Top Equity Funds of 4Q23: The winners (and losers) as stocks ended the year on an unexpected high

2023 did not really play out in the way most investors expected. Stocks were supposed to underperform as policymakers’ aggressive tightening threatened a recession. However, the US economy remained resilient, showing that it has become less sensitive to higher interest rates. Even with a regional banking crisis and rising geopolitical tensions around the world, the economy and financial markets remained firm.

Top Performing Equity Funds of 4Q23

Notably, global equities ended the year with a bang as the Fed signalled the end of rate hikes. The market’s positive momentum was further driven by expectations of potential Fed rate cuts as early as March. Additionally, speculations that the European Central Bank may also initiate rate reductions have picked up steam.

Against this backdrop, technology funds shone brightly, with the top performing fund of 4Q23 being the Nikko AM ARK Disruptive Innovation B USD. Known for its investments in unprofitable and speculative tech companies, the fund rallied sharply on the back of cooling inflation data and rate cut bets. In particular, one of its top holdings, Coinbase, saw a price surge of over 100% during the quarter.

However, we caution investors against chasing the rally. The fund’s aggressive strategy means that it lacks exposure to well-established names with strong economic moats. As such, it is likely to remain highly volatile for the foreseeable future.

Another standout was the Allianz Cyber Security AT Acc H2-SGD, which benefitted from growing interest in cybersecurity stocks following the buzz surrounding artificial intelligence (AI). Yet, many companies within this space, including the fund’s top holdings like Crowdstrike, Zscaler, and Cloudflare, aren’t fully profitable.

We emphasise our preference for quality companies characterised by robust cash flow generating ability, strong competitive advantages, and sheer market dominance. Rather than investing in unprofitable and speculative tech companies, investors should consider our recommended fund Fidelity Global Technology A-ACC-USD. Its top 10 positions include mega caps like Microsoft, TSMC, Amazon, and Alphabet. The fund delivered commendable returns of 13.0% during the quarter.

Expectations of a loosening monetary policy also drove up interest rate sensitive sectors like property and infrastructure. Notably, the FTGF ClearBridge Global Infrastructure Income A Mdis AUD-H Plus saw a significant rebound from the previous quarter, where it was among the laggards.

Meanwhile, gold prices trended higher. Lower rates decrease the opportunity cost of holding non-yielding assets like gold, and typically weigh on the US dollar, making the shiny metal more attractive for investors holding other currencies. This bodes well for the Schroder ISF Global Gold A Acc EUR-H and Blackrock World Gold Fund A2 AUD-H, as both are invested in gold mining companies.

In addition, the Blackrock Latin American A2 AUD-H emerged as a winner. Latin America, which initially led the upward trend with rate hikes, is already implementing cuts that are expected to boost economic growth and lend support to equities. Brazil, the fund’s largest position, delivered its fourth consecutive cut of 50 basis points in December 2023. Similarly, Chile has lowered borrowing costs by three percentage points since July. On the other hand, Mexico is anticipated to follow suit with rate reductions this year.

Table 1: Top Performing Equity Funds of 4Q23

Fund Name	4Q 2023	2023	Segment
Nikko AM ARK Disruptive Innovation B USD	27.40%	64.74%	Global Technology Equity
Janus Henderson Horizon Pan European Property Equities A2 EUR	23.43%	21.53%	Europe including UK Property Equity
Allianz Cyber Security AT Acc H2-SGD	23.29%	51.14%	Global Cybersecurity Equity
Schroder ISF Global Gold A Acc EUR-H	21.65%	11.75%	Gold & Precious Metals Equity
Blackrock Latin American A2 AUD-H	20.66%	30.88%	Latin America Equity
Neuberger Berman 5G Connectivity A Acc AUD-H	20.04%	33.26%	Global Technology Equity
Blackrock World Technology Fund A2 AUD-H	19.92%	44.70%	Global Technology Equity
FTGF ClearBridge Global Infrastructure Income A Mdis AUD-H Plus	19.60%	-1.62%	Global Infrastructure Equity
Neuberger Berman US Real Estate Securities A Acc SGD-H	19.60%	7.93%	US Property Equity
Blackrock World Gold Fund A2 AUD-H	19.00%	1.70%	Gold & Precious Metals Equity
Total returns basis in SGD terms Source: iFAST Compilations Data as of 31 December 2023

