It was a shocker!
Red numbers across all significant stock markets, global bonds and most investment styles, made for very negative outcomes for most Irish investment funds in 2022.
Fear of inflation followed by fear of recession, coinciding with huge geo-political risk (Russia/China) and Central Bank catch-up, made it a year of living dangerously for many assets.
Developed market stocks are the mainstay of many multi-asset funds. Despite many mini-rallies, that were among the biggest we’ve seen since 1981, stocks never achieved escape velocity and in aggregate delivered negative returns in the region of 12% in Euro terms. Emerging Market equities followed in the slip-stream losing about 15% for the year.
Central Banks really called the tune for stock markets as rate hikes increased in frequency and lot-size. This interest rate uncertainty naturally flowed through to bond markets where yields spiked up. Global bonds saw losses in excess of 20% in 2022.
Commodities provided little comfort. Gold, the favoured safe-haven asset underwhelmed. Granted it didn’t fall but I expect more from my safe haven assets if apocalypse seems to be beckoning! The price peaked in March after the invasion at about 2050$ and finished the year at 1850$
Reasonably slim pickings elsewhere in the commodity space – using Copper as an example. A slowing global economy weighed heavily on Copper, the only metal with a PHD in economics. Similarly peaking in March at 4.9$, a downward summer shift meant it finished the year at about 3.9$.
So as investment reports start to arrive on peoples’ desks, how did Irish fund managers cope with miserable markets? Looking at the major surveys of Irish Multi-asset managers, most multi-asset funds experienced negative outcomes in the 10 to 15% range – and there was a strong degree of clustering around this average. Choices around style or risk bucket made little difference although Value did hold up best out of the major factors.
In the UK, a typical balanced fund had its worst year since 1937.
It was interesting to see how some funds performed in this dismal landscape. Many of 2021’s winners (those who performed significantly above average) brought up the rear in 2022, (performing way below average). The figures below show 2021 outperformance being given up in 2022. Delving into some funds shows that a high exposure to US technology names was the driver of returns, both to the upside and downside.
What about Absolute Return funds – funds that were intended to give reasonable returns and be less dependent on overall market conditions? Well they provided little safe haven for Irish investors in 2022. Of the three main absolute return funds marketed locally, two delivered negative returns in excess of 10%, while the third just edged into positive territory.
Clearly it was a tough year for investors globally. Was there any relief to be had anywhere in the funds space?
We did see very positive returns from so-called Global Macro Hedge funds as they benefitted from the widely signalled seismic upward-shifts in global interest rates. Many high profile Macro funds delivered returns in the 30 – 40% range. This was their best year since 2007. But it wasn’t across the board in the Hedge fund space as equity hedge funds were on average negative.
And indeed there was relative success closer to home. Within Irish Multi-asset funds we saw some that came close to a positive return. One outstanding fund delivered a return just about 1% negative – which in 2022 was a very fine outcome.
2022 proved difficult because so many market friendly trends were reversing – interest rates, earnings growth, bond buying etc. Near term, these 2022 trends will continue but it is possible, over the course of 2023, to see – if not a reversal – certainly a relaxation in pace.
Tradewinds 