The past 12 months have been a tough one for investors and things seem murky heading into 2023. While some are confident of a quick recovery, others fear recessions around the world could lead to a prolonged bear market.
This has made picking funds particularly tricky, and has led to a divergence of strategies among the Trustnet editorial team. Below, head of editorial Gary Jackson, Trustnet Magazine editor Anthony Luzio, Trustnet editor Jonathan Jones and reporters Tom Aylott and Matteo Anelli give their fund picks for 2022.
It should be noted, however, that these are personal views and should not be taken as investment advice.
Gary Jackson, head of editorial at FE fundinfo
Markets don’t seem to be in outright panic at the moment but that doesn’t mean 2023 will be plain sailing. If investors’ obsession with inflation and interest rate hikes does moderate in the coming months, it will only be replaced with a new obsession over recession – which some parts of the globe including the UK are likely to be already going through.
Lisa Shalett, chief investment officer of wealth management at Morgan Stanley, recently said: “Historically, when investors’ primary concern shifts from policy and inflation to the health of the economy, the outlook for stocks and bonds often diverges. That’s why investors may be relatively well served by favouring bonds over stocks in 2023.”
For some time BlackRock has preferred investment-grade bonds over equities, arguing that they are one of the best-placed assets to hold up in a recession. Bank of America said being long investment-grade credit will be the “consensus 2023 trade”, although Morgan Stanley also believes government bonds will continue to have a place in portfolios next year.
This leads me to my 2023 fund pick: I want a fund that can move between the most opportune parts of the fixed income market, so I settled on Janus Henderson Strategic Bond. This £2.9bn fund is managed by John Pattullo and Jenna Barnard, who have worked together for 20 years and are known for taking a genuinely flexible approach to fixed income investing.
Total return of fund vs sector over 20yrs
Source: FE Analytics
More than half of the portfolio is currently in government bonds reflecting this year’s risk-off environment but the fund has historically had a focus on corporate bonds. Within this space, Pattullo and Barnard prefer quality credits from companies in defensive sectors, which seem like the kind of asset that will hold up in the recessionary conditions likely to dominate 2023’s sentiment.
Jonathan Jones, editor at Trustnet
The coming year feels like one in which investors need to make a binary call on the depth of the bear market in the first half of the year and the speed of the recovery later on.
If the market malaise of 2022 continues, bonds and other safe havens will be the port of call. However, if there is a steep recovery in the back half of the year, then perhaps taking on risk now is the right way to go. Getting this right feels like it could be the key call of the year.
I have always been a bit of a gambler, so will take the upside here and put my mouth where my real-life money is – in Fidelity Asia Pacific Opportunities.
Total return of fund vs sector and benchmark since launch
Source: FE Analytics
There are a few reasons why. Firstly, unlike an emerging markets fund, this Asia portfolio cannot invest in Latin America, which has shot higher in 2022 and could be overvalued.
Secondly, the £1.4bn fund is overweight technology, particularly in China, but also has a large weighting to miners, which could prove a good call in 2023, with Australia the second biggest country weighting.
Top holdings include the likes of Chinese tech firm Focus Media Information, which operates advertising screens and could do well if zero-Covid restrictions are lifted, but the fund avoids the well-known former darling technology firms such as Tencent, Alibaba and Meituan.
Alongside its Chinese holdings, the fund, run by FE fundinfo Alpha Manager Anthony Srom, holds the likes of Canadian gold royalty firm Franco Nevada and semiconductor maker ASML in its top 10, showing how it has diversified away from a single country or sector, which could be crucial next year.
Anthony Luzio, editor at Trustnet Magazine
According to Albert Einstein, “insanity is doing the same thing over and over and expecting different results”. With my pick last year – JPMorgan UK Smaller Companies IT – down by about a quarter in 2022, you could be forgiven for thinking this would be the last trust I would invest in this time around.
But there is no point in investing in small-caps if you are going to run away at the first sign of trouble – these tend to deliver much higher returns than their larger peers over the long term, but this comes at the expense of higher volatility, and during difficult times it is vital you remain invested.
Total return of fund vs sector and benchmark over 5yrs
Source: FE Analytics
More to the point, small-caps tend to lead the market in any recovery – for example, after getting pummelled in the financial crisis, JPMorgan UK Smaller Companies IT made more than 50% in the rebound of 2009.
So, while it may have been a mistake to pick this trust last year, it looks perfectly placed to outperform in 2023.
Tom Aylott, reporter at Trustnet
With high inflation, tightening monetary policy and the prospect of recession driving many funds into a rut this year, I want to put my bet on the riskier end of the scale in 2023. If inflation is indeed approaching its peak, UK smaller companies seem like a good place to be, but it might still be a bit early to call a rebound.
That’s why instead I have chosen the Allianz China A-Shares fund. It has been an unpopular market for quite some time and returns have suffered as a result, but recent signals from the Chinese government that it could be winding down its zero-Covid policy next year may be a significant turning point for investor sentiment.
Indeed, Allianz China A-Shares was a top performer for many years but fell steeply during the market downturn, which could imply a rapid rebound once tides turn.
Total return of fund vs sector and benchmark since manager start
Source: FE Analytics
There are a number of other risks in Chinese markets right now, but even if it doesn’t make me a positive return in 2023, I have a very long investment horizon and should be rewarded for holding it over the long term.
I won’t be putting any large sum of money into the fund just yet but investing small amounts incrementally on the way down could be beneficial if the market picks up again.
Matteo Anelli, reporter at Trustnet
I would probably choose something along the lines of Royal London Sustainable World Trust run by FE fundinfo Alpha Manager Mike Fox and his team. It is a mixed investment fund that has a sustainable tilt and proven to be a strong performer over the long term.
Total return of fund vs sector and benchmark since manager start
Source: FE Analytics
Without a particularly strong conviction in any segment of the market, making a specific choice of market, style or theme would mean that I’d be buying into the hope that my crystal ball is better than everyone else’s.
So I chose my first fund pick for Trustnet like I choose my buffet dinner – I’ll have a little bit of everything, please.
Royal London Sustainable World Trust may not necessarily outperform, especially if 2023 is the year of smaller companies, or bonds, but those seem like big ‘if’s to me and I don’t like the idea of investing based on something that is just as likely to go up as to go down, depending on what Jerome Powell will say, Vladimir Putin will do, or who the next US president will be.