Despite a number of crises, it is worth noting that the FTSE 100 remained almost flat in 2022, the head of UK equities at Newton Investment Management has said.
David Cumming told FTAdviser this was because the starting point for the index, post-Brexit and the pandemic, was already depressed.
However, the low equity valuations reflected in the FTSE continue to reflect a “gloomy” outlook.
“Outcomes are difficult to predict as the key crises of Ukraine and the threat of recession can still play out in different ways,” he said.
“Meanwhile reassessment in portfolio styles are likely to continue as negative investment performance challenges established trends towards growth and sustainability investing.
“Crises do tend to generate change and consequently change the perceptions of investors.”
That being said, as active managers will attest, he said, judging that change is never easy.
“The burden of potential for investors to capitalise on this change remains as they seek to deliver positive returns versus the passive competition.”
Cumming quoted Pope Francis I speaking about crises.
“'The basic rule of a crisis is that you don’t come out of it the same.’
“‘If you get through it, you come out better or worse, but not the same’.”
“This observation by Pope Francis I has interesting implications for all of us but particularly for UK equity investors as 2022 has been the year of crises,” he said.
A war in Europe, energy price spikes, inflation, rising interest rates, sterling weakness, a looming recession and political disarray as well as the longer duration issue of climate change, have featured throughout 2022.
They have not only impacted investment strategies and returns but have challenged the investment philosophies themselves, he said, highlighting the conversations over active versus passive, conventional versus sustainable, growth versus value.
“From a UK equity perspective the investment impact of all this change has been substantial,” he said.
The impact of higher interest rates was clear in the underperformance of growth stocks, while the weak performance of the UK economy as well as a weaker sterling hit the FTSE 250.
“The FTSE 100 offered more resilience given its global tilt and its exposure to “invasion winners” such as oils and mining, as well as financials who benefited from higher rates,” he said.
In terms of investment styles, he said, value (often old economy, defence tobacco, oil) outperformed growth, while conventional outperformed sustainable for similar reasons.
In terms of style, passive outperformed active, he said.
“UK investment managers continued biases towards growth and mid cap has proved costly.
“Most [investors] will be hoping that 2023 is a less interesting year.”
sally.hickey@ft.com
