18 January 2019
By Sheldon MacDonald, co-fund manager HC Verbatim Multi-Index Funds
What happened in 2018?
2018 was a challenging year for investors as volatility, the rate of change of asset prices up or down, returned with a bang. Markets suffered their biggest overall losses since the 2008 financial crisis with nowhere to hide across asset classes as global bonds provided scant protection from sharp declines in equity markets around the globe.
After notching up the longest bull market in history, stock markets finally succumbed to concerns over trade war uncertainties and signs of a global economic slowdown. A strong dollar and worries about corporate earnings in particular in the tech sector also weighed on markets.
Meanwhile, although bond markets were boosted towards the end of the year by the weaker economic outlook, they were affected early on by interest rate hikes in the US necessitated by the threat of rising inflation. In addition, there was growing uneasiness over the scale of debt taken on by companies. The challenges for investors didn’t stop with stocks and bonds; gold and oil were also among the assets down in 2018.
In 2019 the overall investment environment remains complex and we are conscious that many of the risks that hurt markets last year are still in the picture for 2019. Last year as global growth slowed, the world’s major central banks continued to reduce their monetary policy accommodation in an attempt to bring the financial system back to more normal levels.
This added enormous pressure on global equity markets and the already flagging corporate bond markets. However, as we have seen significant dips in assets prices, especially in the latter part of the last year, valuations are certainly now more attractive, which could offer some opportunities.
Top potential risks and opportunities
Risks - top three risks we have identified for markets:
Opportunities - three asset classes we currently favour:
What does this mean for investors?
Markets are unpredictable and it will always be difficult to foresee what will happen in the future but we believe the bumpy ride is likely to persist over the coming months. So to help our portfolios weather the market conditions, we will continue to advocate the principles of diversification across asset classes, currencies, regions and investment managers.
It may be wise not to take a short-term outlook, and avoid overreacting to immediate stock market moves. Right now, investors can see that markets are struggling, but most believe that given time they will bounce back. In fact, many see this as a buying opportunity.
We believe that diversification can help to smooth out the returns. A well-constructed portfolio, designed around your time frame and keeping your portfolio diversified could be a prudent way to weather the current uncertainty.
The value of investments and any income from them can go down as well as up and is not guaranteed. Your clients could get back less than they originally invested. Past performance is not a guide to future performance. The portfolios' investments are subject to normal fluctuations and other risks inherent when investing in securities. Verbatim Asset Management has taken due care and attention in preparing this document, which is solely for the use of professional advisers. Verbatim cannot be held responsible for any inaccuracies arising out of information detailed within and will not accept liability for any loss arising out of or in connection with its use. This article is for information only and should not be deemed as advice.