Revealed: The best and worst investments of 2023
Investors have enjoyed a sugar rush toward the end of the year, as a “Santa rally” in the final weeks of December fattened up portfolios.
Anyone invested in a simple global market tracker has ended the year comfortably in the black. But this happy end to the year is a far cry from what the market was expecting in January, when investors were bracing for a recession.
2023 has been a year of ups and downs – but which investments have come out on top, and which ones are still lagging behind?
Stocks
Stocks got off to a rocky start at the year, as investors worried that rising interest rates and a possible recession could hit corporate growth. But with inflation starting to slow and signs that global central banks – including in Britain – could begin to cut rates next year, investors are feeling confident again.
Mike Coop, of Morningstar, said: “There has been a flurry of rising prices at the end of the year, as interest rates have been successful in bringing down inflation.
“We were all convinced at the start of the year that there would be a recession and interest rates would be higher for longer, but the irony is that those expectations were worse than what has transpired, and that is what has helped support the rally in markets.
The American stock market is the largest in the world, and most of the gains here came from the technology sector this year.
The S&P 500, the US benchmark index, has delivered returns of 18pc. But the tech-heavy Nasdaq index has performed even better, returning 35pc, and the “FANG +” index, which tracks some of America’s largest tech companies such as Meta, Apple, Netflix, Alphabet, Tesla and Nvidia, has roared up by 85pc.
The best performing trackers backed the technological themes driving the stock market up. The top two were Blockchain ETFs from Global X and VanEck, which have both delivered returns in excess of 200pc so far this year, according to data from Morningstar. The Grayscale Future of Finance ETF ranked third, followed by two more blockchain ETFs.
On a global scale there has been a clear divide between developed and emerging markets this year. The MSCI Emerging Markets index has delivered 1.9pc this year, but if you exclude Chinese shares then it would have risen by 11.2pc.
The Chinese market has had another difficult year, despite investors hoping that the delayed end to lockdown would help stocks recover.
Meanwhile, removing American stocks from the MSCI World index would have reduced returns from 14.7pc to 8.3pc.
Bonds
Lower inflation has helped the bond market rally late in the year. In the US, the benchmark 10 year Treasury yield fell to 3.85pc, its lowest level since July. Yields fall when prices rise.
Closer to home, gilt prices have risen very strongly in recent weeks as inflation fell within the Bank of England’s target range in November. The 10-year gilt yield hit 3.52pc, which is its lowest level since early April.
Laith Khalaf, of the broker AJ Bell, said: “It’s been a funny old year for the UK government bonds after a calamitous 2022.
“Recent expectations that interest rates will fall have actually put the gilt market into positive territory for the year. Short-dated gilts have proved popular with retail investors and are still yielding more than some of their longer-dated cousins. The current two year gilt yield stands at 4.3 per cent.”
“Gilts are now offering a much more appealing return than they did for almost all of the noughties, but the yields on offer are probably less alluring than cash. Except that is for low coupon short-dated gilts, which offer a tax wheeze for the initiated, and which have proved popular with DIY investors in 2023.
Commodities
Gold prices in dollar terms hit an all-time high this month, boosted by a fall in the US dollar as the market starts to price in interest rate cuts next year.
The metal – which is treated as a safe haven asset – rallied to $2,135 an ounce, a new record.
It extends a powerful rally that has been charging upwards since November last year, which has mainly been driven by central bank purchasing as well as investor conflicts in Ukraine and in the Middle East.
Ben Yearsley, of Shore Financial Planning, noted that oil had not performed particularly well this year. “Oil has been in the doldrums for much of the year, briefly spiking in the Autumn but largely hovering around the $80 mark: it’s $74 today. With war in the Middle East and Russia, who would have thought oil would fall?”
But the top fund tracking a commodity has been the WisdomTree Cocoa ETC, according to Morningstar, which has risen by 59pc this year.
Cocoa prices have jumped this year because of heavy rain and flooded farms in Ghana and Ivory Coast, which together make up well over half of global production. The rain has also accelerated the spread of black pod disease, which causes cocoa pods to rot.
Cash
This year has been one of the best in recent memory for cash savers. Investors who are still looking for somewhere to park their cash can get a rate as high as 5.66pc in a one-year fixed rate bond.
This risk-free rate is certainly enough to rival taking your chances on the stock market, especially as the Bank of England could start to lower interest rates again next year.
Property
House prices in November were 2pc lower than the same period in 2022, and 4.3pc below the all-time high recorded in late summer 2022, according to the lender Nationwide.
However Robert Gardner, of the bank, said there have been signs of optimism in the market as mortgage rates slowly fall. “Investors have become more optimistic that the Bank of England has already raised rates far enough to return inflation to target and will reduce rates in the years ahead.
“Nevertheless, a rapid rebound in activity or house prices in 2024 appears unlikely. While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak, and surveyors continue to report subdued levels of new buyer enquiries.
“If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline (low single digits) or remain broadly flat over the course of 2024.”
Bitcoin
Cryptocurrencies have been on the rise again this year, after a difficult 2022. Bitcoin, the world’s biggest crypto, has gained 150pc in pound sterling terms in the past year. Other mainstream cryptos such as Solana (SOL) and Avalanche (AVAX) have extended their gains this year.
In the US, investor confidence has been bolstered ahead of the approval of a Bitcoin ETF, which could help bolster demand. It is slated to launch in the spring of 2024.
Mr Khalaf said: “Crypto has been on the charge this year, despite numerous scandals and ongoing global regulatory pressures.
“In the UK the Government is pressing ahead with plans to regulate many crypto activities in line with existing financial services, resisting a call from the Treasury Select Committee to treat crypto activities as gambling. Actually, increased regulation might be a positive for crypto, potentially opening up fresh pools of capital and fostering greater confidence amongst consumers.
“In the long run the widespread adoption of crypto as either an asset or a currency is still highly speculative, and as a result prices can be expected to remain incredibly volatile and heavily influenced by sentiment.”
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