Investment Line is a regular investment bulletin produced by Mattioli Woods plc. The communication provides an update on funds, highlights some of the areas we are currently focusing on, and our thoughts on the issues of the day.
What a year! If investment managers had known at the beginning of 2016 the outcomes of key events that would transpire this year – the ‘leave’ vote in the UK referendum, Trump’s election victory, the Italian referendum ‘No’ vote – how differently and defensively they may have positioned their portfolios. Despite all these supposedly ‘market-negative’ events, risk assets continued to climb after brief (though sometimes significant) falls. In some ways, this is a continuation of the disconnect between market newsflow and asset price behaviour that we have been seeing for several years and is a reminder that even if one is in possession of the gift of prophecy with regards to political events, this might not be enough to run investment portfolios – a sobering thought indeed.
We approach the end of the year with markets fully embracing the ‘reflation narrative’ following Trump’s election victory. It is undeniable that equity markets, particularly in the US, have gained support from hopes of tax cuts and increased infrastructure spend. Global bond markets, taking fright at the possibility of inflationary pressures, have certainly experienced a meaningful sell-off. As always, markets tend to get ahead of themselves and we really know nothing new about Trump’s economic policy that we didn’t know before the election, when a win for him was being characterised as a potentially catastrophic outcome for markets. It must be remembered that higher bond yields pose very considerable headwinds to equity markets, given their implications for the valuations of risk assets, and accordingly our equity exposure factors this in.
We have been pleased to have produced strong returns for clients this year against an unsettled and ever-changing backdrop. Most importantly, this has been achieved with a lower degree of volatility than our peers – something that is not always fully appreciated, especially at times when markets are in full ‘risk-on’ mode. Stretched prices across asset classes, structural problems in key economic regions such as Europe and China, and anaemic global growth continue to persuade us that investors will be rewarded for thinking differently and not getting carried away by the sudden improvement in sentiment. We believe a new perspective is in order when building portfolios.
We have not fundamentally restructured portfolios and continue to be relatively cautiously positioned with property, absolute return and gold all featuring. Our approach in the equity sphere will continue to be discriminating – we are thinking in more granular detail about the nature of our exposure to different regions and styles of investment, maintaining our conceptual preference for smaller companies in a world of low headline growth. Specialist allocations to areas such as infrastructure, private equity and healthcare will become increasingly important performance differentiators, and further, niche ideas can be expected to make their way into portfolios in due course.
It is our belief that these investment conditions will be particularly challenging for very large investment managers. We are confident our creed of ‘conviction with agility’ will continue to serve our clients well. It only remains to wish all readers a very Happy Christmas and a prosperous New Year.
Investment Line is written and edited by members of the Mattioli Woods Group Investment Committee, and is for information purposes only. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances.
Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.