Periodic Table of index returns
2022: a fruitful year for investors, but do not be complacent in 2024!
2023 was a strong year for equity investors. Most notably much of the rally concentrated on the magnificent 7 and the US Tech sector, with generative AI and its potential impact on productivity, employment and inflation becoming a hot topic. Geopolitical tensions remained with the renewed outbreak of the Israel-Palestinian conflict in the Middle East and the ongoing war in the Ukraine.
Witnessing the gains generated by many growth asset classes in 2023, it can be easy to forget how well investors may fare over longer periods. The volatile nature of financial markets can be highlighted by Mercer’s Periodic Table (‘our Table’) of investment returns. Produced annually, it colour-codes 17 major asset classes and ranks how each performed, on an annual basis and over the last 10 years. Attached is an interactive version and printable version of our Table for the 2023 calendar year.
Taking a glance at the Table, with its scattered palette, highlights how difficult it is to unearth patterns or at least patterns that could be of use going forward. Last year’s stars may prove to be a winner again the next year or may sink to occupy lower ranks. If only investing were easy!
Demystifying the Mosiac
- Looking across 2023, the following observations can be made from our Table:
- Sixteen of the 17 asset classes generated a positive return last year, compared to only two asset classes in 2022, showing the breadth of the financial markets rally in 2023.
- Leading the positive returns in 2023 was International Equity UH, with a stellar positive return of 23.2%, reflecting investors’ enthusiasm for tech and AI related sources of return.
- International Equity H featured in second place in 2023, with a positive return of 21.7%, as confidence in risky assets increased with the prospect of easing monetary policy in 2024. Results were slightly below UH as the Fed raised rates higher than the RBA in 2023.
- Australian direct property declined 7.2% in 2023, which was relatively moderate and represents the impact of valuation lags. However, Australian direct property was a winner in 2022 during the downturn, being the only growth asset class to have positive returns.
The interactive table, with its scattered palette, quickly highlights how problematic it is to unearth patterns; or at least patterns that could be of use to us going forward. Last year’s stars sometimes prove to be a winner again the next year, but at other times sink to occupy the lower ranks. If only investing were easy!
Key takeaways: 2023 was a fruitful year for investors but do not be complacent in 2024!
Looking back at 2023, investors with a technology and growth orientation, particularly those focusing on US markets, generally outperformed investors focused on domestic and traditional industries. However, our Table also helps in reminding us that investment markets are inherently volatile and that we can never predict with a high degree of confidence what the future will hold over the short to medium-term.
Therefore, for most individuals, the power of investing may well be harnessed through securing asset class diversification, taking on the risk they can tolerate and adopting a longer-term perspective.
In 2024 central banks are carefully monitoring cyclical and structural inflation elements. On top of that elections are happening in over 60 countries this year, including the US and European union, involving half the world population. Potential political regime changes could prove consequential for years to come in an already highly polarized world.
With monetary policy at a crossroads, and 2024 being an election year globally, we believe it is prudent to prepare robust portfolios that can handle economic and political regime change in the year of the dragon.
Global Head of Capital Markets, Mercer
Important notices
This document has been prepared by Mercer Investments (Australia) Limited (MIAL) ABN 66 008 612 397, Australian Financial Services Licence #244385. References to Mercer shall be construed to include Mercer LLC and/or its associated companies. © 2024 Mercer LLC. All rights reserved. This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Mercer’s prior written permission. This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products or constitute a solicitation on behalf of any of the investment managers, their affiliates, products or strategies that Mercer may evaluate or recommend. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. Mercer’s ratings do not constitute individualised investment advice. For Mercer’s conflict of interest disclosures, contact your Mercer representative or see http://www.mercer.com/conflictsofinterest. This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Mercer provides recommendations based on the particular client’s circumstances, investment objectives and needs. As such, investment results will vary and actual results may differ materially. Information contained herein may have been obtained from a range of third-party sources. Although the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.
This document has been prepared by Mercer Investments (Australia) Limited (MIAL) ABN 66 008 612 397, Australian Financial Services Licence #244385. References to Mercer shall be construed to include Mercer LLC and/or its associated companies. © 2024 Mercer LLC. All rights reserved. This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Mercer’s prior written permission. This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products or constitute a solicitation on behalf of any of the investment managers, their affiliates, products or strategies that Mercer may evaluate or recommend. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. Mercer’s ratings do not constitute individualised investment advice. For Mercer’s conflict of interest disclosures, contact your Mercer representative or see http://www.mercer.com/conflictsofinterest. This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Mercer provides recommendations based on the particular client’s circumstances, investment objectives and needs. As such, investment results will vary and actual results may differ materially. Information contained herein may have been obtained from a range of third-party sources. Although the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.
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