Your Must Have Review of 2022

It's The End of an Era.

Easy money, which has been available since 2008, came to a screeching halt in 2022 and it led to an $18 trillion rout in the stock market.

With a drop of more than 20% in 2022, the MSCI All-Country World Index has posted its worst performance since the 2008 crisis, as jumbo interest rate hikes by the Federal Reserve more than doubled 10-year Treasury and gilt yields — the rate underpinning global capital costs.

The safe haven assets were a no show as bonds failed to protect anyone’s portfolios, property markets are falling and gold moved nowhere. The new ‘digital gold’ also failed to appear as crypto crashed, wiping out an estimated $1.5 trillion in market value alone and laying dead to rest any idea that it might be anything other than a high risk stock and a gamble (for now).

The turmoil triggered by inflation and rising interest rates sent investors scrambling for places to put their money. Cash, it turns out, for once wasn’t trash, but then when markets go down, the safest of all havens will always do well (or not as badly).

Equities

The biggest losers last year were the biggest winners of the previous two years: big tech.

If the theme for 2021 was buy everything, the mindset quickly shifted to sell everything in 2022. 

The so-called FAANG stocks — a cohort that includes Facebook parent Meta Platforms Inc., Amazon, Apple, Netflix and Google owner Alphabet — led the declines, losing more than $3 trillion in market value between them.

Growth funds and exchange-traded funds that were heavily weighted with tech stocks were also dragged into their downward spiral, including Cathie Wood’s ARK Innovation ETF, which has tumbled by 67% last year.

Going into 2023, global equities will continue to face headwinds due to persistent inflation, recession risks and threats to corporate profits. Although, as is often the way, the market is expecting this and therefore ahead of it.

If we see things improve, there could be a good move up in the hardest hits shares. However, playing it safer with value stocks and high dividend indices is probably the best way forward for the short term.

A good example of that this year was the FTSE. The top pick by The Portfolio Platform at the start of the year.

If there was a winner in 2022, it was the FTSE 100 - I bet you didn’t expect that given all the negative press. Here is how the major indices performed this year: (YTD is Year to Date, ie. 2022)

This year only one major index was up, THE FTSE 100 with a mighty 0.91%. If it had dropped only 68 points more, it would have been in the red for the year.

In fact, can you believe that if you only checked the FTSE once a year, with a 0.91% increase you would assume it was a pretty boring 2022 – you couldn’t be more wrong!

The US fared worse than most with the big tech Nasdaq 100 collecting the price for the second worst performing major index, falling -33.10%. Unsurprisingly the worst was the MOEX in Russia which fell 43.12%.

Commodities

Commodities had a wild ride this year and naturally ended up the best performing asset class for 2022. Having said that, much of the gains from the conflict have now been given back; UK and European natural gas prices are now lower than they were before the invasion of Ukraine!

Global gas markets were roiled this year after Europe tried to wean off Russian gas. Supply was halted and a major pipeline was damaged amid the war in Ukraine, leading European countries to import record volumes of non-Russian gas to ensure winter supplies.

The additional demand for liquefied natural gas (LNG) and tighter supplies of piped gas placed enormous strain on the global market, spurring an energy crisis that pushed oil and gas prices to record highs.

Coal was the biggest unlikely gainer of the year with Newcastle coal futures soaring almost 140% in 2022, the biggest jump since 2008. Global crude topped $139 a barrel in March, then cooled as central bank rate hikes threatened to tip economies into recession. Oil settled at $85.91 per barrel on Friday, up 10% on the year.

U.S. gas futures jumped by more than 20% and in Europe Dutch wholesale gas prices rose by almost 8%, both up for a third consecutive year.

In industrial metals, copper on the London Metal Exchange is on track to fall 13% this year and aluminium is down about 15%. Both reached record highs in March.

Gold is the big surprise; not only failing to offer a safe haven during difficult times, but ending the year DOWN -0.26%.

