The fourth quarter of 2022 (Q4) saw some reprieve for markets, thanks to signs of easing inflation and China’s relaxation of its Covid restrictions. Even so, 2022 as a whole remained a rough year for global assets as geopolitical tensions, soaring inflation, and aggressive central bank tightening dragged on both equity and bond markets.
In USD terms, the MSCI AC World Equity Index returned 9.9% in Q4 but slumped 18% in 2022. The FTSE World Government Bond Index, meanwhile, also posted positive returns of 3.8% in Q4, but declined 18.3% for the year as a whole.
Given this macro environment, find out how our portfolios have performed in Q4 and 2022, and what we’re watching in 2023:
During Q4, StashAway’s General Investing (GI) portfolios returned between 4% and 10.3% in USD terms. On average, our GI portfolios outperformed their respective benchmarks by 0.5 percentage points in USD terms.
Our allocations to US energy equities were a key source of support for our portfolios in Q4 as higher oil and gas prices contributed to strong earnings for major holdings such as ExxonMobil and Chevron. Similarly, higher commodity prices supported the performance of ETFs tracking commodity-exporting economies like Australia and Canada.
In Q4, slower-than-expected inflation data bolstered expectations that the Fed would begin easing its pace of interest rate hikes, which in turn contributed to a weaker USD. As a result, our allocations to non-USD assets including Japanese equities and international bonds helped portfolio performance. Expectations of slower Fed hikes – paired with attractive valuations – also contributed to a rally in risk assets, such as US small-cap equities, over the quarter.
Our allocations to Gold continued to provide protection to our portfolios, due to its low correlation to stock and bond prices. The metal held up well, outperforming both equities and bonds over the quarter. Gold may also benefit in the months ahead should the USD continue to weaken as the Fed slows down its pace of rate hikes.
2022 was a year that saw double-digit declines in both equity and bond markets. For the full year, our GI portfolios returned between -16% and -9.5% in USD terms. Despite the challenging backdrop, our portfolios outperformed their benchmarks by 5.3 percentage points on average.
Similar to Q4, US energy equities were a major source of support for our portfolios in 2022, aided by higher commodity prices. Our allocation to short-duration fixed income, including floating rate notes and US Treasury bills, contributed to performance over the full year as they outpaced the broader bond market. Gold also helped to anchor our portfolios, as geopolitical risk and rising prices increased demand for the metal.
Conversely, our bond allocations were hit by aggressive central bank interest rate hikes to rein in inflation, while our allocations to global bonds were also hit by a rapidly rising US dollar.
Over the full year, our lower-risk SRI 6.5% and 8% portfolios, which have higher exposure to fixed income, saw declines that exceeded their SRI levels. The synchronised double-digit slump across equities and bonds this year meant that bonds provided limited protection to portfolios.
But there could soon be light at the end of the tunnel for bonds, as we’re now closer to the end of the rate hike cycle. Notably, the US fed funds rate already stands at 4.5%, while the Fed has signaled a terminal rate around 5%. Bonds’ relatively higher yield compared with just a year ago also makes them more attractive to investors – which should provide some cushion to further Fed hikes. What’s more, should we enter a recession, bonds would once again provide their traditional protection against declines in risky assets.
Our Responsible Investing (RI) portfolios, which optimise for both long-term returns and ESG impact, rebounded in Q4 with the broader market rally. On average, our RI portfolios returned 4.2% in USD terms during the period.
We note, however, that they underperformed their same-risk benchmarks by 3.2 percentage points. ESG assets had performed stronger earlier in the year, and lagged the recovery in Q4 as oversold assets bounced back more during the latest market rally.
Zooming out to 2022, our RI portfolios were down by 13.9% on average from their launch in mid-January through year-end. That translates to outperformance of 1.5 percentage point on average versus their benchmarks.
As with our GI portfolios, global assets - including Japanese and Australian equities - aided performance of our RI portfolios during the quarter. Conversely, our allocation to the future mobility sector dragged on performance due to its heavy exposure to the tech sector.
