As at the beginning of Q3, hopes that the central banks would deviate from their path of interest rate hikes were the driving force behind the significant recovery on the global equity markets in Q4. However, the central banks put an end to this in December with further (albeit no longer quite so large) interest rate hikes and once again reaffirmed their determination to continue to fight inflation vehemently. Investors reacted in a huff and prices slid again.
The relative performance of our risk-based strategies behaved in line with expectations during this contrasting quarter. In October and November, with rising prices and declining market risks, our funds fell behind their benchmarks. However, in the negative December environment, all strategies recovered the shortfall and even exited the quarter ahead of benchmark. Just as in Q3, currencies had a large impact on the relative performance of non-hedged fund classes in Q4 - this time just the opposite. The underweight in USD delivered a large positive performance contribution in Q4.
Looking at the full year 2022, our Developed Market funds met expectations. With risk-optimized stock selection, they were able to reduce both volatility and drawdown in a negative year and close ahead of their benchmarks.