Unlike the other monthly reviews, this will be an extended review where I will list out the constituents of my portfolio- highlight what went well and what didn't go so well in the course of 2021.
Here's an overview of the portfolio performance in 2021
Passive Portfolio: +0.22%
Vanguard 500 Index: +28.54%
The initial target for the portfolio is to achieve at least 10% return on an annual basis and beat the Vanguard 500 index. While the first year performance is definitely lacklustre, the horizon is always at least 5 years and hence I'm not exactly too bothered about it. Remember that the performance of any portfolio in the first year is almost like a coin toss- check out the article here.
So what exactly makes up this passive portfolio?
Here's the breakdown.
Now, let's examine the performance of each of them in detail.
URTH (iShares MSCI World ETF)
Price Growth in 2021: +22.28%
Like what you are seeing in the US market, URTH which has a significant portion in the US market has a very strong growth in 2021. Definitely one of the better years in recent history. This is always meant to be the bedrock of my portfolio. I will be increasing the allocation to this ETF in 2022 as I will be taking up more risk in other asset (explained later)
BRK.B (Berkshire Hathaway)
Price Growth in 2021: +28.95%
BRK.B is one of the worst performing counters in 2020 with a mere growth of +2.37%. With the momentum returning to some of the value stocks in 2021, BRK.B makes a tremendous growth of +28.95%. This is a result which even beat the Vanguard 500 index. I'm positive about the growth of BRK.B in the coming years with the management constantly doing share buybacks at almost 5% on an annual basis. This is also meant to be one of the stable components in my portfolio and I will be increasing my allocation to this ETF in 2022.
ARK.K (ARK Innovation ETF)
Price Growth in 2021: -23.38%
I can't say I am surprised with this result. 2020 is too good a year for ARK.K. This ETF has always been a more high risk ETF and this is also the reason I have BRK.B to counter the effects of ARK.K and ARK.G in my portfolio as they are relatively uncorrelated. Investing in ARK.K has always been a 5 year conviction at least. I recognise the inherent issues with ARK ETFs as their AUM grew tremendously over the past 1-2 years but I'm still keeping it in the portfolio as I am positive about the performance of it over a longer runway. Cathie Wood has mentioned about the funds potentially growing 40% on an annual basis in the next 5 years so let's see. I will be increasing my allocation to a riskier asset in 2022 and hence I will reduce the allocation to this ETF in 2022.
ARK.G (ARK Genomic Revolution ETF)
Price Growth in 2021: -33.92%
It was easily one of the best performing ETFs in 2020 so this is certainly a big fall from grace. Again, such performance isn't exactly unexpected but maybe I didn't expect such a steep drop. ARK.G has always traditionally been more volatile than ARK.K as I have highlighted in my various articles such as this. I still believe in the genome revolution and hence I'm keeping this in my portfolio. But similar to ARK.K, I will reduce the allocation to this ETF in 2022.
Price Growth in 2021: -48.96%
Oh boy, I must say this is entirely unexpected and unanticipated. If you were to tell me the price of Alibaba would drop to half at the start of 2021, I would have never believed you. Such a drop of this magnitude is certainly unprecedented- just like the measures introduced by the China government in 2021. It was definitely frustrating to see this counter dropping by double digits in almost every month in the second half of 2021. It's absolute madness. Again, I'm still keeping this in my portfolio and everything is pointing towards a good rebound in 2022. However, I will also reduce allocation to this stock in 2022 and generally reduce keeping the exposure of my portfolio to China market to 20%.
iShares MSCI China ETF
Price Growth in 2021: -21.73%
If BABA is dropping by half the price, you will expect the overall China market (especially in the tech sector) to be not doing so well. The China market has always been more volatile. While I did expect the ETF to not perform as well as 2020, a 20% drop in 2021 is still beyond my expectations. I will be reducing the allocation to this ETF in 2022.
RDS.B (Royal Dutch Shell)
Price Growth in 2021: +34.35%
Phenomenal year for Shell in 2021- that's after an absolute horrendous year in 2020. The O&G sector has a very good year in 2021. While the price of the stock is still not where it was pre-COVID, I expect the good performance to continue in 2022. However, I will also be reducing the allocation to this stock in 2022.
And the reason why I'm reducing the allocation of quite a number of constituents in my portfolio in 2022 is due to...
Price Growth in 2021: +59.1%
While it has an almost 60% growth in price in 2021, many are expecting a lot more due to the halving event in 2020. I have recently written an article about why I'm optimistic about the price of Bitcoin in the long term (but not so in short term). I am positive about the general growth of this asset in the next few years and will be increasing my allocation to Bitcoin. This would mean I will be taking up more risks in my portfolio and you will be expecting a lot more volatility in my portfolio in the coming months/years. In fact, 2022 could jolly well be a negative year in my portfolio if Bitcoin has a nose-dive. But again, I'm confident about this asset growth in the coming years and I will continue to accumulate it in the near future.
With all these changes, how will the allocation of my portfolio look in 2022?
Here are some questions that run through my head and I thought you might be thinking the same when you see the changes in the portfolio.
1) Why is the allocation to the China market reduced substantially from 30% to 20%?
I personally feel that there is a fundamental shift in China market based on the happenings in 2021. Time and time again, it has been shown that the China government is taking a tough stance against anything that poses a threat to the integrity of the fabric of their society based on their actions in 2021. While I'm still positive about China, I am a lot more cautious too and hence I adjust my allocation accordingly. 20% is still a meaningful percentage to maintain in any portfolio that's looking to ride on the rise of China.
2) Why is there a big jump in the allocation of Bitcoin from 5% to 20%? Why not 100% Bitcoin then if there is such high confidence?
The main reasons why I'm bullish about Bitcoin are all explained in the article here. I have always advocated a minimum allocation of at least 5% in your portfolio to Bitcoin. I don't think there's any asset with a better reward to risk ratio for the next few years or even a decade ahead and the happenings to Bitcoin development in 2021 further fuel the confidence I have in Bitcoin.
I do understand that a 20% allocation to Bitcoin will mean that most of my risks in the portfolio will be residing in Bitcoin and I recognise that. However, this is also a suitable allocation that allows me to reap the most out of the growth in this asset in the coming years without seeing my portfolio having a drawdown of 80% during the crypto bear market (in the event that I have an allocation of 100% Bitcoin). At this current allocation together with what I have in the rest of my portfolio, I'm seeing a maximum drawdown of -24% in my portfolio based on backtesting results. That's something I could live with. To me, a 20% allocation hits the sweet spot. I won't recommend that for anyone who's looking for little volatility in your portfolio to be doing so. I'm in a stage of life where I'm looking at accumulation and hence I'm willing to take that extra risk for the returns. As I grow older, this allocation percentage will fall accordingly to match my risk appetite .
I will continue to post my portfolio updates in 2022. Like before, rebalancing will only occur on an annual basis- so any change to the portfolio will happen in 2023.
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