Nickel , the outperformer in metals, is on course for a 45% rise, its largest since 2010, partly because of a shortage of metal that can be delivered against the LME contract and partly because of volatility created by low volumes and a lack of liquidity.

Food Prices

Benchmark Chicago wheat futures jumped to an all-time high of $13.63-1/2 a bushel in March on supply disruptions. Fewer grain exports from Ukraine further pressured a market already higher on adverse weather and COVID-19 related restrictions. Wheat ended the year up about 3%, however, after a tentative renewal of some Ukrainian exports.

London wheat followed suit with a high in May of £356 a tonne, now back down to £240 but still up about 22% on the year.

Corn and soybeans also hit a decade high, while Malaysia's benchmark crude palm oil prices climbed to an all-time record. Soybeans and corn both ended the year up around 14%, as severe drought in Argentina raised concerns about South America's crop.

Grains and edible oil prices surged in 2022, sparking food inflation concerns. Recent drops are a sign that inflation is beginning to fall, but prices are still very fragile and it wouldn’t take much to create another panic.

As worries over recession cloud consumer demand, coffee is among the biggest commodities losers of the year. Robusta fell 24% in 2022 and arabica lost more than a quarter of its value, also impacted by expectations of a bumper crop in top grower Brazil.

Tokyo rubber has lost more than 8% and ICE cotton has dropped more than 26% in 2022 on softening demand; contrary to this, raw sugar was up more than 6% and rice 21%. For lovers of the film Trading Places, orange juice futures were up 41.08% so it would have been a good year for Randolph and Mortimer Duke. 

Crypto

It was a horrible year for the crypto industry. Even before the stunning implosion of Sam Bankman-Fried’s FTX, a series of meltdowns rattled digital assets, from the collapse of TerraUSD to the downfalls of Three Arrows Capital and Celsius Network. The bankruptcies have piled up and trapped more and more customer money. 

Bitcoin has dropped by 65%, while the combined market value of the largest digital assets has plummeted by more than 70%.

NFTs, which once boasted celebrity investors from Paris Hilton to Jimmy Fallon, have also slumped and stars from NFL quarterback Tom Brady to pop icon Madonna have been sued for promoting crypto investments.

You could say it all went bang. We don’t think this is the end of digital currency, but it has given everyone a good slap around the face. Investing isn’t a game and it shouldn’t be treated as such.

On that note, meme stocks soared in 2021 thanks to retail traders pumped up on government stimulus and pandemic savings. This year, they got hammered. 

With higher interest rates and inflation squeezing consumers, Bed Bath & Beyond has cratered more than 80%, AMC Entertainment Holdings plunged by 77% and the company that started it all, GameStop, has fallen by half. 

Robinhood Markets, the brokerage at the centre of the online trading fervour, has also slumped from its peak, dropping nearly 80% since its July 2021 initial public offering.

Bonds

In 2022 the bond market went through a huge resetting of interest rates. Coming into the year, short-term interest rates were still near the pandemic-era low of close to zero. The Federal Reserve began a gradual shift to tighter monetary policy with a 25-basis-point rate hike in March 2022 as economic growth recovered. 

Gradualism soon gave way to rapid tightening by summer as inflation surged on the back of supply/demand imbalances, a resilient economy, and the spike in oil prices due to the war in Ukraine.

In all, the pace of rate hikes has been the most rapid in modern times.

With starting yields low and the rate of change in tightening so fast, nearly every segment of the fixed income markets experienced declines, especially bonds with long durations. In fact, performance in 2022 year to date has been an anomaly. 

Even in past periods of sharply rising interest rates, bonds have usually delivered positive returns since the income from a bond's coupon offset price declines. However, during 2022, without the cushion of high coupon income, returns were historically weak.

Government Bonds haven’t done any better. Don’t believe what you read in the papers, it hasn’t been a UK thing, it has been a global rout. Yields on government bonds have increased dramatically as interest rates rise.

