Top 3 asset classes outperforming in 2023
As a new trading month begins, investors look back at which asset classes outperformed and which did not so far in 2023. In a world of uncertainty (e.g., geopolitical tensions, high inflation), picking the right combination of assets in a portfolio is tricky.
Blackrock, an American multinational investment company, released a study comparing the Year-To-Date (YTD) performance of various asset classes, from Brent crude oil to the US dollar index, US equities, and so on.
The ranking, seen below, considers the lowest and the highest return at any point in the last 12 months (red lines), and the yellow dots show the YTD performance. These are the three asset classes outperforming so far in the year:
- European equities
- US equities
European equitiesCopy link to section
European equities are outperforming so far, up by about 10% YTD. This is surprising for at least a couple of reasons, such as the war in Ukraine and the economic recession in Germany.
The war in Ukraine led to a wave of sanctions toward Russia, the aggressor state. However, these sanctions, meant to weaken the war machine in Kremlin, have a boomerang effect on the European economies too. The most recent confirmation comes from Germany, where the largest European economy has entered a recession.
Moving forward, higher inflation and interest rates should put pressure on earnings. But the good news is that inflation has started to come down in Europe, as seen in recent data.
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US equitiesCopy link to section
Given the Fed‘s tightening cycle, US equities are in a surprising second place. However, one should look through the details and see that the US tech sector led the gains while most of the other sectors lagged.
For US equities, the Fed’s action matters. The upcoming NFP report is likely to show a tight labor market and sticky inflation, which might suggest the Fed will hike again.
But investors are well aware of where the interest rates are in the United States. Moreover, the emergence of AI and cost-cutting in some of the major tech companies have spurred renewed enthusiasm for the giant tech companies, and optimism could easily spread to other industries.
The risk here is that the Fed’s tightening cycle will end in a recession, and investors will flock to bonds.
GoldCopy link to section
Gold comes in third place as investors look for the yellow metal’s safe haven in front of a possible US economic recession. After failing to provide a hedge against inflation last year, gold trades with a bid tone as investors try to diversify their portfolios.