Walking the tightrope – Outlook 2023

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Investors were buffeted throughout 2022, first by the shock of Russia’s invasion of Ukraine and then by the fastest rate-hiking cycle by the US Federal Reserve in a generation. As we had anticipated 2022 would be a volatile year in both equities and fixed income, our allocations to hedge funds provided some relative shelter from the storm that engulfed markets. Our expectation of US dollar strength during the year also proved justified, though we were surprised by the persistence of the appreciation over the course of 2022. Looking ahead, the agility that was required to navigate markets in 2022 will remain an asset in 2023 as the global economy treads a fine line between developed economies entering recession and emerging ones seeking to consolidate recoveries. Hedge funds should continue to be a refuge for equity investors in particular, as high interest rates, elevated volatility, and the broadest single-stock dispersion since 2007 provide multiple return drivers in the new year.