Geojit Insights' report on 2023's asset class performance sheds light on the best performers but also stresses the importance of asset allocation.
In calendar year 2023, both global and domestic equities, as usual, took the lead in terms of asset classes' performance while gold outperformed other fixed-income assets, said Financial services company Geojit in its latest report. While equities, both domestic and international, gave whopping returns in 2023, it is much riskier as a category. Here's where asset allocation, a balanced mix across fixed income such as FDs, PPF and also gold, should be considered.
Asset allocation matters because different asset classes perform differently each year. For instance, in 2023 broader equity index gave 27 per cent. However, this may not be the case every year. Having a mix of assets like fixed income, stocks, and gold helps manage risk. Fixed income is for safety, stocks for growth, gold for diversification and spreading investments across these categories reduces overall risk.
Here top performers are given in ascending order as per Geojit Insights' 'Shades & Streaks of Asset Classes' report:
Domestic Equities: After a subdued show in CY-2022, domestic equities delivered strong returns in 2023. Sensex, the oldest equity Bluechip Index of the country, created 9 records of 1000-point milestones, from 64,000 to 72,000, and hit new highs 22 times during the year. Smaller companies represented by midcaps (67 per cent returns) followed by Smallcaps (49 per cent) and Midcaps (44 per cent), did better than large caps (21 per cent). Overall, Indian stocks (NIFTY 500) ended the year positively, with large caps showing gains for the consecutive eighth year.
International Equities: In global markets, the S&P 500, the most popular index, gained 26.8 per cent in rupee terms almost close to the domestic broader index (Nifty 500, which also includes the Midcap and Smallcap universe). Investing in global stocks offers diversity and new opportunities that are not available locally. Today there are active and passive FoFs in mutual funds to invest in global stocks. As per Amfi data, there are 7 Fund of funds investing in one or another index related to the S&P 500 and NASDAQ 100 and they have given an average return of 45.06 per cent in the last year.
Gold & Silver: Gold kept its double-digit returns in 2023, faring below equities but better than Silver and Fixed Income. Silver showed gains of 7.8 per cent. Outlook for the precious metals seems bright over the medium to long term.
Fixed Income: Fixed income investments like the Public Provident Fund (PPF) and FDs didn't perform well in 2023. Government bond benchmark yields started around 7.3 per cent in 2023 and ended the year down, around 7.2 per cent. However, the report says that there is a general expectation of rate cuts in 2024, which if happen would impact debt funds positively.