Fidelity: Investors missed out on rebounding markets by playing it safe in 2023

Over half (60%) of asset classes made a positive return in 2023


Equities bounced back with strong returns in 2023, but many investors fumbled the opportunity to make back their losses by sticking to cash funds.

After a miserable year for investors’ portfolios in 2022, markets recovered with positive returns this year, according to a new report by Fidelity.

Over half (60%) of asset classes tracked by the firm made a positive return in 2023, compared to only a fifth (20%) the year prior as soaring inflation and interest rates sent performance tumbling.

Stocks in the US led the rebound with a 14.8% uplift this year, with equities in global, European and Japanese markets following suit with gains of 11.3%, 10.9% and 9.9% respectively.

Total return of asset classes in 2023 and 2022

Asset class2023 year-to-date (%)2022 (%)
US Equities14.78-7.79
Global Equities11.31-7.62
European Equities (ex. UK)10.87-6.86
Japanese Equities9.94-5.76
High-yield Bonds3.88-2.31
UK Equities3.250.34
Emerging Market Equities0.80-9.62
Emerging Market Debt0.79-7.42
Corporate Bonds-0.11-6.2
Asia Pacific Equities-2.25-6.75
Inflation-linked Bonds-3.92-12.01
Commercial Property-3.94-7.65
Government Bonds-5.76-14.88

Source: Fidelity International

Confidence may have been re-injected back into equities this year, but Fidelity’s associate director for personal investing Ed Monk pointed out that many investors missed out on these increases by playing it safe.

After being scorched by widespread downgrades in equity markets last year, investors retreated to cash funds for their lower volatility and historically high rates, with the Royal London Short Term Money Market, Legal & General Cash, Fidelity Cash and abrdn Sterling Money Market funds among the best-selling funds with Fidelity’s clients.

Monk said: “Rising rates and volatile markets have made the safe returns from cash funds look increasingly attractive. Cash and close proxies, in the form of high-quality, short-dated bonds, have been the asset of choice for cautious investors this year.

“Had they risked their money on equities, however, it’s likely that investors would have achieved a higher return.”

Top 10 best-selling funds on the Fidelity Personal Investing Platform in 2023
Fidelity Index World Fund
Royal London Short Term Money Market Fund
Legal & General Cash Trust
Fidelity Cash Fund
Fidelity Funds – Global Technology Fund
Fidelity Index US Fund
Dodge & Cox Worldwide Funds plc – Global Stock Fund
abrdn Sterling Money Market Fund
HSBC FTSE All World Index Fund
Legal & General Global 100 Index Trust

Source: Fidelity International

Nevertheless, cash funds were up 4.1% on average in 2023, delivering a positive result for investors despite the higher gains elsewhere and almost quadrupling the 1.1% return made by the asset class last year.

Monk added: Overall, investors will be pleased to have posted a positive year after the pain of 2022 – even if many portfolios may not have recovered all the ground lost last year.”

However, those who held the highest selling fund of the year – Fidelity World Index – bounced back with a 15.8% increase in 2023, more than making up for the 8% decline reported in 2022.

The £5.6bn tracker fund could have benefited from a large exposure to the US (standing at 70% of regional allocations), especially to its top holdings in technology companies such as Apple, Microsoft, Alphabet, Amazon and NVIDIA, which were boosted by strong sentiment around artificial intelligence (AI) this year. They collectively account for 16.7% of the fund’s holdings.

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Investors may have flocked to the perceived safety of cash funds in 2023, but the biggest selling investment trusts also revealed a preference for income this year.

Investment companies such as City of London, JPMorgan Global Growth & Income, Murray International, Merchants and Henderson Far East Income were among the best-selling trusts this year as investors made income a top priority amid the cost-of-living crisis.

Monk noted the absence of Scottish Mortgage this year – the £11.1bn portfolio is often among the most popular trusts, but investors became more sceptical after it “suffered dramatic losses” in 2022, dropping 45.7% throughout the course of the year.

Top 10 best-selling trusts on the Fidelity Personal Investing Platform in 2023
City of London
JPMorgan Global Growth & Income
F&C Investment Trust
Greencoat UK Wind
Edinburgh Worldwide
Murray International Trust
BlackRock World Mining Trust
Alliance Trust
Merchants Trust
Henderson Far East Income

Source: Fidelity International

“For many years Scottish Mortgage was one of the top performing trusts in the country, but like many other growth-oriented mandates, it has suffered as interest rates have risen,” Monk added. “It is possible though that things are about to change, especially if interest rates have peaked.”

The share price of Tom Slater and Lawrence Burns’ trust dropped to a 9% discount after this period of underperformance, which could appeal to bargain hunter investors who are optimistic on the direction of interest rates.

Indeed, the fund went some way in recovering for last year’s losses by bouncing back 9.9% in 2023, although it only re-entered the black in December.

See also: 60% of advisers concerned about losing capital Schroders survey reveals

On a stock level, Fidelity clients purely bought shares in British companies in 2023, with all the top 10 best-sellers domiciled in the UK.

Monk said this preference for their home market was “no surprise given these will be the companies most familiar to UK investors, but is perhaps a sign that many need extra encouragement to venture into overseas markets where returns – this year at least – have been higher.”

He added that the UK market “underwhelmed” in 2023, lagging behind most other major markets by some distance.

The FTSE All Share index was up a modest 0.3% this year after setting high expectations in 2022. Its old school economy and abundance of commodities and financials sent it soaring 6.4% during a time when most markets were struggling.

Top 10 best-selling shares on the Fidelity Personal Investing Platform in 2023
Legal & General
Smiths Group
Lloyds banking Group
British American Tobacco
Phoenix Group
3i Group

Source: Fidelity International

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