By and large, the first three months of 2019 have been very positive for investors in our 2019 Rated Funds. These are split into 15 easy-to-understand asset groups and are comprised of 201 actively managed funds and investment trusts, plus a further 66 passive index-tracking funds.
A decade ago, in early March 2009, the stockmarket equivalent of blood on the streets was in full flow. Hindsight shows it was a very good time to buy bonds or equities, not to mention real assets such as property and infrastructure. It was the nadir of the global financial crisis and, bar a few bumps on the way, stockmarkets of developed countries have not looked back, particularly in the US, where the benchmark S&P 500 index has gained in excess of 400% in sterling-adjusted terms.
Well, that wasn’t much fun for investors: 2018 promised so much but ended up delivering very little, if anything at all. Of all major asset classes referenced by UK investors, only property ended up meaningfully in the black – up around 7%. Cash and gilts returned a little over 0.5%. With a 3.1% loss, global developed markets fared better than commodities, emerging market equities and UK shares, which propped up the asset class performance table with near 10% losses.
What must rank as one of the most hard-hitting, thought-provoking critiques of the investment management industry deserves to be widely read by investors and the firms that serve them. ‘Let’s Talk About Actual Investing’, by Stuart Dunbar, a partner at fund management group Baillie Gifford, explains why the investment industry has lost sight of its original goals; why most “active” investment managers are anything but that; and how short-term business priorities and performance measurements are damaging long-term wealth creation.
An amazing 97 per cent of global stock market returns since 1973 have accrued during the months from October to April each year. However, volatility also tends to reach its peak in October, a fact underlined by famous October crashes in 1929, 1987 and, more recently, 2008.
Timing the market is a notoriously difficult way to make money. You have to be ‘all in’ to win – or stay out of the game if you can’t take the pressure.
The increasing menace of Trump-instigated trade wars is testing the mettle of even the most optimistic investors. Shares in tech bellwethers such as Netflix, Facebook and Twitter fell by 20 per cent or more following guidance on their prospects when second-quarter results were announced in July: the brutal reaction from investors clearly shows that nerves are fraying.
Investors have shifted their expectations at the start of the year from one of synchronised global growth to a realisation that economic prospects are increasingly diverging. The potential impact of a global trade war is influencing investor sentiment, but so too are monetary policy expectations, particularly in the US. However, and not for the most obvious trade-related reasons, it is what is happening in China today that investors ignore at a potentially high cost.
Are investors in emerging markets in for a nasty shock? The omens do not look good. Emerging market currencies are in the throes of the worst sell-off since 2015; the rising oil price and a resurgent dollar are strong headwinds against growth; Argentina’s right-wing reformist government is seeking a credit line from the International Monetary Fund (barely a year after selling global investors a 100-year bond that was more than three times oversubscribed); and the continuing threat of a US/China trade war hangs over the Asia Pacific region.
There are clear dangers for markets ahead, including the Russian bear and a mountain of debt that has built up around the world.