17/02/2023 - Feature articles

2023 Outlook: The positives of investing in this environment

The Positives of Investing in 2023

Welcome to our 2023 Outlook! This document has been created to highlight the most important issues facing investors, share insights from our current research and help you make better investment decisions as we enter 2023. It has been compiled by our investment leaders, draws on the work of our global team and is informed by our investment principles.

As we look back over the year that has passed, it is striking how much the economic, geopolitical and investing environment has changed over the last 12 months. A war in Europe, a cost-of-living crisis and the collapse in the price of (formally admired) technology companies have all grabbed the headlines and reinforce a comment we made this time last year: “The future holds a wide range of possible outcomes and is characterised by unyielding complexity that continually defeats those who seek to make confident forecasts. Fortunately, our role as investors is not to forecast the future, but rather to construct portfolios that empower people to reach their goals whatever the economic and market conditions”.

We Welcome 2023 with Open Arms

As we look forward this year, we hold to this mantra but would highlight that the fall in the price of equities and bonds this year has improved the outlook for investors. Underlying this view is the understanding that returns to investors will be determined by both the cashflows generated by the assets in which we invest and the price we pay to acquire those assets. Last year, we noted fundamentally attractive assets that were unattractive investments due to their high price. This year, we see some fundamental weakness in certain assets, but they can be bought at sufficiently lower prices to create a more fruitful ground for investors.

The importance of this dual focus when undertaking investment analysis tends to be lost in markets characterised by excessive optimism or pessimism. As investors become increasingly focused on the near-term path of prices—confident of either a continuation of the past or a sharp reversal—many forget that most paths lie between these two outcomes. It is for this reason that we adopt a granular, fundamental and valuation-driven approach to investing, acknowledging that expensive markets can provide opportunities and cheap markets may be a source of threats. In every situation, the right approach is to view the future probabilistically and think long term.

Working with the Conditions We’re Presented

At the start of 2023, it is even more important than usual to look beyond the headlines that confront us and focus on the objectives of investors and the risks to meeting those objectives. We have sought to address these in the following pages, offering practical insights drawn from our own research that are aligned to the key objectives of investors and expressed in the portfolios we manage.

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