Q1 2022 Index Rebalance Update
January 3rd, 2022 Rebalance Highlights
While the recovering trends of the U.S. and global economy continue during the last quarter of 2021, the stock market has witnessed significant fluctuations mainly due to the increasing cases of COVID variants and the instability of government economic stimulus programs which have been largely ineffective. Global supply chains still suffer from the long-lasting chip shortage, which has visibly impacted corporate performance across different industries, such as electronic technology, biotechnology, and communication. Consumer supply shortages – literally empty store shelves – have been a detractor to consumer confidence at the same time inflation for consumers and producers is soaring to record levels. Looking into 2022, The Conference Board (TCB) forecasts that the US economy will grow by 3.5%, compared to the 5.6% growth prediction for 2021. Economic concerns over the momentum of recovery, inflation, and consumer confidence are widely believed to be the key factors for the 2022 economic outlook.
The performance of the U.S. innovation index started to pick up during the last quarter of 2021. Active innovators, including Microsoft, Ford, and Applied Materials are among the top contributors for the outperformance. For the global innovation index, while most of the returns are contributed by U.S. constituents, the performances of several global innovators are remarkable. For example, Nokia Oyj shares the 5th highest index weight (1.36%) at the beginning of Q4 2021 and returned 15.90% compared to the index average 3.21%.
Moving into Q1 2022, the U.S. and global indexes still favor active innovators with strong abilities to overcome the recent supply chain shocks and global trade frictions. For example, Ford Motor Company, which has achieved tremendous performance during Q4 2021, continues to constitute a large weight for both the U.S. and global indexes. It is expected that the company’s performance will maintain its momentum due to the positive outlook of its management team and its newly introduced product lines. From the sector classification level, the electronic technology sector remains the top-weighted sector among the U.S. and global indexes, making up over 20% of the total index weights for Q1 2022. Besides, it is noticeable to see that the health technology sector witnesses the highest weight increase for the U.S. index, with its weights increasing from 15.13% to 20.41% moving into the new quarter.
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