ARC Research has revealed that the year 2023 ended with a strongly positive quarter for financial markets and thus, for the 12-month period as a whole, nominal returns for private client investors were a little above average.
The firm writes that was most welcome after the bond and equity market traumas of 2022 when the vast majority of private clients experienced significantly negative returns. But, generally, 2023 gains have not fully compensated for 2022 losses, the firm says.
Local currency gains were highest for USD investors, but when adjusted for currency moves, returns for private clients in the same risk category were similar regardless of reference currency. After the painful normalisation of interest rates in 2022, bond markets seemed to offer reasonable value and, despite tighter monetary policy and the threat of recession, company profits proved resilient, the firm says.
Yet, the ARC writes, the breadth of equity market gains was extremely narrow, the rise in the world equity market index being driven by the 10 largest US-listed “mega-cap” stocks (Alphabet, Amazon, Apple, Berkshire Hathaway, Broadcom, JP Morgan, Meta, Microsoft, Nvidia and Tesla). In 2023, these stocks were up, on average, circa 90 per cent and up around 85 per cent on a market capitalisation-weighted basis, with the other 490 stocks making up the S&P 500 on average delivering a return of zero.
Dan Hurdley, Managing Director ARC Research, says: “The good news for investors continued in December with most financial markets generating positive returns for the month with the energy and commodity sectors being the notable exceptions. The prospect of falling interest rates helped more cautious investors as yields for both government and corporate bonds fell again in December.
“On the back of strong performance in November, all currencies and risk categories of the ARC Indices are expected to show positive returns for the quarter and the year. The falling rate of inflation means that investors in all indices can also expect positive returns in both nominal and real terms for 2023.”
