The past year has been filled with a series of surprises that have flipped markets on their head and left many of the best performing funds flailing to minimise their losses.
Russia’s invasion of Ukraine in February has had an impact around the world and, along with Covid disruptions, accelerated inflation to multi-decade highs. This has prompted a response from central banks not seen in more than a decade – rising interest rates.
Here, Trustnet asks top fund managers for the lessons they have learnt from a year in which the era of loose monetary policy and supportive central banks over the past decade were suddenly taken away.
Kirsty Desson, manager of the abrdn Global Smaller Companies fund, said that she has learnt not to underestimate how quickly market conditions can change.
Over the past year, the growth-oriented market was replaced by an environment that favoured value investing within a very short amount of time.
Total return of growth vs value indicies in 2022
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Source: FE Analytics
Desson said: “Investors grossly underestimated the magnitude of the reversal and the time taken for such macro changes to wash through.
“The impact of these price moves and of the consequent interest rate hikes are yet to be fully realised and are worth bearing in mind over the course of next year.”
Indeed, these rapidly shifting market conditions have been a reminder of the importance of earnings, which will continue to be a strong theme next year.
Desson added: “Even in periods of seemingly free money, investors would be wise to maintain a valuation sense check and look for profitable companies.”
When markets are as fast moving as they have been in 2022, James Thomson, manager of the Rathbone Global Opportunities fund, learnt not to be afraid of altering your investment strategy.
Total return of Rathbone Global Opportunities vs sector in 2022
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Source: FE Analytics
He reallocated about 20% of his portfolio, scrapping high-growth companies such as Uber, Shopify, Align and Match in favour of more quality-growth names.
Thomson increased exposure to the likes of Apple, Coca-Cola, McDonalds and Home Depot because they offered more predictability and resilience than some of the holdings he entered the year with.
“We would never claim these are unheard of companies but it’s the underestimated potential for revenue and earnings growth,” Thomson said.
“These companies have been in our ‘watch list’ for many years, frankly because we missed the opportunity years ago, but we have used this sell-off in markets to right that wrong.”
Thomson may well have shaken the fear of altering his long-term strategy in 2022, but Kirsty Gibson, manager of the Baillie Gifford American fund, discovered the opposite.
Her natural reaction during the downturn was to ditch the fund’s sinking stocks in favour of more resilient companies, but she said it was equally as important to have faith in the long-term prospects of her holdings.
It’s easy to jump ship when an asset’s performance nosedives, but investors need to hold onto those stocks through negative periods to reap the rewards during better times.
Total return of Baillie Gifford American vs sector in 2022
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Source: FE Analytics
Gibson said: “As humans, we struggle to comprehend that change does not come in a straight line, and in fact, it tends to zig and zag and come in waves of differing velocity.
“When investing, it is so important to open your mind to the possibility of what a company can become, and what a business could achieve in the future, rather than looking at what it is today and extrapolating from there.”
The biggest lesson Keith Ashworth-Lord, manager of the SDL UK Buffettology fund, learnt in 2022 did not come about from economic change, but a social one.
After two years of lockdowns and Covid restrictions, he said that a return to normal has made him realise the importance of face-to-face interactions.
Ashworth-Lord kept a close eye on his holdings throughout the pandemic remotely, but being able to meet clients in-person has made a sizable difference in his ability to evaluate a company.
He said: “Getting to meet the people at the coal face dealing with customers and suppliers day in day out gives us a far better feel and understanding than speaking to the C-suite on results rounds twice a year.
“Perhaps the greatest benefit of the return of in-person site visits is the opportunity for us to sample the culture of the businesses we own. We are big on this.”