Global investment-grade bonds, as measured by the Bloomberg Global Aggregate Index, fell by more than 16%. Global high-yield spreads rose by some 1.7 percentage points, on top of market rates that rose by up to 4-5%. We all know what that does to the value of bonds.
So, yes, a lot of investors lost a lot of money.
That being said, losses were strikingly unevenly distributed. In stocks, the Nasdaq Composite Index shed close to 1/3 of its market cap, representing a loss of almost $9 trillion. The Norwegian benchmark index almost stood its ground, with at least one stock fund delivering positive returns (yes, there’s some not so hidden advertising here).
Globally, the MSCI World Growth Index lost a full 26.9%, while the MSCI World Value Index lost only 2.9%. Roughly speaking, these two indices represent half each of the MSCI World Index, with the dividing line defined by pricing.
The common denominator here? Sensitivity to changes in interest rates. Nasdaq stocks typically have a lot of their expected earnings quite a bit into the future, as have growth stocks in the World index. The Norwegian benchmark index has a larger share of value stocks, in particular energy stocks, which had a stellar year, due to the European energy crisis following Russia’s invasion of Ukraine.
In fixed income, I’ve seen claims that 2022 was the worst year in a century. That may be true for fixed-coupon, long-duration bonds. For floating-rate Nordic bonds, however, which typically also have somewhat shorter duration, this was not such a horrifying year. Continuing my line of lightly disguised advertising, I can name at least one Nordic crossover fund that made a profit for its investors, plus one high-yield fund that came soo close …
These very divergent recollections of the past year serve as a possibly profitable reminder that risk comes in many guises. US government bonds, as safe as they get in terms of credit risk, were a downright lousy investment in 2022. High-yield bonds, which obviously carry a lot higher credit risk, were less disastrous, not least because of their much higher yield.
You could have done worse than buying global bonds, however. You could have put your money in Bitcoin, which fell by more than 60%. Or the Bitwise index, which managed to preserve only 16% of its initial value. Yes, that’s a loss of 84%. In contrast, the DJ Commodity index rose by 11%. The difference? One of these investments depends solely on finding another investor who is more optimistic than you are. If you can’t, there’s little to prop up the price. With commodities, as with stocks in profitable companies, you get a real product for your money. With the latter, you also create accumulating value.
If you haven’t already noticed, there’s a more general moral of this story: Even in such a tumultuous year as 2022, there is profit to be had. You just have to be more scrupulous.
Finn Øystein Bergh
Chief Economist & Strategist
Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.