Bottom Performing Equity Funds of 4Q23

The worst performing fund of 4Q23 is the HGIF - Turkey Equity Fund CL AD SGD. The Turkish lira fell by 10% against the Singapore dollar during the period. Besides, Turkish equities erased most gains made from earlier quarters as successive rate hikes raised borrowing costs from 8.5% to the current 42.5%, reducing the appeal of equities for domestic investors. Concurrently, the return on lira deposits has been on a steady rise, offering an alternative place for investors to park their savings.

It is worth highlighting that Turkey was initially hesitant to raise rates, having long favoured an unorthodox policy of cutting rates to fight inflation. However, following President Erdogan’s re-election in May 2023 and the subsequent appointment of a new economic team, the central bank pivoted back to a more conventional monetary policy.

Finally, the remaining underperformers of 4Q23 were funds invested in Chinese equities. Negative home buyer sentiment and indebted developers continued to drive down sales and investments in the property market, traditionally one of the main pillars of growth. Meanwhile, economic data disappointed, with shrinking factory activity and retail sales missing estimates.

Troubles in the housing market also trickled down to Ping An Insurance. The stock fell following reports that Chinese authorities asked Ping An to rescue Country Garden. While Ping An swiftly refuted the reports, its shares listed in the Hong Kong and Shanghai stock exchanges still faced selling pressure, translating into a loss of around 20% in the quarter. The insurance company is a prominent holding of several funds, including the Nikko AM All China Equity A SGD, FTIF - Templeton China A Acc USD, and Eastspring Investments - China Equity Fund A USD, among others.

Table 2: Bottom Performing Equity Funds of 4Q23

Fund Name	4Q 2023	2023	Segment
HGIF - Turkey Equity Fund CL AD SGD	-17.14%	4.62%	Turkey Equity
Nikko AM All China Equity A SGD	-13.29%	-26.20%	China-Local Equity
iFAST-NAM China Equity A SGD	-13.09%	-21.39%	China Equity
FTIF - Templeton China A Acc USD	-13.08%	-23.24%	Greater China Equity
FSSA China A Shares I Acc USD	-12.18%	-25.45%	China-Local Equity
Eastspring Investments - China Equity Fund A USD	-12.12%	-28.55%	China Equity
Allianz China A Shares AT Acc SGD	-10.86%	-24.69%	China-Local Equity
Eastspring Investments - China A Shares Growth AS SGD	-10.82%	-24.24%	China-Local Equity
JPMorgan Funds - China A-Share Opportunities A (acc) SGD	-10.73%	-25.69%	China-Local Equity
Blackrock China Impact A2 USD	-10.32%	-25.54%	China Equity
Total returns basis in SGD terms Source: iFAST Compilations Data as of 31 December 2023

Looking back at 2023

We wrap up 2023 by reviewing the year’s top outperformers and underperformers.

The Nikko AM ARK Disruptive Innovation B USD come out on top. This is hardly surprising given that tech (particularly speculative companies) rebounded strongly from a dismal 2022.

In a broader context, tech funds with a more conventional approach, like JPMorgan Funds - US Technology A (dist) USD, dominated the list of winners due to the ascent of the ‘Magnificent Seven’ – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla. Besides the AI rush, these companies generally benefitted from cost-cutting measures implemented in 2022, which aimed at enhancing efficiency and boosting profit margins. US growth funds, including Blackrock US Growth A2 USD, that prominently feature these tech giants also posted stellar returns.

