To quote Frank Sinatra, “When I was 17 it was a very good year”. Frank had another very good year four years after that, and then another 14 years later. If we should take any lessons from the song, it’s that the very good years don’t generally come along one after another.
2017 was the year when markets turned a blind eye to everything else that was going on in the world. A turbulent White House; a tetchy North Korean leader; increasing unease in the Middle East; antagonistic Brexit negotiations; escalation in Far Right sympathisers; a German Government that struggled to form a coalition; a disruptive referendum in Catalonia that remains unresolved; and add in to the mix the 1500% increase in the value of a crypto currency that people were re-mortgaging their homes to be able to buy. A very interesting year for spectators, but one in which every asset class increased in value – something that is more unusual than one might think.
The majority of markets simply shrugged off all these global concerns and focused on the growing optimism for global economic growth. 2017 was a relatively composed year, with low volatility and positive returns. The FTSE 100 struggled a bit compared with other markets, returning a paltry 7.6%. It had its own challenges though, as companies that make up the FTSE were not only susceptible to the twists and turns of the Brexit dialogue, but also sang to the tune of currency exchange rates which impacted the foreign earnings of its international make-up. Put simply, as Sterling strengthened, so the FTSE 100 struggled.
The Diversified Growth Fund delivered a return after investment charges of 11% for 2017. A return that we are again very happy with on behalf of our members. That return would have been a little lower but for our protection against the volatility of currency exchange rates.
So what’s in store for 2018?
Will inflation start to kick in? Will central bankers reel in their monetary easing policies more aggressively than expected? Will interest rates start to rise? Will the horses get spooked by high equity market valuations? Who knows.
Those who are familiar with our approach to investment management will know that we do not pretend to know what lies ahead, so you won’t find any predictions here. Our strategy has always had diversity at its core, and unlike many in the investment industry who are struggling to make sense of their crystal balls, we never owned a crystal ball in the first place.
We continue to adopt an approach which we believe is best suited for all eventualities, and we will continue to steer our own course.
Rob Booth, Director of Investments and Product Development