Capital Group's 10 Investment Predictions for 2023

Related: Jeffrey Gundlach's 9 Market and Economic Predictions for Investors, Advisors

Financial markets' unusual behavior in 2022 signaled a regime change that includes expanding investment opportunities, companies changing the way they do business and dubious business models coming into question, Capital Group portfolio managers suggested last week. "Many investors are expecting a return to normal after inflation subsides and central banks discontinue their rate hikes. But we believe the world is undergoing significant changes and that investors will need to reset their expectations in this new environment," equity portfolio managers Jody Jonsson and Martin Romo said in a report accompanying a webcast where they shared insights last week. "One change that has already begun is the shift from narrow to broad market leadership. A handful of tech stocks dominated markets for years, but a much wider range of investments is expected to drive portfolio returns going forward," they wrote. "While growth investing isn't going away, it may broaden into sectors like health care, where we are seeing a golden age in drug development. Opportunities could also arise as dividend stocks return to prominence. These opportunities would be global, as many of the highest dividend payers are outside the U.S.," they added. "Likewise, bond markets are offering some of the highest income in years, which means traditional 60/40 portfolios may make a comeback." Romo, Capital Research Co. president, encouraged investors to embrace short-term discomfort for long-term results and focus less on when things will happen, while taking a global view and seeking both risk and returns. "We are moving through a huge transition in the market and in economies and sectors," Romo said on the webcast. Markets are moving from a long period with very low interest rates and "free money," he said, adding, "You could ignore a lot and benefit from high equity returns in that period." They're also moving away from a pandemic era that structurally changed many industries in a "winner take all" environment, he said. Last year marked the first time since 1969 that stocks and bonds were both negative, and it was the worst year for the 60% stock-40% bond portfolio since 1947, said Jonsson, Capital Research and Management Co. president, noting that it also was the best year for value stocks since the Y2K era. Companies, meanwhile, are focusing on resiliency and redundancy, not just maximizing efficiency, as they move away from single-supply sources, she said. "I for one am encouraged about a lot of themes playing out in the market," Jonsson said. "There's always opportunity out there. We've had a lot of dislocation over the last year or so," and disruption is the opportunity, she said, adding that the longer an investor's extended horizon, the greater the opportunity. "You and your clients will be better off for it." Capital Group, an asset management firm that owns American Funds, has outlined 10 investment predictions for investors to know for 2023 and beyond. (Image: Chris Nicholls/ALM; Adobe Stock)