Commenting on his strategic outlook for 2023, William Marshall, Chief Investment Officer, Hymans Robertson Investment Services (HRIS), says:

“2022 was a hard year, but the night is always darkest before the dawn and there are definitely things to look forward to in 2023. As strategic investors, we see time as our friend, with our fundamental belief being that decisions based on long-term strategic fundamentals gives investors greater predictability of their future returns. With that in mind, it’s probably a mistake to become over reliant on short-term tactical decisions, where success or failure is often driven by unpredictable macroeconomic events. As a result, unlike many, we tend not to be ones for making bold predictions at this time of the year for what the next 12 months (i.e. the relative short-term) might mean for markets.

“That said, it is worth reflecting on current market dynamics and considering how these may influence our strategic investment decisions.  Here are four, in particular, that we think can influence retail investors’ behaviours over 2023:

Markets act as a lead indicator of macroeconomics

“It can be difficult to cut through the noise of negative macroeconomic news. However, history shows that markets will often recover before economies fully recover. Research based on the past 7 US recessions shows that the S&P tends to recover c. four months before recession ends. Aligned with this, it is worth noting that projected market returns have recently increased for a range of asset classes. For example, our modelling shows that 10 year projected equity returns are now over 2% p.a. higher than they were at the end of 2021. All of which should offer investors a degree of comfort if looking to invest in the market for the long-term.

Tina has turned

“For much of the past 10 years, the TINA approach has held strong. TINA, meaning “there is no alternative”, refers to the fact that if investors wanted returns, they really have to hold equities. However, this has changed notably over the year. We now see potentially attractive returns from a range of asset classes. Investors can now hold a risk-free 10-year government bond and get 3.6% p.a. return, or some higher yielding debt and get a c7%p.a. return. As investors, this broadens our strategic investment opportunity set, allowing us to diversify portfolios while still offering positive investment outcomes for our clients.

Factor matters

“One of the notable features of 2022 was the underperformance of “Growth” stocks following their strong performance over much of the past 10 years and the outperformance of Value and Minimum Volatility factors. Predicting a definite recovery in the ‘Growth’ style of investing during 2023 feels foolhardy. Our belief is that factor investing can add value, but successfully timing which factors will perform best in the short term is challenging. As a result, investors should ensure their portfolios adopt a diversified multi-factor exposure to achieve long-term success.

Doing your duty (and more)

“Regulation is an ongoing feature for investors and 2023 is no exception, most notably with Consumer Duty coming into effect and greater clarity expected relating to the FCA’s Sustainable Disclosure Regulations. Although not directly market related, these regulations may have a notable impact on those involved in the Retail investment market. In terms of the FCA regulations, the implications are potentially significant for investment managers and advisers, who will be watching closely how the regulations unfold over the year. In terms of Consumer Duty, we expect the key focus being for all those involved in the investment chain to ensure they (and importantly their service providers) can evidence how they act to deliver good outcomes for retail customers.”