Investment Report – December 2017 – Trump Bounce?

OVERVIEW

December finished the investment year off in style. The Trump inspired rally in US share prices continued and here in the UK, further weakness in the value of Sterling pushed the UK market to all- time highs, with the index rising to nearly 7,300.

European markets played catch-up as investors took the view that a new growth orientated era may be presaged by the election of President Trump.

Fixed-interest securities recovered some of the ground they had lost over the previous three months and UK commercial property made modest gains as some confidence returned to the sector.

All in all, December completed what has been a surprisingly good year for investors given the enormity of the political events that have unfurled.

It’s worth mentioning however that many investment managers have lagged the UK market this year. The reason is that managers investing to produce good dividends don’t have significant exposure to many market sectors that have appreciated the most over the previous year – oil companies, miners and other companies that earn their income in dollars.

 

Here is the chart of the FTSE 100 index for the last six months:

 

…and the last five years, which puts this into perspective;

 

FUND PERFORMANCE

The tables below show the performance of the portfolios over various time periods to the end of November;

 

Short-term Performance

Long-term Performance

(Source; Parmenion Capital Partners LLP)

 

PORTFOLIO REVIEW

 

All Portfolios

All portfolios improved in December as global equities rallied towards the year end.

Income Portfolio

The Income Portfolio increased by +1.9% just under-performing the benchmark (the average mixed investment (20-60% shares) fund) which grew by +2.1%.

No changes were made to the portfolio this month.

Balanced Portfolio

The Balanced Portfolio grew by +2.4% in December, just under-performing the benchmark (the average mixed investment (40-80% shares) fund) which grew by +2.5%.

No changes were made to the portfolio this month.

Tactical Portfolio

The Tactical Portfolio grew by +2.9% in December, out-performing the benchmark (the average Flexible fund) which grew by +2.4%.

No changes were made to the portfolio this month.

 

OUTLOOK

The outlook for the coming year is very difficult to call. The problem is that the world is beset with political risks.

Here is a simple list;

• UK; Brexit
• US; Trump
• Europe; Elections in France, Germany and Italy
• China; Credit binge and trade friction with the US
• India; Tension on the Pakistan border
• Malaysia; Corruption scandal surrounding the Prime Minister
• South Korea; North Korea
• Taiwan; China
• Indonesia; Political unrest
• Turkey; Political unrest

You get the idea.

With this backdrop its extremely difficult to make economic or market forecasts, although I can say a few things; There has been a very nice recovery in global markets driven by a view that growth is on the up and inflation could re-enter the financial system. Both in the UK and US long-term interest rates have started to rise, yet equity markets continue to make progress. It would appear the long period of low inflation and interest rates is coming to an end.

The impact of this is not clear to me but I am hopeful that in the short-term at least, current policy, especially in the US, will be supportive of global markets. UK investors could profit from further weakness in Sterling which would boost the value of UK and overseas equities.

The valuation of the US market makes it a very expensive, but it’s a safe place to invest. Asian and Emerging markets on the other hand are cheap. We are upping exposure to these areas even though investment risks in these regions are higher, as over the longer-term value always comes through.

Globally though, political risks are to the fore; we live in a very uncertain world.

PS Don’t forget the usual risk warning for all long-term investments: “The value of units can fall as well as rise, and past performance is no guarantee of future performance. The value of income payments from investment funds is not guaranteed and can fall as well as rise”.