market briefing

Market Briefing (no.50) – 20th December 2022

2022 will go down in British history as the end of the second Elizabethan era, as the Queen passed away. The Carolean age began on the 8th September with the accession of the former Prince of Wales becoming King Charles III.

The theme of change continued in Westminster as 2022 saw four Chancellors and three Prime Ministers in Downing Street with Rishi Sunak eventually moving from Number 11 to Number 10.

In the world of sport, tennis saw one of ‘the big three’ – Novak Djokovic – being deported from Australia as the pandemic retained its grip on world events. Later in the year another of ‘the big three’ – Roger Federer – retired from playing tennis with a final professional match against his fellow ‘big three’ opponent and friend Rafael Nadal.

The summer saw the XXII Commonwealth games take place, with Birmingham and the wider West Midlands putting on a great show with 72 nations taking part in what would be the 18th and last Games of Queen Elizabeth’s reign.

The year ended with England and Wales competing in the 2022 FIFA World Cup, held for the first time in the Middle East.

News internationally saw the war outbreak in Ukraine being triggered by Russia’s invasion in February, which led to a humanitarian crisis that continues to be devastating. The war has also significantly impacted all parts of the global economy including materially higher inflation, higher interest rates and slower economic growth.

A patchwork of performance

Staying with the global economy, and in the light of this year’s events including higher inflation and interest rates, how have different asset types – for example equity sectors, bonds & cash, different geographical equities, and real assets – reacted and responded?

Geographical equities

As graph 1 shows – which covers the period 30.12.11 to last week (12.12.22) – the North American market dominates as a country or region in returns (as expressed as Total Return in British pounds).

But is this the case every year?

Market briefing 50

Looking back over the last decade, plus 2022 up to the end of last month, an analysis calendar year on year – known as discrete annual performance – is enlightening.

Geographical equities – a patchwork quilt

Showing total return performance in British pounds for some of the seven main global geographical equity regions up to last week, North America appears highest in six of the eleven years covered below but loses its highest return spot this year from last year.

In two of the remaining five years, North America appears in second place and is only out of the top three in two years; 2012 (5th) and 2017 (lowest).

Asia excluding Japan shows inconsistency by appearing highest in three years and either second from lowest or lowest in five years, finishing fifth this year.

Moving to Japan, ‘mid table mediocrity’ appears to be the narrative, appearing either third or fourth in eight of the eleven years, with one highest return in 2015. This year saw its highest return since 2018, in third.

Emerging markets, so often the most volatile sector, doesn’t disappoint in this regard, as it appears in all positions except fourth, with one highest return in 2016, appearing lowest for the third time this year.

Moving across to Europe excluding the UK, a mixed bag by appearing at least once in all but the highest spot, with three second positions and three lowest positions, finishing fourth this year.

And back here in the UK? A picture paints a thousand words, and it certainly does when we look at the UK. Although only one appearance at lowest (2020) and appearing either in fourth or fifth in six of the eleven years, last year’s second place finish has gone one better this year, with a first appearance as the highest return.

Equity sectors, bonds & cash

As would be expected over a longer time period, such as a decade or more, from 30.12.2011 to 12.12.2022, graph 2 shows all equity sectors returning higher than their fixed income alternatives such as bonds and UK gilts. Of note too is that all equity sectors return higher than UK inflation (UK Consumer Price Index) and UK base rates over this medium-term period. Although unlikely, only time will tell whether recent increases in both inflation (albeit reducing last week) and interest rates will impact this.

Market briefing 50 graph 2

What does the annual discrete performance show?

Equity sectors, bonds & cash – a patchwork quilt

The growth investment philosophy (2) is the most successful in terms of highest returns by appearing four times during the eleven years of assessment. Small cap (3) equities are a close second, appearing three times in the highest return spot.

2022 is however a different story. Growth falls to its lowest position within these eleven years, with small cap recording their second lowest return (lowest being 2018). This year saw the value investment philosophy (4) appearing second highest for the second consecutive year, evidencing the ‘growth to value’ rotation (or change) that has occurred over the last 18 months or so.

As would be expected during the period 2011 to 2022, fixed income asset classes such as bonds and UK gilts generally appear in the bottom half other than ‘one-off’ appearances as highest return, i.e., for UK gilts 2014 and bonds 2018. 2022 was particularly poor for UK gilts appearing lowest for the second consecutive year.

In terms of cash statistics such as UK CPI and UK base rate, this year they appear in their highest positions during this period; UK CPI, reflecting inflation, appearing highest, and UK base rates reflecting interest rates appearing third. Both reflect the challenging times caused by the ‘cost of living crisis.’ And finally, let’s consider a new group of investment, real assets (5).

Real assets

Investable assets fall into two overall categories: tangible and intangible assets. Intangible assets include all the sectors and asset types we have reviewed above, i.e., financial assets. It also includes assets that are not physical in nature, i.e., copyrights, brand value, trademarks, intellectual property, etc. Real assets on the other hand are categorised as tangible assets; this is because they are physical assets that have an intrinsic value due to their substance and properties. Real assets include precious metals, commodities, property/real estate, utilities, infrastructure, energy etc. They can be appropriate for inclusion in a diversified portfolio because of their relatively low historical correlation (6) with financial assets, such as stocks (equities) and bonds.

Market briefing 50 graph 3

Looking at graph 3, over the same period as graph 1 & 2, the winner has been utility stocks, with a circa 23% of additional return over the second placed infrastructure sector. Property is in at third and materials in fourth and are separated by less than 1% over the eleven years. As we have considered above, how do these different real assets perform on a discrete annual basis?

