February 18, 2023 —
What a Difference a Year Makes
We examine the 2022 and 2023 year-to-date performance of the major asset classes. Many of the successful “smart-money” trades of 2022 are underperforming in 2023.The investor underweights from 2022 are having a good year. The 2022 smart-money trades still feel like the right ones, but investor positioning is not contributing to their 2023 success.
The chart below shows the 2022 and 2023 (so far) returns across some major asset classes.
Asset class returns, in percent, in 2022 and thus far in 2023. (QuantStreet, Bloomberg)
A key for the security names is given below. A few observations:
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After taking a brief pause late in 2022, dollar strength has continued, though on the back of higher than expected inflation in the U.S. and revisions upward for the path of the Fed’s monetary policy.
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Commodities — the only asset class besides the dollar that was up in 2022 — is down slightly so far this year (probably because it is a very crowded trade because the fundamentals seem to favor commodity exposure).
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Tech stocks are up big after having a very bad year in 2022. Not clear what the fundamental backdrop here is. Tech earnings weren’t great (see below). Maybe anticipation of AI-driven transformation?
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Bonds (USIG, USHY, WBNDXUS, USTRST, USTREAS) were having a good year up until the last week or two when inflation fears started to come back.
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The late-2022 outperformance of international stocks (MXWOU) relative to the US has not continued into 2023.
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The S&P risk parity tracker (SPRP15T) actually had a pretty bad year in 2022 after doing well early on in the year. It’s up this year, though it’s trailing broad equity markets.
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Momentum stocks in the US (USMOM) are down this year. This is (currently) a very energy- and staples-heavy basket.
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Not on the chart because it throws off the scale of everything is Bitcoin which was down 63% in 2022 and is up close to 50% (!) this year. This is despite an onslaught of new regulation. No words for this one.
Tech sector earnings. (Bloomberg)
Investor takeaways
Thus far, 2023 feels like a year that’s crushed some of the popular “smart-money” trades from 2022. Energy, commodities, staples all feel crowded and the underweights, presumably technology and crypto, have been having a great year. The crowded trades, however, still feel like the right ones. But the market doesn’t much care, at least for the time being.
Key to data
Series descriptions. (Bloomberg)