For the third year in a row, stock-fund investors made big gains, but bond funds continued to receive more investor cash.
The stock-fund’s average profit included 6.7% advances for the fourth quarter, as many investors were confident that the level of economic disruption from the Covid transition would not be the same as at the start of the pandemic and lockdown in 2020.
International stock funds were up 9.6% for 2021, including a 2.3% gain in the fourth quarter.
Underpinning the rally was an economic rebound that was stronger than many analysts expected; The companies posted some of their best results ever.
Many investors nevertheless continued to hedge their bets. As they did in 2020, investors put more money in the relative safety of bond funds than they did in stock funds, foreign or domestic. They sent a net $587.10 billion into bond-focused mutual funds and exchange-traded funds in 2021, according to Investment Company Institute estimates. He invested $113.07 billion in US-stock funds and $193.19 billion in international stock funds.
However, that caution was not rewarded. Bond funds declined in 2021. Funds tied to intermediate-maturity, investment-grade debt (the most common type of fixed-income fund) were down 1.3% for the year, including an average decline of 0.2% in the fourth quarter.
The ride may be more rocky in 2022 – at least according to some of the same analysts who underestimated 2021 – with the Federal Reserve raising interest rates, and expectations of the uncertainties of the virus and supply-chain problems .
Investors can expect 2022 to be a year of transition, says Lauren Goodwin, economist and portfolio strategist at New York Life Investments. Although the world is “going from the extreme pandemic of Covid-19 and managing a more regular life,” she says, investment managers can expect more volatility in the markets and lower returns than in the past two years, as governments financial support has decreased.
Mr. Power is the Wall Street Journal’s Features Editor in South Brunswick, email him at [email protected]