Happy new year! I hope everyone was able to enjoy some time off with friends and family. I know I am excited for 2023!
2022 was quite the year for investments, and not in a good way! Stubbornly high inflation globally followed by a fast pace of interest rate hikes across developed country central banks led to both negative equity and fixed income returns pretty much across the board.
- December marked the 4th consecutive month where the S&P had an absolute return > 5%, which is quite astonishing (Sept = -9.2%, Oct = +8.1%, Nov = +5.6%, Dec = -5.8%). Imagine trying to be a market timer and get that right...
- Non-US REITs (1.6%), MSCI EAFE Small Cap (1.1%), and MSCI EAFE (0.1%) were the only positive performers for the month of December.
- Even with a rising dollar over the year, the MSCI EAFE and non-US REITs outperformed the S&P 500 and US REITs respectively.
- In the growth vs. value debate, it was value who was the clear winner.
- Even though investors won't enjoy seeing negative returns in 2022, it serves as a reminder that markets don't always go up. However, keeping things in perspective, a client that has been invested in the MSCI ACWI for 10 years has still earned an 8.0% return, which is not too shabby.
In fixed income:
- Shorter duration fixed income generated positive return, while most intermediate and longer term benchmarks were negative in December.
- YTD, only the 3 month Tbill earned a positive return (1.5%).
- The Agg fell 13% for the year, far lower than it's previous worst annual return of -2.9% in 1994 (history going back to 1980). In fact, in 43 years of Agg returns, only five years have been negative, with two of the five coming in 2022 and 2021.
- On a positive note, with yields where they are today, there is at least more coupon income to offset at least some negative price returns if yields continue to rise.
From a globally balanced portfolio perspective, a 60% MSCI ACWI Net / 40% Bloomberg Global Agg Hdg USD benchmark dropped -15.3% during 2022. How does this compare to a sample of other negative returning years?
- 2018 was the last year this benchmark suffered a negative return, declining -4.9%.
- 2008 was by far worse than 2022, with this blended benchmark losing -25.6% (note in 2009 the same benchmark bounced back, gaining 22.7%).
Please let us know if you have any questions by emailingSupport@xyinvestmentsolutions.com
As an additional note, please keep in mind that these reflect historical performance of the current models, not necessarily how accounts were invested in the past.