The investment landscape of 2023, despite intermittent periods of market volatility and uncertainty, ultimately emerged as a fruitful year for global equity investors. The MSCI World index, denominated in euros, delivered a commendable 19.6% return, culminating in a year that left equity investors with a sense of accomplishment.
2023 commenced with a flourish, particularly following a tumultuous 2022. Growth stocks experienced a robust rebound, fuelled by burgeoning expectations that central banks were nearing the conclusion of their stringent monetary tightening. The anticipation of potential interest rate reductions acted as a catalyst for a New Year rally. Concurrently, optimism burgeoned over China’s anticipated rebound post its abandonment of the Zero-Covid policy. These scenarios, however, proved to be somewhat premature, as the banking sector encountered turbulence, precipitating a brief yet intense wave of instability. This turmoil culminated in the collapse of several US banks and a contentious rescue of the once-esteemed Credit Suisse.
The investment climate was significantly influenced by fluctuations in inflation expectations and central banks’ interest rate policies. Initial indicators suggesting that inflation was being reined in were initially dismissed by central bank officials. However, as 2023 progressed, it became evident that inflation was indeed converging towards target levels, leading investors to anticipate multiple interest rate cuts in 2024. This marked a stark contrast to the earlier consensus of sustained higher interest rates.
Corporate earnings remained robust
Throughout the year, corporate earnings largely maintained their robustness, with advancements in artificial intelligence (AI) propelling investor enthusiasm to new heights. Companies capitalizing on AI’s capabilities and solutions were eagerly embraced by the investment community. Nvidia, a prominent player in this domain, achieved a milestone by becoming the first semiconductor company to surpass a $1 trillion market capitalization. This was in response to strong performance and optimistic growth forecasts. Alongside Nvidia, a cohort of tech giants—Tesla, Apple, Meta Platforms, Amazon.com, Microsoft, and Alphabet—dubbed the ‘Magnificent Seven,’ played a pivotal role in the robust performance of US stocks in 2023.
As the year progressed, however, the impact of higher interest rates on global economic growth became more pronounced. Consumers, under financial strain, began opting for more economical alternatives, affecting not only local markets but also reflecting the economic downturn in China. The latter, grappling with real estate sector woes, high youth unemployment, and inadequate economic stimulus measures, had a noticeable impact on corporate earnings.
The final quarter of 2023 saw a resurgence of investor optimism, spurred by central banks’ hints at possible downward adjustments in policy rates in 2024, contingent upon inflation being under control. This prospect of policy easing raised hopes for a boost in economic growth. However, geopolitical risks remained a constant reminder of the volatile nature of global affairs, as exemplified by the escalating tensions between Israel and Hamas in the Middle East. Despite these challenges, the MSCI World index closed the fourth quarter with an impressive 6.79% gain, rounding off its annual return just shy of 20%.
Morningstar Global Large-Cap Mixed Equity category
In the realm of global equities, GAM Star Worldwide Equity led the pack in the Morningstar Global Large-Cap Mixed Equity category, based on 2023 annual returns. A remarkable performance in the final quarter, achieving nearly an 18% return, propelled the fund to an overall annual return exceeding 37%. This was a particularly notable achievement for the Swiss fund house, which has faced its share of challenges, including boardroom controversies and ongoing financial struggles. These issues led Morningstar to downgrade GAM’s Parent rating to the lowest tier in their scoring system in a rare move.
Kevin Kruczynski, stewarding GAM’s global equity fund, remained undeterred by the internal turmoil. His strategy of heavily weighting IT stocks, accounting for approximately 45% of the portfolio, reaped considerable benefits. Nvidia was a key contributor, but positions in companies like MicroStrategy, Coinbase, and Crowdstrike also significantly bolstered returns.
DPAM INVEST B - Equities NewGems Sustainable, despite experiencing a downturn after 2020 and facing management changes, showed a commendable recovery in 2023. The fund, under the stewardship of Dries Dury, Tom Demaecker, and Aurelien Duval, continued its focus on companies they identify as future-centric, encapsulated in the NEWGEMS acronym. IT and healthcare sectors remained central to their strategy, with substantial allocations to these areas.
The fund’s approximately 65-strong portfolio featured well-known names such as Microsoft, Amazon, and Alphabet. These companies, alongside others like ASMI, Nvidia, Cloudfare, and Crowdstrike, contributed significantly to the fund’s impressive performance in 2023.
Top 5 global equity funds in 2023:
Jeffrey Schumacher, as Morningstar’s director manager of research, oversees the evaluation of investment funds based on comprehensive quantitative and qualitative research. Morningstar, a knowledge partner of Investment Officer, routinely assesses mutual funds and providers, offering insights into the top-performing funds each week.