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Investment Review of 2019.

At the start of 2019, there were many gloomy predictions for investment markets, and we discussed how endurance would be key for investors. We review below what became a positive year and provide some thoughts for 2020, as we enter another year of uncertainty.

Global Equities performed above expectations

Despite many predicting slow global equity growth in 2019 and the possibility of another recession following on from the disastrous final quarter of 2018, in most global markets the contrary was true. Global stocks bounced back extremely well and the MSCI World All Cap Index ended the year up 23.2%. 

The US was the epicentre of much of this growth, where the S&P 500 closed at an all-time high on multiple occasions and ended the year 26.4% higher. This was mainly due to the big tech company stocks still powering on and growing, despite many sceptics predicting they were overvalued, as well as some breakthroughs in the US-China trade war. However, volatility was pervasive, not helped by tweets from the White House.

Closer to home, there were still question marks around the UK and EU markets due to the ongoing uncertainty surrounding Brexit. Despite this, markets performed strongly, with the FTSE 100 up 17.2% (shown below), the DAX in Germany up 18.5%, and the CAC 40 in France up 23.2%. 2019 saw investment markets break many records, which culminated in UK equity funds experiencing the largest monthly inflows for two years in December following the result of the UK general election.

FTSE100upby17.2%fromJan’19toJan‘20

FTSE 100 up by 17.2% from Jan ’19 to Jan ‘20

About the author

Matthew Hodge

+44 (0)20 7556 1353
hodgem@buzzacott.co.uk
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Global Equities performed above expectations

Despite many predicting slow global equity growth in 2019 and the possibility of another recession following on from the disastrous final quarter of 2018, in most global markets the contrary was true. Global stocks bounced back extremely well and the MSCI World All Cap Index ended the year up 23.2%. 

The US was the epicentre of much of this growth, where the S&P 500 closed at an all-time high on multiple occasions and ended the year 26.4% higher. This was mainly due to the big tech company stocks still powering on and growing, despite many sceptics predicting they were overvalued, as well as some breakthroughs in the US-China trade war. However, volatility was pervasive, not helped by tweets from the White House.

Closer to home, there were still question marks around the UK and EU markets due to the ongoing uncertainty surrounding Brexit. Despite this, markets performed strongly, with the FTSE 100 up 17.2% (shown below), the DAX in Germany up 18.5%, and the CAC 40 in France up 23.2%. 2019 saw investment markets break many records, which culminated in UK equity funds experiencing the largest monthly inflows for two years in December following the result of the UK general election.

FTSE100upby17.2%fromJan’19toJan‘20

FTSE 100 up by 17.2% from Jan ’19 to Jan ‘20

What next for Global Equities? 

Earnings growth on shares continues to be sluggish despite valuations soaring. High levels of global equity growth have led to many continuing to suggest that this cannot last for much longer and that 2020 will bring much slower global growth, as was similarly predicted for 2019. Following the recent US-Iran tensions, it is clear Donald Trump is taking an aggressive stance on foreign policy, which could hurt global markets. The US presidential election taking place later in 2020 throws more doubt over the future of US stocks over the next twelve months.

If the major economies such as the US, UK and EU were to experience much slower growth, this may open the door to emerging economies. Such markets experienced lower growth in 2019, mainly due to decline of the manufacturing industry globally, but there could be opportunities for these with increased monetary policy independence and the possibility of the US dollar weakening if the predictions for slow US growth are right. Emerging economies may start to have an increased role in the global economy throughout 2020, providing a source of additional returns.

2019 bond returns wow investors

Many ‘experts’ also predicted that the Federal Reserve (The US Central Bank) would raise interest rates throughout 2019. In fact, the opposite was true and they took a dovish approach by cutting interest rates three times throughout the year. At the same time, the Bank of England left interest rates unchanged throughout 2019 at a relatively low level of 0.75%.

Lower interest rates can aid economic growth through a reduced cost of borrowing, and stimulate spending in both domestic and global economies. As interest rates decrease, or remain low, the reward for saving is unattractive, meaning that bonds can be an appealing alternative. The strong performance of the bond market in 2019 can be seen by the fact that the US (1) and UK (2) corporate bond markets returned 10.11% and 10.96% respectively.

UK property stalling

The final year of the decade saw the commercial property market stall. The UK commercial property benchmark (3) showed a disappointing 2.01% return across the year, compared to an annualised return of 9.22% across the last decade. Partly as a result of underwhelming performance, uncertainty over Brexit and other factors, investors withdrew a total of £2.2 billion from UK property funds in 2019 . 

Summary

2019 was a very positive year for investors, especially off the back of a poor final quarter of 2018 and predictions of a less than promising 2019. The performance of client portfolios in our Integrated Wealth Management Service (IWMS) has once again been above the industry average (as measured by ARC Indices (4), achieved by ignoring the ‘noise’ from industry ‘experts’ on what stocks to buy, or predicting market direction. Instead, we continued to stick to a disciplined investment philosophy that long-term asset allocation, well-diversified portfolios of real assets, and minimal tactical asset allocation changes is the optimal method to capture investment growth.

This view was shared by the late Jack Bogle, the founder of the Vanguard Group and the creator of the first index fund available to the general public, who wrote that ‘Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game’. On that note, the only wild prediction that I will leave you with is that maybe, just maybe, 2020 could finally be England’s year at a major footballing tournament.

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Note: All market data has been retrieved from Morningstar.

1 Bloomberg Barclays US Corporate Bonds Index (this index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by US and non-US industrial, utility and financial issuers.)

2 Bloomberg Barclays Sterling Agg Corporate Bonds Index (this index contains fixed-rate, investment-grade Sterling-denominated bonds. Inclusion is based on the currency of issue, and not the domicile of the issuer. The duration of the holdings vary from < 1 year to > 20 years.)

3 MSCI UK Property Index

4 The ARC PCI Indices use real performance figures from a variety of discretionary fund managers to create an accurate reflection of the returns a private client should expect for a given risk profile. 98 investment houses currently contribute performance data covering all the major investment styles and philosophies. The result is a unique coverage of the investment management market available to private clients.

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