2018-Dynamic-Opportunities

That Was The Year That Was

‘My life is better with every year of living it’ – Rachel Maddow
 
With the end of the year nearly upon us, time to reflect on financial markets in 2018…and beyond.  
 
If there was one big financial markets theme for 2018 it was not to buy and forget about investments.  It has been noted by many financial commentators over recent weeks that few assets have beaten returns from cash in the bank during the year.  This reflects a confluence of issues coming together which have impacted equity, bond and property markets. The key is the twin pincer movement of lower growth and higher interest rates.  Neither are disastrous individually versus history. Economic growth rates have slowed but the world is far away from slipping into recession. However it is fair to say that the building angst over world trade issues has raised the threat of this.  This has certainly hurt many global equities during the year, especially in Europe and Asia.
 
Meanwhile higher interest rates have induced a clear sector rotation in equity markets.  A rise in the rate of interest – or the associated bond yields which have meant most fixed interest markets have not made money during the year and increased pressure on global property markets – have meant that growth stocks have progressively fallen out of favour during the year, as best reflected by the decline in US technology sector prices during the last few months.  
 
Putting all this together there is little surprise that investor sentiment has soured during the year, a trend augmented by other current uncertainties such as Brexit.  So what should investors do about it?
 
As we have talked about frequently during the last year, we believe investors should be prepared to be more active with their investment choices, especially in equity markets.  We have purposedly focused the methodology of the Global Dynamic Opportunities Fund to be more flexible and active, centred on the notion of looking for anomalies where there is a difference between how investors perceive an equity and the actual fundamental underlying reality.  With the aforementioned concerns around world trade, Brexit and higher bond yields swirling around, we believe opportunities for this strategy will remain strong. Reflecting this, since inception the unweighted average cash return on twenty-six wholly or partially completed trades by the Global Dynamic Opportunities Fund has risen to an average of 11%.  We continue to anticipate further progress in this metric over the next twelve months, especially as there are tentative signs of compromises in both the world trade and Brexit debates.  
 
And finally…an investment related joke to end this year’s updates:
 
Q: ‘Why did the economist choose not to send out any Christmas cards?’
A: ‘Because there was insufficient demand!’
 
Merry Christmas and a Happy New Year to all readers.

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Disclaimer: Economic Insights is written for commercial companies as well as institutional and other sophisticated investors and all opinions expressed in it are solely those of the author, Alastair Winter. Economic Insights is compiled from sources the author believes to have been reliable but it may not be complete or accurate on any particular subject. All opinions, estimates and analyses are or were produced at the date of issue and are subject to change without notice. Accordingly, none of the author, Daniel Stewart & Company plc, any one or more of its directors, employees and/or affiliates, makes any representation or warranty on any subject discussed in Economic Insights; nor do they accept responsibility or liability for any claim, loss, damage, expense or cost arising from reliance upon its contents, except in the case of death or personal injury. The value of investments may go down as well as up and any income derived from them may vary as is not guaranteed. This article takes no account of your personal circumstances and is not investment advice. You should consult a professional investment adviser if you have any doubts or require advice.

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Daniel Stewart & Co provides investment, funding, foreign exchange and fund management services to individual and corporate clients. Each week our experts comment on some of the developments from macro to micro that have caught their attention.

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