This is a natural occurrence. This isn’t the fault of Liz Truss, Kwasi Kwarteng, Boris or Rishi, it’s just what happens to the price of a bond when a countries interest rate is increased. In fact, we haven’t done any worse than anyone else at all.

If you take Japan out of this chart (the Bank of Japan caps their own yield by buying an unlimited amount of its own debt aka QE), then most of the major economies of the world have seen the cost of their debt, yield, increase by between 2% and 3.5%. 

The UK 10 year yield has increased by 2.7%. It’s a lot, but then interest rates have gone from 0.25% in January to 3.5% in December.

The good news for rising yields is that if you now buy a US or a UK government bond, one of the safest investments you can make, you will received 2.37% and 2.7% respectively. This is great news. They have been a pointless investment since 2008 but now there is a reason to buy them. 

We have been saying for years that there was no point in having a government bond in your portfolio. Pensions have been wasting everyone’s money for years putting them in your portfolios, but finally that has changed. The sad fact is that pensions had been not only buying them, but buying too many on leverage to make up for the fact that they were a pointless investment.

Oh dear, another disaster that could have been averted if these people knew what they were doing.

Conclusion

It’s been an absolutely torrid year for everyone who doesn’t run a commodities fund. Hopefully you had a portfolio full of coal, but if you didn’t, it is best to look forward and not back.

The good news is that The Portfolio Platform’s most popular strategy, Cambridge Futures, managed to outperform all 10 of the largest equity indices in the world. This is a win that we’ll take.

Several other strategies also managed positive returns, although it was tough for the most active traders with market drops often being bigger than expected.

It is often a case of limiting losses in a year like this one. Many equity focussed hedge funds have lost huge amounts of money, particularly those reliant on big tech.

Chase Coleman’s Tiger Global hedge fund plummeted 57% over the past two years. The firm managed about $15 billion across its hedge and long-only funds as of Sept. 30, with an additional $43 billion in private investments.  

Alex Sacerdote’s Whale Rock tumbled 47% over the past two years. He now manages about $6 billion, compared with $12 billion at the end of last year. 

The hardest hit is Glen Kacher’s Light Street. The firm, which oversaw about $2 billion as of the end of 2021, has lost almost two-thirds of its value over two years.  

Joe Edelman’s Perceptive Advisors, which focuses on the life-sciences industry, tumbled about 49% in the same period. 

It has been rough, but most of the traders on The Portfolio Platform have managed the risk well and are looking forward to a good 2023. 

‘Opportunities should arise in the coming year’ says Lane Clark, co-founder of TPP. ‘We aren’t saying stocks will have a great year, but we think we will. We have the ability to buy, sell, go flat the market, and occasionally short’. 

‘This isn’t something that most portfolios can do. Our actively traded strategies along with our leverage passive trackers should be in for a good couple of years.

The big drop has happened; it will still be volatile for a while longer which should be good for our traders. We feel we should easily outperform once again in 2023.’

If you would like more information about opening your own portfolio on The Portfolio Platform, please contact us here and one of our directors will get straight back to you.

Our portfolios:

In Q4 of 2022, the traders on TPP profited on their mid term 'buy' positions, as well as their short term positions both on the 'buy' and 'sell' side of the market.

In the last few weeks of the year, many of our strategies profited on the sell side as the markets retraced. They're now predominantly on the BUY SIDE.

Our traders focus on the markets that everyone knows and can relate to. Whether it's the FTSE, CAC, DAX, Nasdaq or S&P (amongst others) there are always opportunities, regardless of the market climate.

Looking forward to 2023 will their be strong directional movements either way?

Probably not.

However, if our traders can evolve with an ever changing market climate- we would expect 2023 to be an excellent one for us.

We'll only ever let traders with extensive track records showcase their strategies on our platform. It gives us confidence, and we hope it provides the same comfort for our clients.

If you are interested in building a portfolio that aims to yield 2-4 x market performance on a per annum basis, by utilising the elite trading strategies showcased on TPP- contact our team today.

Don't just hear about the investment revolution.

Join it.