Table 3: Top performing equity funds of 2023

Fund Name	2023 Return	Segment
Nikko AM ARK Disruptive Innovation B USD	64.74%	Global Technology Equity
JPMorgan Funds - US Technology A (dist) USD	63.24%	US Technology Equity
FTSF - Franklin Shariah Technology A Acc USD	58.65%	Global Islamic Theme Equity
United Global Technology Fund SGD	55.38%	Global Technology Equity
Allianz Cyber Security AT Acc USD	51.29%	Global Cybersecurity Equity
FTIF - Franklin Technology A (acc) USD	50.42%	Global Technology Equity
Blackrock US Growth A2 USD	50.40%	US Equity
Janus Henderson Horizon Global Technology Leaders A2 SGD	48.38%	Global Technology Equity
Blackrock World Technology Fund A2 GBP	47.66%	Global Technology Equity
Natixis Loomis Sayles US Growth Equity RA USD	47.32%	US Equity
Total returns basis in SGD terms Source: iFAST Compilations Data as of 31 December 2023

Conversely, the laggards of 2023 were predominantly China funds. This underscores the fact that the anticipated China recovery at the beginning of the year failed to take off, with the slump even deepening.

The biggest loser on our platform was the United China A Shares Innovation A Acc SGD, which focuses on China A-shares that benefit from technology, innovation, and trends. The US imposed export controls on Chinese semiconductor and AI firms in 2023, resulting in a drag on technology and innovation-themed stocks. In addition, the fund invests in a fair share of small and mid-cap companies which suffered amidst the economic uncertainties in China.

Table 4: Bottom performing equity funds of 2023

Fund Name	2023	Segment
United China A Shares Innovation A Acc SGD	-36.36%	China-Local Equity
Eastspring Investments - China Equity Fund AS SGD	-28.55%	China Equity
abrdn SICAV I - China A Share Sustainable Equity A Acc SGD-H	-26.80%	China-Local Equity
Nikko AM All China Equity A SGD	-26.20%	China-Local Equity
Manulife Global Fund - Dragon Growth AA Acc SGD-H	-25.75%	China Equity
JPMorgan Funds - China A-Share Opportunities A (acc) USD	-25.69%	China-Local Equity
Blackrock China Impact A2 USD	-25.54%	China Equity
FSSA China A Shares I Acc USD	-25.45%	China-Local Equity
Allianz China A Shares AT Acc SGD	-24.69%	China-Local Equity
JPMorgan Funds - China CPF (acc) SGD	-24.68%	China Equity
Total returns basis in SGD terms Source: iFAST Compilations Data as of 31 December 2023

Are we out of the woods?

As the new year unfolds, we believe it remains necessary to exercise some caution.

The avoidance of a broad-based US recession in 2023 doesn’t warrant complacency. Factors such as waning excess savings, tighter credit conditions, elevated inflation levels and the risk of any new external shocks, such as geopolitical events, can still pose a threat to the economy.

Meanwhile, the stock rally at the tail end of 2023 has brought discussions about the direction of interest rates to the forefront. With lingering uncertainties surrounding inflation and the continued resilience of the US economy, we are hesitant to conclude that the initiation of rate cuts early this year are inevitable. Furthermore, the market's anticipation of rate cuts is currently double the Fed's projections, suggesting an overly optimistic sentiment.

More importantly, even if rate cuts were to be implemented this year, the ‘higher for longer’ narrative would still hold, as rates would remain at significantly higher levels compared to that of the past decade.

Given these concerns, we advocate for investments in high quality, sustainable business models. It is a prudent long-term strategy that can thrive regardless of economic conditions. As for markets, we hold the view that the slump in Chinese equities will continue into 2024. Consequently, investors may find the ‘New Asian Tigers’, namely Japan, Singapore, and South Korea, to be better investment opportunities.

(Related article: iFAST 2024 Investment Outlook: Your must-read guide to navigating markets in 2024 and beyond)