Top 5 global equity funds: only one shows double-digits for 2022

Globes at the National Geographic store in London. Photo via Flickr CC-BY-2.0.

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The final quarter of a stock market year that many investors were keen to put behind them was marked by a number of notable and abrupt changes.

Lizz Truss, for instance, was still the prime minister of the UK at the start of the quarter, but after her controversial «mini-budget» rocked financial markets and the Bank of England had to take emergency measures, her position had become untenable. After only 44 days in office, she stepped down and Rishi Sunak succeeded her.

Things were also tense in Brazil, where there was a political power shift from right to left as a result of former president Luiz Inácio Lula da Silva’s minuscule victory over Jair Bolsonaro. Another twist that surprised investors was that of the Bank of Japan’s monetary policy. As one of the few countries, Japan’s central bank stubbornly stuck to an accommodative monetary policy, but it caused a shockwave in currency, bond, and equity markets when it announced a sudden change in direction at the end of December by henceforth allowing the interest rate on 10-year Japanese government bonds to fluctuate by plus or minus 0.5 percentage points from its target of zero, instead of the previous range of plus or minus 0.25 percentage points. In reaction, the Japanese yen rebounded from an all-time low.

Chinese pirouette

However, perhaps the most impactful pirouette was made by the Chinese government. The strict corona regime appeared to throw considerable sand in the engine of the Chinese economy and also led to increasing criticism among the population, resulting in protests against government policies. At breakneck speed, corona restrictions were lifted, resulting in a rebound in Chinese equities.

Finally, a smaller adjustment came from the US central bank. It did raise policy rates in December to the highest level in 15 years, but with a smaller move of 50 basis points instead of the four previous 75-basis-point increases. Rising inflation appears to have peaked, leading investors to reckon with a less restrictive policy for 2023. Whether the ECB shares this same view remains to be seen, given the cautionary words of Christine Lagarde, who indicated that European bankers are not yet thinking of weakening the hawkish course they have embarked on.

The MSCI World Index posted a modest plus of 0.76% in the fourth quarter, with European equities performing relatively well. Nevertheless, 2022 turned out to be a painful stock market year, leaving a 12.8% loss at the bottom for the MSCI World index. The Russian invasion of Ukraine, record inflation, tightening monetary policy, disruptions in production chains and recession fears resulted in a gloomy stock market year in which growth stocks, especially loss-making companies, fell off their pedestal. Not surprisingly, the S&P 500 index suffered a 13.1% euro loss, while the technology-heavy Nasdaq index lost almost a third of its value.

Few hiding places

There were few hiding places for investors in 2022, but dispersion between outperformers and laggards was high. Energy stocks took maximum advantage of the war in Ukraine and export restrictions on Russian oil. Shares in the defence industry also performed well, while shares of tobacco producers also achieved above-average returns. It also immediately explains the difficult year for SRI funds, which typically have no or limited exposure to these sectors. Pharmaceuticals, utilities and defensive consumer staples were also able to offer some protection. It helped ensure that dividend stocks, to which these sectors are rich, were able to cut losses and returned to investors› radar after years of being forgotten.

Gavekal GE only fund with double-digit gain

The top five global equities, based on 2022 returns for mutual funds in the Morningstar Global Large-Cap Mixed Equity category, is led by Gavekal Global Equities which was the only fund that managed a double-digit gain. A final sprint in the last quarter that saw a positive return of over 8% brought the total return to a handsome 11.24%. The fund is managed by Gavekal founder Louis-Vincent Gave with support from three analysts. The strategy combines different investment styles in the portfolio: structural growth, cyclical growth, defensive equities and contrarian positions. This results in a portfolio of 35-50 names, with the preference for the commodities and energy sectors having played an important role in the outperformance in 2022.

Robeco QI Global Developed Conservative Equities

In fifth place is Robeco QI Global Developed Conservative Equities, the developed-market-only oriented sibling of Robeco QI Global Conservative Equities. The strategy is valued by Morningstar’s analysts for its repeatable, disciplined and well-thought-out approach, which is rooted in empirical research and executed by extensive team of quantitative investors, researchers and data scientists led by Pim van Vliet. This qualified team is vital to the fund’s success as it continuously refines the models used in the funds.

The rules-based, quantitative process is based on empirical research showing that investing in low-risk stocks leads to better risk-adjusted returns. It goes beyond traditional low-volatility investing and combines a multidimensional risk factor with value, quality, sentiment and momentum factors. Stocks with the highest quintile are included in the portfolio after applying an optimisation algorithm.

The strategy has a reputation to uphold for performing above average during down markets, and for that it passed with flying colours in 2022. The underweight to technology stocks and preference for defensive consumer staples played into the fund’s hands, while the value style also made a significant contribution to performance.

Top 5 Global Equity Funds in 2022, as per NL classification:

Top 5 Global Equity Funds in 2022, as per BE classification:

Jeffrey Schumacher is director manager research at Morningstar. Morningstar analyses and evaluates investment funds based on quantitative and qualitative research. Morningstar is one of Investment Officer’s knowledge partners and ranks five mutual funds or providers every week.