How have the financial markets performed?
An exceptional year for investors
Until the end of November, the fourth quarter was relatively quiet. Interest rates fell, stock and bond prices rose. As a result, it looked as though the damage over the whole of 2022 would still be somewhat limited. But sentiment turned again in December due to statements by central bankers indicating that the process of hiking interest rate hikes had further to go. Base rates have already been raised substantially over the past year; from -0.5% to 2% in the eurozone and from around 0% to 4.5% in the US. One or more interest rate hikes are expected to follow, at least in the first quarter.
With a fund return of -16%, US equities were the worst-performing asset class in 2022 in our investment profiles, mainly due to losses on tech stocks. US equities were closely followed by emerging market equities (-15%). Our European equity fund, where tech companies are slightly less heavily represented, fell 12% in value. The Asian equity fund lost 9%.
...and for bonds
Years with negative returns on stocks do happen quite often. But this is usually offset by positive bond yields. The negative annual returns on our European (long-term) government bond funds ranged from -19% to -38%. This is truly exceptional. Corporate bond funds performed less poorly with returns of -14% on the relatively safer investment grade corporate bonds and -11% for high yield corporate bonds.