However, defensive sectors such as healthcare and consumer staples were the best-performing industries, with the more cyclical materials group performing the worst.
Regional performance was also surprising, with areas that tend to outperform in a rising market, such as the emerging markets, lagging materially during the rally, while regions that tend to underperform in a rising market, such as the US, significantly outperforming.
Performance of indices in 2013
Source: FE Analytics
Investor sentiment on equities appears to be improving, with inflows to equity mutual funds turning positive in early 2013 for the first time in years, but investors do not appear to have confidence in a true recovery in global economies.
Investors seem to have been forced into equities by the lack of return available in other asset classes and have thus far restricted their search to those equities they expect to show resilience in a potential market downturn.
However, this view has driven the valuations of more defensive stocks, particularly large, well-known companies, to unattractive valuations relative to the overall market.
This valuation premium may make it difficult for such stocks to preserve capital as well as they typically do in any potential market sell-off.
The overvaluation of large, well-known, defensive equities, has created something of a challenge for investors attempting to maintain balance in a portfolio, but still adhere to a disciplined approach to valuation.
There are certain pockets of value, however.
Real estate investment trusts are a relatively defensive business with tangible assets and cash-flow generally driven by long-term leases.
Those that serve the healthcare industry are particularly defensive due to the consistent nature of end demand, yet such businesses offer attractive valuations and high yields as they are smaller and less well known than global pharmaceutical companies.
Toll roads and electricity grids are also a good area. They are relatively immune to the economic cycle but such businesses operating in peripheral European countries remain attractively valued.
Large integrated oil companies have tangible assets, resilient cash-flows and fortress balance sheets, and during the late-2008 market plunge they preserved capital nearly as well as consumer staples stocks.
However, they remain attractively valued, with single-digit P/E [price/earnings] ratios and robust yields.
In addition, the blossoming of a dividend culture in the US technology sector, long a wasteland for the income investor, has also provided opportunities for defensive businesses at low valuations.
While the trend of money flowing into defensive income stocks is strong and may last some time, ultimately valuations do matter and the current overvaluation of defensive income stocks is unsustainable.
Broadly, investors may now be overpaying for downside resilience, after being scarred by the dramatic equity market sell-offs during the past decade and may not be adequately considering upside potential.
While much has been made of the strong historical outperformance of the consumer staples sector driven by its ability to preserve capital in falling markets, it is unlikely that the sector has ever gone into a market sell-off at such a large valuation premium to the broad market.
Therefore, it is unclear if these stocks will preserve capital as well as they have in previous downturns.
In addition, investors that have been forced into defensive income stocks by the lack of income available in the bond market may well return to bonds if newspaper headlines are again dominated by the European sovereign debt crisis and/or a hard landing in China.
This is a threat to expensive valuations.
However, the more likely outcome, in our view, is that the economic recovery in the US persists amid a recovering housing market, China maintains a high single-digit GDP growth rate while Europe avoids depression.
We feel investors will ultimately regain the confidence to look beyond the handful of favoured stocks they perceive as safe to the broader group of much more attractively valued, if somewhat more cyclical or obscure, equities.
Pat Ryan has co-managed the £249m Lazard Global Equity Income portfolio since its launch in November 2007.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund is a second-quartile performer over a five-year period, but has slightly underperformed its sector and index over one and three years.
It requires a minimum investment of £2,000, has an ongoing charges fee (OCF) of 1.56 per cent and is currently yielding 3.7 per cent.