

Now, it’s important to note that a low price/earnings ratio is not a guarantee of future profits and prices could still go lower. But what we can say is that the market is rationally discounting the higher risks associated with investing in Emerging Markets compared to US tech stocks. A bigger discount and more investment risk, all things being equal, implies a higher expected future return.

So, now let’s look at how all this this translated into portfolio for returns for our clients.

Year to date returns for a sample of Everlake equity strategies

Year to date returns for a sample of Everlake equity strategies

Source: FE

We can see from the graph above that 2022 wasn’t uniformly awful for our clients. Broadly speaking those investors with a preference for a Value Portfolio did better than our Sustainable Investment Portfolios.

Returns since April 2020 for a sample of Everlake equity strategies

Returns since April 2020 for a sample of Everlake equity strategies

Source: FE

We can clearly see from the above, that the post Covid period has been a relatively good time to be a value investor compared to a growth investor.

Everlake Investment Trust Value Portfolio (partial stock list)

Everlake Investment Trust Value Portfolio (partial stock list)

Source: Morningstar

But we must dig a little deeper to establish exactly what stocks are in a Global Value Portfolio.

This is a partial list of stocks in the Everlake Value Portfolio and shows that investors with this portfolio would hold relatively large positions in, for example, fossil fuel and tobacco companies.

Investors who wish to exclude certain industries from their portfolios based on personal values, will have a portfolio that looks different to the market and will therefore, from time to time, inevitably perform differently to the market.

We really can’t say if this difference in performance will be positive or negative over time, just that it will result in differences.

Now let’s look at the Fixed Interest or Bond market.

At Everlake, our preference is to use Fixed Interest to reduce investment risk in a portfolio and that this is best achieved by keeping the term of a fixed interest investment (duration) short and the credit or default risk low. We can see this point clearly illustrated in the graph below where the global short-term Bond fund has the least volatility and smallest overall decline in value over the period.

Again, within the Bond market different asset classes with different risk/return characteristics within Fixed Interest performed differently and relatively predictably from one another in 2022.

Fixed Interest Performance

Source: FE

As the investment risk of the underlying asset increases (for example High Yield or Emerging Market Bonds) the correlation with equities increases and therefore the diversification benefits are reduced during times of market stress.

We can also see this clearly in the Spring of 2020 with the covid sell off.

Bonds During Market Stress

Source: FE

What does this tell us about future expected returns in Fixed Interest?

Just like when we looked at the Price/Earnings ratio in Equities to give an indication of the likely prospects of different elements in the Stock market, we can use the yield to maturity of a bond fund to give an indication of the likely future returns. An investors future expected nominal return is approximately 90% correlated with the starting yield to maturity of their investment.

Yield to Maturity

Source: Fund Manager as at end November 2022. Yield to maturity or yield to worst for callable bonds.

From this we can conclude that whilst we generally don’t like more risky bonds as defensive assets within a portfolio at this time there is an embedded value arising from the sharp selloff in 2020 leading to a higher expected return in the future which should compensate investors for holding the additional risk in their portfolios.

The ‘green bonds’ in our sustainable portfolios also endured a similar experience as the rest of the fixed interest market in 2022.

Source: FE

Finally, we look at the role played by Infrastructure and Real Estate Investment in our portfolios in 2022.

Infratructire and real estate

Source: FE

Looking ahead to 2023 these investments now offer reasonably attractive income yields.

Income Yield

Source: Morningstar as at 23/12/2022

Speak to us about an investment portfolio that matches your values and objectives, or review your existing investment portfolio with us

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