2022 has been a pretty bumpy ride for investors, driven predominately by global macro factors and the ebbs and flows of market reaction to the latest news. The top line numbers for 2022 are underwhelming, the ASX All Ordinaries Index declined 7.2%, taking the 10-year annual growth rate to positive 4.5%. This modest annual movement hides the volatility that occurred throughout the year and the uncertainty that exists in the global economic outlook. Flagship Investments posted portfolio returns of negative 17.6% for the calendar year, bringing the 10-year annual performance to positive 12.7%.
Throughout the year the headlines were all about inflation metrics and the enacted or forecasted changes in the official cash rate. The central banks’ response to inflation has had the single biggest impact on equity markets throughout the year. A force that repeatedly led to bull and bear oscillating sentiment. Drastic changes in interest rates have been deemed necessary to fight persistent inflation, however, as yet they hardly seem sufficient to sway the demand for supply-constrained commodities, goods and services. It should be said that Australia appears well positioned in this balance and has not needed to be as aggressive as overseas jurisdictions with its rate hikes.
While the macro environment can impact short-term returns in a significant way, it is our belief that over the long term, exposure to quality companies will provide superior investment performance. We see turbulence as a normal part of the market which means we can capitalise on this feature. It is critical to consistently apply our investment process, we do not speculate to try and bolster short-term statistics. By staying true to our process and investment philosophy means that we can focus our efforts on things within our control, stress test items outside our control and ultimately remain congruent with our promise to Shareholders to create value over the long term.
In the middle of the year, Australians witnessed significant security breaches from two very prominent companies- Optus and Medibank. The fallout from these cyber-attacks is still being played out and emphasises the vulnerability of individuals’ data and the simple weaknesses that betray effective security. It is important not to underestimate the skills and organisation of the unseen enemies, however, it is a reminder to all entities to remain vigilant and remain focused on best practice data controls.
On the 8th of September 2022, Queen Elizabeth II died. The end of a remarkable reign as the Head of State of the United Kingdom. Queen Elizabeth II was a true statesman, selflessly representing the UK for 70 years. While some may argue the merits of a monarchy, she was always a dignified example of the positive traits required and the positive impact one person can have on their country and the world.
During the year Flagship Investments launched its new website. By revitalising the brand of FSI and developing our social media presence we hope to inspire and educate investors who share our passion for sustainable long-term accumulation of wealth. We would encourage interested investors to subscribe to our monthly newsletter and stay up-to-date with our performance and insights.
It has certainly been an interesting year and in many respects, we will see many themes continue into 2023. In the meantime, from everyone at FSI, we hope you enjoyed a safe and joyful festive season. For those taking time off, we hope you are enjoying the holidays with friends and family. We look forward to seeing you in during the New Year!