Please find below our weekly Investment Snapshot for the week ending 5th January 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Global stocks have extended the record start to 2018 by reaching all-time highs for a third straight day on Thursday, as the first trading week of the year built on last year’s Bull market gains. Signs of stronger economic growth that was central to last year’s rally has also continued, after the Global Purchasing Managers’ Index (PMI) data showed factory output increasing worldwide; for example, the EU recorded a level of 60.6 – the highest since the survey began in 1997.
The FTSE All World index has added 1.7 per cent since the start of the year, extending 2017’s rise of 22 per cent — the fourth-best year since the benchmark started in 1993. As I write (Thursday), the Dow Jones index has risen above 25,000 points and the S&P 500 has pushed further into record territory with gains of 0.4 per cent. Surging technology share prices on Tuesday propelled the Nasdaq Composite past 7,000 points for the first time. Furthermore, oil has rallied to its highest level since May 2015, which has a huge impact on markets worldwide, especially shares in energy.
Tokyo’s Nikkei 225 Average started the trading year on Thursday with a 3.3 per cent increase, its biggest one-day gain in more than a year which left the Japanese market at a 27-year high.
Jeremy Grantham, founder of asset manager GMO who correctly called the dotcom and housing bubbles, said “I recognise that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market. This phase may end as early as this year – within the next six months to two years is likely.”
Gary’s market comments in conjunction with our investment partners
For 2017, returns were generated by the buoyant equity markets; specifically, those of the Emerging Markets, including India, Asia and Frontier Markets all of which generated returns north of 20%. Geographies that also produced decent equity market strength during 2017 include Europe, Latin America and the US, all of which have generated between 10% and 20%. Global infrastructure and UK property returned circa 7% for 2017, which compares modestly to the equity returns. Fund holdings across all of LGT’s portfolios produced positive performance for the year and they remain confident that the portfolios are suitably diversified and are positioned for the challenges and opportunities of the year ahead.
7IM have reduced their holdings in gold. Although they still believe that tail risks exist and want to provide some protection to portfolios, the rising interest rate environment means that gold is slightly less likely to offer that protection element versus other investments. The proceeds made from the sale have been used to buy ‘Put Options’ for the EuroStoxx 50. These allow 7IM the option to sell their European equity assets at an agreed price on, or before, a particular date. European equity is their most significant overweight in the medium term, but they wanted to buy some cheap protection against short-term negative moves.
Sources: LGT Vestra and 7IM