The best and worst performing investments

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In an environment of record inflation and rising interest rates, what were the best and worst performing investments of 2022? Photo: Dominika Zarzycka/SOPA Images/LightRocket via Getty

2022 has been a pretty bleak year for investors across all assets. However, amid record inflation and soaring interest rates, was there a silver lining around UK markets?

From commodities to bitcoin, gold, equities and UK property, we take a look at how different sectors have performed this year and whether they will be a good bet in 2023.

Goods

Commodities have been the best performing assets this year, with the strength of the US dollar and soaring grain and livestock prices driving returns, according to analysis by Interactive Investor.

Commodities returned 22% for the year to the end of November (in US dollars), the only asset on the list to generate a double-digit return, according to Interactive Investor data using Morningstar Direct as of November 30, 2022.

Commodities include hard commodities, natural resources that must be mined or mined such as gold (GC=F) and oil (BZ=F), and agricultural or animal commodities such as corn (ZC= F), wheat (ZW=F), coffee (KC=F) and pork (PRKQ23.CME).

Commodities being at the top of the pile in terms of performance may surprise some. The price of oil is up only 5% since the start of the year (at the start of the year it was up around 50%), while the prices of gold and copper (HG =F) are down, Richard Hunter, head of markets at Interactive Investor, said.

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One of the reasons for this is the strength of the US dollar, in which commodities are valued, and which has an inverse relationship with commodity prices (a higher dollar can buy more commodities, so the price goes down) .

At the same time, China’s demand for commodities (perceived and actual) has declined significantly due to local COVID-19 outbreaks and subsequent restrictions, placing a sort of stranglehold on the economy.

Bitcoin has fallen 75% since hitting a record high of $69,000 in November 2021. Photo: AP

Bitcoin

At the bottom of the performance chart is bitcoin (BTC-GBP), which has fallen 64% year-to-date in US dollar terms, weighed down by the same fears of inflation and rising interest rates that hampered stock markets, and most recently the collapse of FTX, the second-largest crypto exchange.

The story continues

Bitcoin went from hero to zero in performance after hitting record highs during the pandemic. Unlike past crypto boom and bust cycles, the current performance malaise is underpinned by factors that have rocked the bedrock of the cryptocurrency industry, said Myron Jobson, senior personal finance analyst at Interactive. investor.

The collapse of FTX, which was the second-largest crypto exchange and other lesser-known exchanges, had a ripple effect on the broader crypto market, sending bitcoin and other crypto coins into a spiral. descending.

Read more: Bitcoin price crashes to 2020 level as crypto moves continue

Bitcoin’s case as digital gold has all but diminished as the price of the first and most well-known cryptocurrency has followed and outpaced global stock market declines, Jobson added, warning that whatever your approach to the risk, cryptocurrency should be treated with caution. . “

Looking at the currency in which certain foreign and global asset classes are valued, only three of the top 13 asset classes selected by Interactive Investor using Morningstar data generated a positive return over the period. If everything were priced in pounds sterling, that number still only goes up to five.

Shares

With the FTSE 100 Index (^FTSE) down around 1.5% in 2022 so far, some of investors’ favorite stocks have underperformed.

This is not part of the Interactive Investor research but, for example, Lloyds (LLOY.L) has fallen almost 9% this year. While some consider it undervalued and therefore a good price to buy, others believe the lender has been chronically underperforming and will not deliver in 2023.

Another FTSE favourite, BT Group (BT-AL) has also seen its price plunge this year.

It started January at 172p and is on track to end the year at around 112p, having trended lower since July.

Oil stocks, on the other hand, have only increased since the start of the war in Ukraine and the onset of an energy crisis.

BP (BP.L) shrugged off windfall tax fears as its share price soared from 333p to 468p this year and could even peak a little higher before entering 2023 as winter brings warmer temperatures cold weather and a greater demand for gas.

Barclays (BARC.L) has remained consistent throughout the year, trading around the 150p mark although for the first quarter of 2022 it was consistently above 180p.

The entire banking sector in the UK has been hit by higher interest rates as the Bank of England attempts to stem inflation.

Investors with a longer time horizon have never been wrong to hold onto their stocks, keep investing, and wait for the troubles to pass. Indeed, history shows that markets can and do recover from dramatic falls. Some of the best years can follow some of the worst, so it’s worth hanging on to, said Lee Wild, head of equity strategy at Interactive Investor.

Gold as a separate asset, which is often seen as an inflation hedge, fell 3% in US dollar terms. Photo: Chris McGrath/Getty

Gold

Gold (GC=F) as a separate asset, which is often seen as an inflation hedge, fell 3% in US dollars, while global infrastructure, also often seen as a diversification, fell 4% in US dollars.

UK stocks

UK equities managed to gain just positive territory, up 2%, slightly ahead of cash (1%).

British ownership

UK property, meanwhile, was the second worst performer on the list, returning -32% for the year, with the economic backdrop continuing to throw many headwinds on the sector.

Fixed income

It was also a difficult year for fixed income securities. Rarely at the bottom of performance charts, 2022 was the year that saw a dramatic reset.

Global bonds were down 17% and global index bonds were down 22%. UK gilts and UK index bonds also suffered, down 21% and 31%, respectively.

Sam Benstead, Collective Specialist at Interactive Investor, said: Rising interest rates this year have turned the argument that bonds are a safe investment upside down. Government and corporate bonds, which are prized for their reliable income payments, rarely make it to the bottom of performance charts, but 2022 was the year bond prices reset after more than a decade. steady returns as interest rates fall.

Read more: Bank of England raises interest rates to 3.5% in blow for mortgage owners

When rates rise, it means investors can get a better supply of newly issued bonds, so they sell bonds. When rates fall, it has the opposite effect. The radical change in central bank policy this year, when inflation proved to be non-transitory, is at the origin of the bond crash.

However, with interest rates set to peak in early 2023, bond prices could benefit from interest rate cuts next year if inflation is contained.

How different asset classes have performed. Chart: Interactive Investor

Yields on government and corporate bonds are much higher than a year ago, so fixed income income has returned. This is tempting for new buyers looking for yield and has helped push bond prices higher over the past two months.

Low bond yields this year could therefore set the asset class up for strong returns next year.

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