Over the last six months we’ve been been on the cusp of one of the most predicted recessions ever, with economic growth continuing to be around zero or slightly positive.
So far though, recession has been avoided and markets have broadly risen since the end of October 2022. However, many still believe it’s only a matter of time. History tells us that rate rising cycles can and have caused recessions and the rate rises this time have been quicker than in the last few cycles, giving businesses less time to react. So, it seems reasonable to think we could end up in a recession this time around too.
March saw the first signs that it might be getting closer with the three bank failures of Silicon Valley Bank (SVB), Signature Bank and Credit Suisse. While banks have broadly increased reserves since the financial crisis, all banks are at risk from depositors asking for their money back.
Each of these banks had their own unique challenges. But the common theme that caused them to fail was that customers wanted their money back.
It’s a stark reminder that the banking system relies on confidence, and when confidence starts to disappear it can be contagious and have ripple effects. Such ripple effects have led to the failure of another bank at the start of May, First Republic.
Is this a sign that we will in fact get a recession? It’s difficult to know, but history suggests it probably is.
What caused the US banking crisis and what could come next?
This article isn’t personal advice. If you’re not sure whether an investment is right for you, ask for financial advice. Investments and any income they produce can rise as well as fall in value, so you could get back less than you invest. Past performance is not a guide to the future.
How have stock markets reacted?
Shares have been surprisingly resilient. Most stock markets around the world have gained value over the last six months.
Europe led the way, with the FTSE Europe ex-UK index returning 19.22%* from the end of October 2022 to the end of April 2023. A particularly warm winter in Europe reduced the expected impact of higher energy costs on consumers and businesses. This has helped bring down inflation which has been positive for the region.
The US provided the lowest returns, with a modest loss of 0.65% over the same period. Returns on US shares have been hampered by the US Dollar falling in value. That’s because when you convert the value of your shares priced in dollars back to pounds sterling, they’re worth less now than they were six months ago, all else being equal.
Growth style stocks have also fared best, outperforming their value style peers.
What about bonds?
Bond markets have had a positive six months from the end of October to the end of April. But this comes after the losses on bonds during 2022 being the highest seen in a generation.
That being said, there’s still some significant short-term volatility in bond values, linked to expectations around what’s next for interest rates. The week that SVB collapsed saw the yield on the two-year US treasury bond fall more than in any other week since the ‘Black Monday’ market crash in 1987.
While the short-term volatility continues, bond yields have fallen (and therefore values have increased) broadly across the board. With interest rate rises expected to come to an end in 2023 and inflation falling in many regions across the world, the outlook for bonds has somewhat stabilised for now.
Interest rates in 2023 – where will they go next?
At the same time, risk of financial crisis due to the banking sector challenges has seen some government bonds perform well during flights to safety in March and April.
Bonds play an important role in helping diversify a portfolio. They have tended to help dampen the ups and downs that come with investing, offering balance, and potential for income. It’s good to see that this has started to happen again following a period where shares and bonds have often moved in tandem, reducing some of the usual diversification benefits.
How have mixed asset and total return funds performed?
Funds that have invested more in shares and less in bonds have seen better returns over the past five years. Funds in the IA Flexible Investment and IA Mixed Investment 40-85% Shares sectors have held up best over this period as they generally invest more in shares.
The past year has been different, due to the challenging market environment. The best performing mixed-asset sector over the 12 months to the end of April 2023 was the IA Targeted Absolute Return sector, with the sector average performance having a small gain of 0.51%*.
Funds in this sector aim for positive returns in a variety of market conditions and aim to provide some shelter from volatility when things turn sour. There are no guarantees though and they can still rise and fall in value. You could still make a loss.
The worst performing group of funds was the IA Mixed Investment 0-35% Shares sector average, which fell by 3.86%.
Performance of mixed asset and total return funds over 12 months
Past performance is not a guide to the future. Source: *Lipper IM, to 30/04/2023.
Annual percentage growth
| Apr 18 – Apr 19 | Apr 19 – Apr 20 | Apr 20 – Apr 21 | Apr 21 – Apr 22 | Apr 22 – Apr 23 | |
|---|---|---|---|---|---|
| IA Flexible Investment | 3.26% | -4.44% | 24.54% | -0.59% | -1.31% |
| IA Mixed Investment 0-35% Shares | 2.21% | -0.66% | 9.31% | -3.36% | -3.86% |
| IA Mixed Investment 20-60% Shares | 2.51% | -3.64% | 16.23% | -1.27% | -2.70% |
| IA Mixed Investment 40-85% Shares | 4.10% | -4.02% | 21.51% | -0.04% | -1.83% |
| IA Targeted Absolute Return | -0.80% | -1.77% | 9.68% | 1.33% | 0.51% |
| FTSE Europe ex UK | 3.04% | -7.35% | 34.36% | -2.24% | 13.18% |
| FTSE USA | 19.76% | 4.41% | 34.81% | 8.37% | 2.05% |
| IA £ Strategic Bond | 2.66% | 1.19% | 9.46% | -5.11% | -3.82% |
How have mixed asset and total return funds on the Wealth Shortlist performed?
Our Wealth Shortlist funds have delivered different returns over the past 12 months. They have different approaches and objectives though, so we don’t expect them to perform in the same way.
Remember, 12 months is a short timeframe when looking at how an investment has performed. Past performance isn’t a guide to the future. Investments should be held as part of a diversified portfolio for the long term – that’s at least five years.
Investing in these funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund and its risks, please see the links to their factsheets and key investor information below.
Pyrford Global Total Return was the strongest performing Wealth Shortlist fund in this sector over the past 12 months, returning 1.47%*.
Avoiding large losses has been an important characteristic of the fund and it’s tended to come into its own and hold up well in weaker markets. The shares held within the fund have performed most strongly over the last 12 months, while their bond investments have had more of a mixed impact.
READ OUR LATEST UPDATE ON Pyrford Global Total Return
BNY Mellon Real Return was the worst performing Wealth Shortlist fund in the sector over the last 12 months returning -3.00%.
The managers try to provide growth during different market conditions, through investing in a diversified set of shares, bonds and derivatives. Over the 12 months to 31 March 2023, the different asset classes have all detracted from performance, with derivative hedging investments losing the most value overall.
READ OUR LATEST UPDATE ON BNY Mellon Real Return
Annual percentage growth
| Apr 18 – Apr 19 | Apr 19 – Apr 20 | Apr 20 – Apr 21 | Apr 21 – Apr 22 | Apr 22 – Apr 23 | |
|---|---|---|---|---|---|
| BNY Mellon Real Return | 5.81% | 1.49% | 16.65% | -1.33% | -3.00% |
| Pyrford Global Total Return | 2.37% | 1.43% | 4.68% | 4.30% | 1.47% |
| IA Targeted Absolute Return | -0.80% | -1.77% | 9.68% | 1.33% | 0.51% |
| IA Flexible Investment | 3.26% | -4.44% | 24.54% | -0.59% | -1.31% |
Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2022.
VIEW PYRFORD GLOBAL TOTAL RETURN FACTSHEET INCLUDING CHARGES
VIEW PYRFORD GLOBAL TOTAL RETURN KEY INVESTOR INFORMATION
VIEW BNY MELLON REAL RETURN FACTSHEET INCLUDING CHARGES
VIEW BNY MELLON REAL RETURN KEY INVESTOR INFORMATION
Fund Insight: our weekly email
Sign up to receive our expert fund research and insights.
Please correct the following errors before you continue:
Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.
Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.