For 2022, short-duration assets were the main contributors to our lower and middle-risk RI portfolios. The future mobility sector and global government bonds were the main detractors from portfolio performance for the year as rapidly rising interest rates weighed on growth stocks and longer-duration bonds.
Our Thematic Portfolios saw mixed performance in Q4 as our more tech-focused portfolios continued to be hit by headwinds to the sector, while the healthcare and clean energy sectors showed more resilience.
That said, the balancing assets in our Thematic Portfolios continued to provide protection against steeper drawdowns.
Our Technology Enablers portfolios saw an average decline of 2.3% in Q4 in USD terms. The downturn in the technology and internet sectors continued to weigh on performance, though allocations to semiconductor manufacturers in higher risk portfolios saw positive returns. Balancing assets like Gold also helped to mitigate negative performance. For 2022 as a whole, the portfolios posted an average decline of 35.8% in USD terms as the technology sector was battered in the rapidly rising interest rate environment.
Future of Consumer Tech
Our Future of Consumer Tech portfolios fell 0.4% in Q4 in USD terms, owing to the broad-based downturn in the tech sector. However, a rebound in the gaming and e-sports sector, as well as balancing assets, helped to support performance. For 2022 as a whole, the portfolios posted an average decline of 35.4% in USD terms as they were also swept up in the headwinds that hit the broader tech sector.
Our Healthcare Innovation portfolios rose 3.9% in Q4 in USD terms. Allocations to the pharmaceutical and medical devices sectors helped to offset the drag from the genomics sector. For 2022 as a whole, the portfolios posted an average decline of 26.8% in USD terms as our allocations to genomics and healthcare tech in particular were hit alongside other long-duration assets.
Environment and Cleantech
Our Environment and Cleantech portfolios jumped 7% in Q4 in USD terms. Companies tied to smart grid infrastructure and wind energy powered returns during the quarter. For 2022 as a whole, the portfolios posted an average decline of 7.3% in USD terms as ESG-related assets – and in particular, clean energy – outperformed the broader market.
Global central banks have started to slow interest rate hikes, but their aggressive monetary tightening in 2022 will continue to filter through the global economy in 2023. And as policymakers maintain their singular focus on stamping out inflation, the odds of a recession later this year are steadily rising.
In our latest reoptimisation, we positioned our portfolios even more defensively to prepare for an environment of contracting growth and high – albeit slowing – inflation. (Read more about our latest portfolio re-optimisation here.)
Our same-risk benchmarks are proxied by MSCI AC World Index (for equities) and FTSE World Government Bond Index (for bonds). The benchmarks we use have the same 10-years realised volatility as our portfolios.
Model portfolio returns are expressed in gross terms before fees, withholding taxes, and reclaims on dividends. They are provided only as a gauge of pure performance before other items.
Actual account returns may deviate from the model portfolios due to differences in the timing of trade execution (e.g. during the day vs close), timing differences and intraday volatility of reoptimisation and re-balancing, fees, dividend taxes and reclaims, etc. All returns are in USD terms.
Past performance is not a guarantee for future returns. Before investing, investors should carefully consider investment objectives, risks, charges and expenses, and if need be, seek independent professional advice.
This communication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to purchase any financial product or subscribe or enter any transaction.
This communication does not take into account your personal circumstances, e.g. investment objectives, financial situation or particular needs, and shall not constitute financial advice. You should consult your own independent financial, accounting, tax, legal or other competent professional advisors.
StashAway Management (DIFC) Limited is regulated by the DFSA (license number F006312) for the provision of arranging custody, arranging deals in investments, advising on financial products, and managing assets, with a retail endorsement.
StashAway Management (DIFC) Limited (registration number CL 3982) is established in the DIFC pursuant to the DIFC Companies Law. Its registered address is Unit 1301, Level 13, Emirates Financial Towers, P.O. Box 507051, Dubai International Financial Centre, Dubai, United Arab Emirates.