A patchwork quilt – real assets

Although the winner over the eleven-year period, utilities appear only three times as the highest annual return, in addition to two second places and one third place and never in the lowest two places. While only being highest once, infrastructure is the only real asset type that does not appear in the lowest three places. With seven appearances in the lowest three places, energy has significantly recovered in 2021 and 2022, appearing in both years as the highest returning real asset sector, no doubt caused in part by a spike in energy prices instigated by the war in Ukraine.

All asset types and sectors – a patchwork of performance

Combining all the discrete annual tables, 2016 saw commodities with the largest highest annual return (55.70%), with 2018 having the smallest highest return with utilities (8.00%). It is interesting to note that six of the eleven highest returns came from real assets.

2016 and 2019 were the years that did not record any negative returns, with the lowest returns coming from UK base rate with 0.40% in 2016 and 0.75% in 2019. The greatest year-on-year swing from negative to positive returns was energy in 2020 with negative -32.21%, returning positive 40.81% in 2021; a swing of 73.02%.

What should this tell you?

Remembering that ‘past performance is no guide to future returns’, no matter what annual statistics show, from an investment perspective, as the ‘patchwork quilts’ show above, investors should ignore short-term durations.

Focus should be on ‘smart diversification’. In other words, investing should be across intangible and tangible assets. This would include different intangible asset types, such as bonds as well as equities and across geographical jurisdictions, so they are not confined to one or two countries or regions. It should also involve investing across investment styles, that should include active management and index/passive investing, and across different investment philosophies that include growth and value. Where possible, tangible assets should also be invested in, such as Real assets, which could include precious metals, commodities, property/real estate, utilities, infrastructure, energy etc.

Although ‘smart diversification’ doesn’t guarantee performance in any way, and does not eliminate risk completely, having a diversified portfolio can help investors minimise their risks.

It is also important to remember that it is often the case that investors have a long-term investment time horizon. So, although ‘smart diversification’ does not guarantee against loss, it will likely help with the most important component of reaching long-range financial goals whilst minimising risk.

As we have said many times before, we will continue to monitor the current financial situation and keep you notified of any significant changes that are made. Please contact your Foster Denovo Partner if you wish to discuss your financial situation further.

At times like these, it is even more important that you are taking advice on your finances by a qualified and experienced financial planner. If you think any of your friends, family or colleagues would benefit from speaking to us, especially in the current situation, then please introduce them to your Foster Denovo Partner who would be happy to help.



1) Financial Express Fundinfo
2) Growth investing is a stock-buying strategy that looks for companies that are expected to grow at an above-average rate compared to their industry or the broader market. Growth investors tend to favour smaller, younger companies poised to expand and increase profitability potential in the future – https://www.investopedia.com/terms/g/growthinvesting.asp
3) On the London Stock Exchange, the term ‘small cap’ refers to companies with a market capitalisation between £50m and £230m. This is vastly different from the United States, where stocks in this category have much larger market caps, ranging between $300m and $2bn – https://www.fool.co.uk/investing-basics/types-of-stocks/investing-insmall- cap-stocks-in-the-uk/
4) Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their
intrinsic or book value. Value investors actively ferret out stocks they think the stock market is underestimating.
Value investors use financial analysis, don’t follow the herd, and are long-term investors of quality companies –
5) A real asset can be described as a tangible asset that possesses value due to being able to produce goods or
services – https://www.wallstreetprep.com/knowledge/real-assets/
6) Correlation describes the relationship that exists between two shares/stocks and their respective price movements. It can also refer to the relationship between shares/stocks and other asset classes, such as bonds or real estate. In general, stock correlation refers to how shares/stocks move in relation to one another – https://smartasset.com/investing/stock-correlation
7) FRN (Floating rate notes) are a bond that have a variable interest rate, vs. a fixed-rate note that has an interest rate that doesn’t fluctuate. The interest rate for an FRN is tied to a benchmark rate… [such as] the London Interbank Offered Rate (LIBOR). They are issued by financial institutions, governments, and corporations in maturities of two-to-five years. https://www.investopedia.com/terms/f/frn.asp They are included in real assets due to their relatively short-term time period.

Key Indicators up to 30th November 2022

The ‘Key Indicators’ shown in the table to the left are designed to provide an overview analysis of different asset types, different geographical jurisdictions and industrial sectors.

They also include statistics that show the changes in inflation, property – both residential and commercial – together with how UK base interest rate and ‘high street’ interest rates change.

The comparison period is over 1 year and compares the difference on a monthly basis over that 1-year period.

For example, this version compares the statistics for all key indicators between 31st October 2021 and 31st October 2022 against 30th November 2021 and 30th November 2022 (the most up to date data available).

Every quarter the key indicators will also include data that is published quarterly in arrears, for example UK Gross Domestic Product (GDP) and unemployment figures for the UK and where available overseas geographical jurisdictions.
The source of this data unless stated otherwise is FE Fundinfo (1).

Important information 

This publication is marketing material. It is for information purposes only. This statement is for the sole use of the recipient to whom it has been directly delivered by their Foster Denovo Partner and should not be reproduced, copied or made available to others. The information presented herein is for illustrative purposes only and does not provide sufficient information on which to make an informed investment decision.

This document is not intended and should not be construed as an offer, solicitation, or recommendation to buy or sell any specific investments or participate in any investment (or other) strategy. Potential investors will have sought advice concerning the suitability of any investment from their Foster Denovo Partner. Potential investors should be aware that past performance is not an indication of future performance and the value of investments, and the income derived from them, may fluctuate and they may not receive back the amount they originally invested. The tax treatment of investments depends on each investor’s individual circumstances and is subject to changes in tax legislation.