It’s easy to understand why 2016 has been something of a difficult year for investors as they struggle to interpret the impact of so many political and economic scenarios. What is the FED’s plan on interest rates; what is the short, medium and longer term impact of the Brexit win; what on earth is going on in the US elections, and regardless of who wins, what will the impact be; what is the outlook for Chinese growth, and what are the implications for the rest of the world. It’s fair to say that this year has been eventful, and we’ve still got two months left to run. Against this uncertainty, UK investors have enjoyed a good run since the start of the year, with equities and bonds both enjoying strong returns, particularly since the EU Referendum.
At the end of September, the NOW: Pensions Diversified Growth Fund has delivered member returns of around 11% year to date. The portfolio’s four factor model which was introduced in June has provided a strong but steady rate of growth against the backdrops outlined above.
Although we are obviously very pleased to have been able to provide solid returns for our members, we are acutely aware of the economic challenges in the short and medium term.
Can anyone really explain the much-repeated expression, “Brexit means Brexit”? It’s clear that a lot of water will have flown under the bridges of the Thames, the Rhine and the Seine before we get a clear picture of the longer term impact of leaving the EU. Theresa May and David Davis certainly have their work cut out for them, and when Article 50 is triggered next March, there will be an incredible amount of work to be done over the following two years, and beyond.
2) US Elections
There is clearly a lot of unrest among the US electorate, not to mention within the main political parties, and it is likely that when the country wakes up on 9th November, the impact will start to play out, as markets react to the implications of the new President.
3) Weakness of Sterling
Strong returns seen in the UK stock market since 23rd June can be largely attributed to the falling value of sterling, as the majority of the FTSE 100 are multinational companies whose income is generally enhanced by a weak pound. However, the weak pound obviously impacts the cost of imports, which leads to a hike in prices of everyday consumer goods such as food and petrol. We have already experienced Marmite-gate between Tesco and Unilever, and Mark Carney at the Bank of England has been clear in his messaging that inflation will rise, and that is a position which he will not try to combat.
Finally, news coming from China that growth may be slowing again sent a little shock around global markets in early October. Markets are keeping their fingers crossed that last year’s Black Monday is not repeated.
As we face uncertain and turbulent economic markets, it is nice to be able to take a moment to reflect on the fund’s performance and recognise that a well-diversified portfolio is crucial to creating sustained growth over the long-term time horizon for our members.