Another successful trade was shorting Japanese government bonds, a formerly perilous strategy. Investors who have been betting on an end to the Bank of Japan’s ultra-loose monetary policy finally received some validation, with the BOJ loosening its vice-like grip on yields. That eventually sent the rate on the 10-year benchmark to an 11-year high before easing as monetary action proved less hawkish than expected. Still the bond bears, including RBC BlueBay Asset Management’s Mark Dowding, are clear winners on the year.

Those who expected a turnaround in the yen’s weakness haven’t been so fortunate. Barclays Plc and Nomura Holdings Inc. forecast a 9% rally in the yen from last December’s levels and T. Rowe Price Group Inc. said there was scope for gains on a more hawkish Bank of Japan. Instead, the currency once again finds itself as the worst performer in Asia and among its Group-of-10 peers. On a brighter note, 2023 will be remembered as a year when the yen carry trade — borrowing the Japanese currency cheaply to buy currencies in higher-rate regimes such as Mexico and Brazil— paid off fabulously. — Tassia Sipahutar, Ruth Carson and Ye Xie

Bitcoin: Back from the dead
The crypto market — and its reputation — was left reeling after high-profile 2022 blowups, bankruptcies and overall bad behavior. Bitcoin, the oldest and biggest digital currency, was nursing a loss of more than 60%, and the fallout from the collapse of Sam Bankman-Fried’s FTX exchange was still reverberating. Prospects for a Bitcoin revival — let alone a rally — seemed remote.

During the first half of the year, the market couldn’t manage more than a tepid recovery as trading evaporated and watchdogs let loose with a string of enforcement actions including lawsuits against market leaders Binance and Coinbase Global Inc. But starting in June, a sustained turnaround took hold after investment firms led by BlackRock filed a flurry of applications to list ETFs tracking the spot price of Bitcoin.

Optimism these ETFs will win approval and spur wider adoption of Bitcoin, combined with the legal resolution of some high-profile crypto cases and expectations for Fed rate cuts, helped turbocharge gains. The result: The cryptocurrency has more than doubled this year, making it one of the best performers in any market. Bitcoin is still far from its all-time high of $69,000. But diehards like investors Cathie Wood and Anthony Scaramucci, who took their lumps during crypto’s crackup last year, are looking much better now. — Beth Williams and Vildana Hajric

Bed, Bath, & Beyond: Wall Street schools the meme crowd
Even as Bed Bath & Beyond spiraled toward an April bankruptcy, its stock price remained inexplicably high. It was a famous beneficiary of the pandemic-born meme-stock movement that continues to send a handful of companies’ shares soaring seemingly without rhyme or reason.

Bed Bath & Beyond’s advisers found a hedge fund in Hudson Bay Capital Management willing to buy gobs of new shares it issued at a discount. The idea: Buyers in the secondary market were willing to pay the sticker price.

The company raked in $360 million this way, with Hudson Bay set up to earn a profit reselling each share it acquired. Yet much of the cash went straight to Bed Bath & Beyond’s group of bank lenders, led by JPMorgan, which had gotten on board with the deal as a last-gasp attempt to recover steep losses at the retailer. As for the investors who ended up with the stock? They ran out of luck when Bed Bath & Beyond ran out of time. — Eliza Ronalds-Hannon

ESG: Throwing in the towel
The alliance between progressives and hard-nosed capitalists in fueling the environmental, social and governance movement was never going to be easy. But this year, the ESG agenda took a big beating from all sides of the political aisle. The sector is raising questions from Republican lawmakers as well as watchdogs about its methodology, transparency and the potential for overstating the effectiveness of its stated goals via “greenwashing.” Some industry watchers have even gone as far as saying that ESG is headed for its “inevitable end game.”

The biggest casualties included a group of BlackRock exchange-traded funds as well as veteran hedge fund manager Jeff Ubben. BlackRock, the world’s largest asset manager, saw more than $9 billion pulled from its biggest ESG-focused ETF, a record annual outflow, while Ubben abruptly closed his socially responsible investment firm Inclusive Capital Partners last month.

When Inclusive Capital opened three years ago, Ubben said his new venture would back companies focused on tackling problems ranging from environmental damage to food scarcity, and his goal was to raise $8 billion for that purpose. In the end, the fund failed to come close to that target. Its closure coincides with one of the worst years for climate-related investing, as higher borrowing costs and supply-chain bottlenecks battered capital-intensive green companies.

Not everyone has soured on the sector. Analysts at JPMorgan Chase & Co. wrote in a recent note to clients that equity strategies with an ESG tilt may well beat the broader market next year. That’s because these assets offer precisely the kind of defensive strategy investors will need to navigate a market cycle that’s likely to include a slowing economy, declining bond yields, easing inflation and a strengthening dollar. — Tim Quinson

Credit Suisse: Out of the AT1 ashes
The sudden death of Credit Suisse unexpectedly wiped out big-name holders of the firm’s riskiest bonds — eliciting a backlash from money managers and senior bankers warning the bank-funding market would fall into crisis.

That turned out to be melodramatic in hindsight after European policymakers engineered market calm in a matter of days. Yet the controversial decision by the Swiss regulator to liquidate holders of $17 billion of so-called additional tier 1 securities — even while preserving some value for equity investors — left a long list of losers. The latter includes Pimco, Invesco and wealthy clients at Mitsubishi UFJ Financial Group Inc.

As ever, bargain-hunting funds spied opportunity. GoldenTree Asset Management bought roughly $300 million of AT1 bonds at knockdown prices for a cool $100 million profit. There were other fast-money trades that won big by picking over the corpse of Credit Suisse: Scooping up the bank's senior debt, which was changing hands at deep discounts in the days before the firm's demise. Alternative lender Marathon Asset Management LP, for one, bought $150 million of those bonds for a quick $30 million return. — Irene Garcia Perez

Discos: Obscure bonds win big
An obscure class of dollar bank bonds issued almost four decades ago delivered a windfall this year for investors, generating returns exceeding 50% in some cases for holders including James Carter, portfolio manager at Waverton Investment Management.

Issued in the 1980s to help pad bank capital, the securities — known as “discos” for discount perpetuals — had languished for years at deep discounts because of their meager coupons. Issuers had little incentive to redeem them beyond their loss of status as a regulatory cushion. But for investors willing to bet that they would one day be repaid in full, they offered the potential of a big payout.

That’s just what happened. Banks started facing increasing pressure from regulators, investors and lawyers to redeem them. And the end of Libor, the reference rate against which the securities were linked, was a catalyst, adding the additional headache of making coupon calculations practically impossible. Once HSBC Holdings Plc gave up and announced the repayment of its notes in April, several other banks followed.

After this year’s redemptions, the age of disco in finance is effectively over. — Tasos Vossos

First « 1 2 » Next