At Risevest, we pride ourselves on providing our clients with diverse investment options designed to help them achieve their financial goals. As we wrap up the year, we want to reflect on our performance by highlighting some key developments that shaped 2022.
The 800-pound gorilla in the room for 2022 was inflation. All the monetary easing that central banks worldwide did in response to COVID led to the worst inflation numbers in over 40 years. US inflation peaked at 9.1%, and the aggressive increase in interest rates by the US Federal Reserve and other major central banks led to the global increase in the cost of capital. The good news is that it seems to be working, as inflation in the US has started to drop just as rates crossed 5%. The bad news is that the increased rates and higher cost of capital led to a massive drop in the valuations of stocks and other assets, leading to some of the worst stock market drops in recent history.
The energy and wheat crisis caused by Russia’s invasion of Ukraine and the meltdown of the crypto space also contributed to what has been a rough year for most risky investments.
However, there were a few bright spots. Real estate markets were strong for most of the year until the final quarter, delivering double-digit returns for the Rise portfolio. Energy commodities were up this year, and energy stocks like ExxonMobil defied the downturn and gained 70%. But all of that was overshadowed by what has been the 7th worst performance of the stock markets ever in history.
Our real estate portfolio delivered a total 12-month return of 15.6%, and fixed income delivered a 10% return for the year, providing much-needed returns to our users and balancing out the losses from stocks that fell 22% this year. From the get-go, we had a multiple asset class approach to investing because diversification allows some asset classes to gain when the other falls, giving investors a much better and more consistent overall performance over time than investing in only one asset class.
Our strategy for each asset class is to focus on the highest risk-adjusted returns we can find. For real estate, we introduced Airbnb rentals to our portfolio. While they are much more hands-on than our traditional rentals, their returns, even after expenses, are much higher, making it well worth the experience. However, we will continue to invest in Airbnb rentals as a smaller component of our real estate strategy due to their seasonality and the risk of changes in consumer behaviour.
For stocks, we exited companies without either significant growth or cash-flow generation capabilities and are now prioritising defensive companies with strong demand profiles and solid balance sheets. We held onto some tech companies like Facebook (Meta) and Google, who still present a lot of value despite deep sentiment against them, and we added new positions in both short and long-term bets that will pay off when stocks rebound.
In our fixed-income portfolio, the overall fixed-income market saw relatively stable returns, with the Bloomberg Barclays U.S. Aggregate Bond Index returning 4.26%, and our portfolio delivering 10% for the year. Our portfolio has a good representation of (third-party provided) consumer credit and mortgage-backed fixed-income assets and an increasingly smaller position in emerging market sovereign debt. Despite a tough market position, credit and debt profiles remain relatively stable. Also, with higher interest rates, it’s becoming increasingly possible to move up the risk ladder into even safer fixed-income assets without sacrificing returns, which is great news.
What to Expect In 2023
We generally do not make forecasts as we believe markets cannot be consistently predicted. However, based on economic fundamentals, we always have some sense of where the best opportunities for our investors currently are. What we are seeing is an increasing splintering of a global economy, with India and the United States representing the best growth potentials geographically speaking, driven by a flight to safety and higher interest rates in the case of the US and a reshuffling of the global supply chain in the case of both US and India. Africa, in our opinion, is in an increasingly precarious position as global capital flows reverse and economic growth stalls. However, certain sectors and companies will still grow as African economies adjust to new realities.
In terms of asset classes, equities, oddly enough, present some of the best investment opportunities as long as the selections are extremely focused. We don’t think this is the best time to invest passively in indexes (this is not investment advice), as overall market performance isn’t likely to improve until there is a lot of clarity around inflation expectations. Aside from equities, private businesses are very compelling, as are fixed income, commodities and alternatives like art.
From the macroeconomic lens, investors expect a recession in the first half of 2023. We cannot say whether or not a recession will materialise, but we lean toward it being avoided. Our reasons include evidence that inflation is moderating, with rent, home, and global freight prices dropping significantly. Secondly, demand is still robust, and debt levels remain relatively stable. Third, housing supply is still constrained, which should keep a floor on home prices which translates to household wealth in the US holding steady (home value makes up a significant portion of household wealth). Lastly, despite some softness in the labour market now, there seems to be a healthy labour market and still low unemployment rate. With that said, we expect a relatively tougher first half of 2023 and advise more people to keep their budgets lean, emergency funds funded, and their investment plans disciplined.
Product And Company Updates
On our product, users can expect new and very interesting asset classes to roll out, reflecting the opportunities we see on the horizon. In addition, multi-year asset class plans are on the way, as well as varied account types. Multi-country support and a slew of new features, including dark mode, potential localised offerings, and more personalization should also be expected to support our users’ financial journeys and unlock more wealth-creating opportunities for all Risers.
Thank you for an incredible year, your support in tough times, your patience during ups and downs, and your commitment to rise together.
Have a successful 2023.