In this month’s instalment of our visual series on topical themes, we look at how various asset classes are holding up in a turbulent year for financial markets.

Read this article to understand:

  • How the performance of various asset classes stacks up so far this year
  • Whether value stocks are coming back after years of trailing growth stocks
  • Why Bitcoin is not the new gold

While many professional investors knew that rising rates and inflation would present challenges in 2022, the Russia-Ukraine conflict has introduced a new source of uncertainty and volatility.

In the last edition of What does the data say, we explored the human and economic cost of the war. This month, we’ve crunched the numbers to distinguish between the most resilient and vulnerable markets.

An overview

As Figure 1 highlights, most asset classes benefited from the benign inflationary and accommodative monetary policy environment in place until relatively recently.

Figure 1: Asset class performance 2013-2022 YTD (per cent)
Asset class performance 2013-2021
Source: Aviva Investors, Eikon. Data as of May 12, 2022

However, those conditions have changed dramatically in 2022, as Figure 2 shows, with many asset classes in negative territory (in some cases deeply negative) and commodities being an outlier.

Figure 2: YTD asset class performance (per cent)
Source: Aviva Investors, Eikon. Data as of May 11, 2022

In terms of stock markets, developed markets have been hit particularly hard. The tech-driven Nasdaq was down by over 27 per cent in the year to May 12, while the Euro Stoxx 50 had dropped almost 16 per cent.

The only markets bucking the trend have been commodity-rich countries – particularly oil and gas-rich states in the Middle East.

Figure 3: Stock market indexes (annual change in per cent)
Stock market indexes
Source: Aviva Investors, May 2022. Original sourced from countryeconomy.com as of May 17, 20221

Some surprises

So far in 2022, value investing has comfortably outperformed the growth sector as inflation and tightening monetary conditions have taken hold – reversing a trend that has been evident since the global financial crisis (Figure 4).

Figure 4: MSCI World Growth versus MSCI World Value 2022 YTD (per cent)
Source: Aviva Investors, Eikon. Data as of May 13, 2022

Unsurprisingly, defensive stocks have also proven more resilient in this environment. Figure 5 shows cyclical stocks have underperformed relative to defensive ones.

Figure 5: The relative performance of cyclical over defensive stocks 2021-2022 YTD (per cent)
Source: Aviva Investors, Eikon. Data as of May 13, 2022

The winners

As mentioned, commodities have been the main outlier this year. The Russia-Ukraine crisis has demonstrated how integral these countries have been in a variety of commodities markets. Beyond energy, agricultural produce and livestock have also seen prices surge.

Figure 6: YTD commodities performance (per cent)
Source: Aviva Investors, May 2022. Data from Eikon as of May 13, 2022

Natural gas has unsurprisingly been a standout performer. US natural gas prices have climbed to their highest levels since 2008,2 as the war highlights the fragile nature of global energy security.

Figure 7: YTD commodities performance – subsectors breakdown (per cent)
Source: Aviva Investors, Eikon. Data as of May 13, 2022

While it would be an exaggeration to say this is completely reflected in share prices, the energy sector – which has lagged overall global stock market performance for years – is starting to close the gap, as Figure 8 shows.

Figure 8: MSCI World Energy versus MSCI World versus MSCI ACWI 2007-2022 YTD
MSCI World Energy versus MSCI World versus MSCI ACWI
Source: MSCI, April 20223

Ever since the financial crisis, developed market government bonds have been the go-to safe haven for investors during any period of stress, underpinned by central bank purchase programmes. But with that support being paired back and high inflation, yields are rising again, a trend many commentators expect to continue. Anyone who put short positions on the US Treasury market this time last year will have found that to have been a particularly profitable trade (Figure 9).

Figure 9: US five-year Treasury yields 2020-2022 YTD (per cent)
Source: Aviva Investors, Eikon. Data as of May 13, 2022

Not exactly digital gold…

While not completely immune to volatility, gold’s reputation as an effective inflation hedge has seen it among the more resilient investment asset classes so far in 2022. Bitcoin, meanwhile, has hardly performed as the ‘digital gold’ some of its advocates like to portray it as (Figure 10).

Figure 10: One-year Bitcoin volatility versus gold (per cent)
Bitcoin versus gold 60-day volatility
Source: Woobull. Data as of May 12, 20224

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