What’s hot and what’s not for investments in 2023

So today, we’re diving headfirst into investments trends for 2023 and also taking a look at the things that have become untrendy.

Gold

The price of gold has been volatile since reaching a record high last year. However, the recent increase in price is a good sign for investors. When real rates (the interest you earn on your money minus the rate of inflation) rise, gold prices are less likely to fall. But when real rates fall, gold prices can rise a lot. This is because when people are worried about things like a recession or inflation, they often buy gold because they see it as a safe investment.

Recently, Central Banks have been buying more than they have been selling, which is a good sign for the price of gold. Some countries, like China, have been buying more gold than usual.

Graph 1 – Real US 10-Year Yield versus Gold

Sources: FRED & Refinitiv Eikon

Emerging markets

The MSCI Emerging Market Index is still down 28% from its peak in February 2021, making it a cause for concern for investors. Despite the underperformance of emerging markets, there are some opportunities to be found, particularly due to China's economic reopening and the end of the emerging-market rate hike cycle. Furthermore, the likelihood of a less aggressive Fed and a weaker US dollar could make investing in developing assets more attractive.

Graph 2 – MSCI Emerging Markets Index vs MSCI World Index

Source: Refinitiv Eikon

Unlike developed economies, some emerging markets are proving to be more resilient, with domestic policymakers able to diverge from the US and avoid currency depreciations. The average movement of the top 10 largest developing currencies has improved against the US dollar in 2023, indicating that investors can invest in emerging markets without worrying about currency depreciation.

However, investing in emerging markets is not without risk. Investors should exercise caution and carefully consider their investment goals, risk tolerance, and investment horizon before making any investment decisions. They should also seek the advice of a financial adviser to ensure they are making informed decisions based on their individual circumstances. Despite the opportunities present in emerging markets, investors should be careful when selling stocks and conduct thorough research before investing.

Dividend stocks

Investors should consider looking at dividend stocks again as they become a more significant and stable contributor to total return due to growth slowing down and the rising cost of capital. Dividend investing has been perceived as dull over the past decade as tech companies dominated market returns. However, the tables have turned, and today, boring is beautiful.

Graph 3 – S&P Global Dividend Aristocrats Index vs MSCI All Country World Index

Sources: Refinitiv Eikon

According to the MSCI World Index, dividends accounted for 32% of total return over the past 52 years, which is significantly lower than the 45% seen during the inflationary 1970s. This percentage decreased further to 26% during the decade between 2010 and 2020, where growth was the clear favourite.

With the cost of capital rising and growth slowing down, investors should consider looking into dividend stocks once again. Dividend stocks have the potential to provide investors with a steady stream of income in the form of regular dividend payments, and they may also offer the potential for capital appreciation.

Investors should conduct thorough research before investing in dividend stocks and look for companies that have a history of paying dividends consistently and have a strong financial position. By doing so, investors can reap the benefits of dividend investing while also mitigating the associated risks.

In conclusion, it seems that investing in both investment trends and things that have fallen out of favour can be a winning strategy. After all, just because something is no longer the "it" investment doesn't mean it doesn't have value.