'2022 was the year that proved trouble comes in threes'

Global markets look set to end 2022 in negative territory, said Nick Britton, with the average investment company losing 15 per cent in the 11 months to November.

“Inflation, war, recession…this year seems to have proved the theory that trouble comes in threes,” he said.

However, commodities and renewable energy are among the few bright spots, Britton added, though UK and global equity income have held up much better than their growth-focused counterparts. 

“Rising interest rates have punished most equity sectors, property and private equity,” he said.

We could expect to see property, private equity and debt all perking upNick Britton, AIC

Looking ahead to 2023, managers of UK-focused investment trusts are “the most chipper”, Britton said.

“The income-focused ones have had a (relatively) good year, but UK stocks are still poorly valued compared to the wider market. 

There have been huge strides in this area when it comes to gender, but there is more to doNick Britton, AIC

“Managers are of the view that the 'Brexit discount' will eventually be corrected one way or another, even if it’s by M&A.”

Some think the correction may already be happening, with some NAV rises of 10 per cent or more in November among the UK smaller companies sector.

“Clearly that would be positive for a whole range of asset classes and for investment companies in general,” Britton said.

“In particular, we could expect to see property, private equity and debt all perking up.”

However, barely half of investment company managers who responded to the AIC’s anonymous annual poll expect markets to go up in 2023, which Britton said is a measure of how low sentiment has sunk.

“Normally it is a comfortable majority,” he said.

That being said, there are still opportunities in the market.

“More analysts and commentators are starting to talk about investment company discounts, which widened more than 10 percentage points in 2022,” Britton said. 

“For investment companies that invest in equities, discounts are at levels last seen in the early stages of the Covid pandemic.”

There is also excitement around private equity, and Britton said he recently spoke to four investment company analysts about where they saw value.

“All four of them highlighted the sector as one where discounts have, in their view, widened excessively, creating potential bargains. 

“They also pointed out that leverage and commitments are lower than they were going into the financial crisis.”

D&I

An issue that can be expected to come into the fore in 2023 is diversification on investment company boards, Britton said.

New FCA rules will put ethnic diversity in the spotlight, he added, with listed companies required to state whether they have met three distinct targets: at least 40 per cent of board roles filled by women; at least one senior position held by a woman; and at least one director from a minority ethnic background. 

“There have been huge strides in this area when it comes to gender, but there is more to do,” he said.

sally.hickey@ft.com