Global mid-cap equities rose by 10% over the past 12 months. During this time, it became evident that an economic recession in the US was less likely to materialise than was being predicted. Once the market started to gain confidence, and a recession was no longer imminent, multiples expanded.
Over the year, markets were also factoring in the prospect of interest rate cuts by leading central banks, particularly the US Federal Reserve (Fed). Given all this attention surrounding outcomes related to the US economy, the US was the best performing region among its peers in the global developed, mid-cap equity market.
Meanwhile, oil prices maintained a steady upward trajectory, rising by almost 20% over the course of the year, amidst less favourable geopolitics as well as economic demand. As a result, energy was the best performing sector, with oil producers leading the rally. Financials followed, where the strength of the equity market rally underpinned returns from capital market-led businesses.
The impact of AI
Over the 12 months, we witnessed an unabated enthusiasm towards artificial intelligence (AI) as a theme, and its associated growth prospects gave markets a reason to cheer and lift overall investor confidence. While the AI thematic was more beneficial for mega-cap technology bellwethers, particularly the cohort of ‘Magnificent 7’ stocks (Apple, Alphabet, Microsoft, Amazon, Meta Platforms, Tesla and Nvidia), it had a favourable impact for mid-cap information technology stocks, particularly good quality technology hardware-related names.
Looking ahead
Going forward, equity markets will navigate the volatility associated with the US election cycle until the end of 2024, while looking out for the Fed to initiate its rate cut cycle.
During this time, we believe investors are wise to remain vigilant. Higher interest rates haven’t been able to have much impact in the US yet, and these impacts could still come through at a later stage.
On that basis, it makes sense to ensure portfolios remain resilient, and simultaneously, also maintain a balanced exposure to the upside. We believe a portfolio of high-quality businesses with strong balance sheets and secular growth opportunities, purchased at attractive valuations, remains a compelling proposition.
When it comes to finding these opportunities, and from a broader portfolio construction perspective, looking down the market cap spectrum towards global small and mid-caps is an exciting avenue to explore. We are also enthused to see that valuations in the small and mid-cap segment appear to look attractive, relative to their larger and mega-cap peers.
Or explore our other areas of focus here:
- Foreword - Lawrence Handon, Managing Director
- Australian equities - Paul Taylor, Head of Investments, Australia and Portfolio Manager, Fidelity Australian Equities Fund
- Asian equities - Anthony Srom, Portfolio Manager, Fidelity Asia strategies
- Global emerging markets - Amit Goel, Portfolio Manager, Fidelity Global Emerging Markets strategies
- Sustainable investing - Daniela Jaramillo, Head of Sustainable Investing
