December 2017 Investment Review

What’s happened over the last three months?

The FTSE 100 climbed 248.93 points in total from it’s September close of 7438.84 points. With a very late Santa Rally, it finished December at an all time high of 7687.77 points.  As late as the 20th December the market still stood at a maximum of around 7550 points, a level it first reached in May of this year. The final 150 points came in a week. So the market has had a full seven months to catch it’s breath.

How have we done over the last quarter?

All clients are in the process of receiving their personal quarterly valuations. But here is how the four main model portfolios that we operate have performed over the last 12 months.  The chart is based on no contributions having been added and no withdrawals having been taken.

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The FTSE TR is the total return index and includes any dividends paid. The FTSE 100 index always ignores dividends.

So where are we headed?

There’s an old Danish proverb that says:

“It is difficult to make predictions, especially about the future!”

It always makes me smile when I’m reminded of this quote. Better men than me like Yogi Berra and Mark Twain have used it too, so I’m in good company. (Yogi Berra was a baseball legend, not the smarter-than-average cartoon bear that had a friend called Boo-Boo.) So I will not be guessing where the FTSE 100, or any other market index for that matter, will end the year. I would undoubtedly be wrong if I tried. But I will make a few observations about what I currently expect will possibly occur throughout the course of this year and into the future years.

• I expect Sterling will continue to gradually regain some ground against the other major currencies of the world, returning to the sort of levels last seen prior to the European Referendum. That climb will gradually erode the returns of the giant FTSE 100 global businesses and probably favour many of our smaller domestic businesses. The strengthening of Sterling will also reduce the returns of shares denominated in foreign currencies. Funds of international shares will continue to rise strongly, but when turned back into Sterling will probably only have done as well as domestic shares.
• The evidence is now starting to suggest we are experiencing a secular bull market. Not to be confused with a cyclical bull market. A Secular Bull Market lasts much longer term than a normal Cyclical boom to bust business cycle. It occurs when there has been an underlying change in the prospects for the global economy. Currently I would suggest that change is occurring due to an acceleration in the pace and uptake of technology, plentiful and cheap energy supplies with OPEC not being able to wield any upward pricing pressures and the large scale global urbanisation of much of S.E. Asia. In short, cheaper raw materials, more efficient businesses and a substantially larger marketplace seldom all come along at the same time but are in existence right now.
• Although the primary trend is for a long term rise in share values, make no mistake there will be more hiccups along the way. A short term downturn or two is common within a long term uptrend. We have not witnessed a non-political hiccup for almost 2 years.
• This year is unlikely to be as kind to us as last year was. The markets have been very calm by previous standards. There have been no wild fluctuations. No periods of great volatility. We have experienced a period of synchronised global growth, where most economies and their respective share markets have climbed higher. This I believe was overdue, as the previous year was dominated by uncertainty in Europe and in the US in the run up to the Presidential election.
• Smaller shares will continue to out-perform large shares. They always have and always will. After all, the largest shares of today didn’t start off as the largest. With a medium term outlook we should all hold some smaller shares although they are typically also the most volatile.
• We will continue to monitor our investments every day. It’s just what we do.

The Usual Smallprint

• Past performance isn’t necessarily a guide to the future.
• Investor’s Capital is at Risk – the value of an investment can go down as well as up and investors may not get back their initial investment.
• This is not general financial advice. After all anybody can read this. I may not even know you. I only give regulated financial advice on a personal face to face basis

Happy New Year.