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What were the top investment strategies of 2023?

In a volatile year for stock markets, we share which three investing themes dominated 2023 and what could be next.

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Interest rate hikes and dealing with sky-high inflation once again dominated the financial newsreel for most of this year.

It was also a year full of ups and downs for the stock market, and with so much uncertainty, we witnessed a new record-high for the price of gold.

But which investing themes led the way this year?

This article isn’t personal advice. All investments can rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice. Remember, past performance isn’t a guide to the future.

‘Growth’ trounces ‘value’ investing

After a horrible 2022, when growth investing lagged value by 26% and left investors nursing some large drawdowns, growth has been back with a bang in 2023.

As of the end of November 2023, the MSCI World Growth index was up 24.9%, compared to the MSCI World Value index return of just 1.3%.  

Despite interest rates continuing to rise in many developed economies in the first half of the year, investors are clearly of the view that the majority of rate rises have already happened.

Putting the debate around how high for how long to one side, when rates do come down, it’s likely to benefit share prices, and particularly those companies with lots of growth potential.

This performance profile serves as a reminder to investors of the benefits of diversification. And not just by geography, but by style. Those sitting back admiring a strong year for their growth-focused portfolio or lamenting a token return from their value-biased investments might want to revisit the weighing scales.

Growth versus value over five years

Past performance isn’t a guide to future returns.
Past performance isn’t a guide to the future.

The ‘Magnificent Seven’ and AI drive the US market

The strong performance of the US stock market this year has been driven by the stellar performance of seven giants. It’s Nvidia, Meta, Tesla, Amazon, Google, Apple and Microsoft who all make up this exclusive group.

Investors have grown excited about the potential and the reach of artificial intelligence (AI), so stocks with exposure to this dominant theme have soared. The performance of these stocks has contributed to an increasing concentration of these companies in the US market, after a more underwhelming year for the rest of the market.

The action on AI isn’t just on the other side of the pond though.

In November, the UK hosted a world first summit on AI safety at Bletchley Park in Buckinghamshire, England. This brought together industry leaders and well-known figures, including Elon Musk, who took part in an interview with UK Prime Minister Rishi Sunak. 

Resilient India prospers as the China re-opening trade flops

The strength of the Indian economy has taken centre stage for those investing in Asia and emerging markets. Small and mid-caps have done especially well, alongside companies leaning into the domestic economy like financial services and consumer-focused businesses.

While pricier than its regional peers, India offers an array of advantages, including improved corporate governance standards, favourable demographics and growing foreign direct investment.

India's economy is also expected to surpass both Germany and Japan by 2028, making it the third largest globally.   

India's economy is also expected to surpass both Germany and Japan by 2028, making it the third largest globally.

On the other hand, the much-hyped post-pandemic China re-opening story flopped badly. With re-shoring fuelling doubts about its ability to continue growing strongly, a struggling property sector and a disheartened consumer – it’s been a tough year.

With an almost 20% return differential this year between these two major Asian markets in sterling terms as of the end of November, investors might consider what balance of investments they want across Asia.  

Chinese valuations at 20-year lows is a good measure of where sentiment is today. This suggests that there could be opportunities for investors willing to look through the gloom to the long term.

Looking for investment ideas?

With markets changing so much from one year to the next, it’s more important than ever for investors to have a diversified portfolio.

Our Wealth Shortlist is designed to help investors build well-balanced and diversified portfolios. We put funds under the microscope to make sure the list only contains the funds that our in-depth analysis indicates have the greatest performance potential over the long term.

To use the shortlist to build your portfolio, you should be comfortable deciding if a fund fits your investment goals and attitude to risk.

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Written by
Joseph Hill
Joseph Hill
Senior Investment Analyst

Joseph is part of our Fund Research team. Having joined HL in 2017 initially on a graduate scheme, he's now integral to our analysts who select funds for our Wealth Shortlist. He also analyses the UK Growth, UK Equity Income and UK Smaller Companies fund sectors, providing expert insight for our clients.

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Article history
Published: 7th February 2024