Q4 2019
Investors experienced a successful year in 2019, with various markets, sectors, bonds, and funds performing well. Despite geopolitical tensions and uncertainties, those who remained calm enjoyed double-digit returns.
Events like the US-China trade dispute, the UK general election, the Hong Kong protests, and geopolitical tensions in the Middle East had the potential to impact global stock markets. However, investor appetite for US tech stocks remained strong, leading to a 35.2% rally in the Nasdaq index for the year. Major markets, including a 45% gain for Russia, also saw significant growth. However, the UK indices' performance, alongside Hong Kong, reflected the impact of Brexit on investor confidence.
Moving into 2020, optimism persisted as US markets reached new highs. However, numerous potential risks from the previous year remained unresolved. The outbreak of the deadly coronavirus from China further added to the market turmoil, erasing gains made earlier in the year.
Typically, investors tend to be bullish in US presidential election years, with expectations of a smooth run-up to the November vote. The global economy had been stable, and anticipated government spending in the UK hinted at potential benefits for domestic stocks. Despite positive indicators, the year was expected to be unpredictable due to factors such as slowing Chinese economic growth, the uncertainty surrounding the impact of the coronavirus, Trump's impeachment trial, and the possibility of a UK-EU trade deal in 2020.
In 2019, equities performed remarkably well, particularly in developed markets with an average return of 23%, driven by the US and Europe. Emerging markets delivered around 14% returns. US-Sino trade tensions remained a focal point, causing volatility throughout the year. Growth stocks continued to outperform value stocks, although some areas showed high valuations compared to historical data. In the UK, the outcome of the general election provided relief regarding the risk of nationalization of utilities, but the challenge of Brexit still loomed over the economy.
The Information Technology sector was the best-performing sector, returning approximately 42% due to the success of FAANG stocks. Some caution arose regarding high valuations in this sector. Defensive stocks did not consistently outperform economically sensitive stocks, which was surprising considering the mature economic cycle.
Energy was the only sector to deliver single-digit returns, with valuations reaching a three-year low. Within the fixed income space, Corporate Bonds outperformed Sovereigns, delivering a return of 7.1% compared to just under 2%. The yield curve inversion in March raised concerns about a recession, but it did not significantly impact the markets.
Central banks responded to trade tensions by easing monetary policies and providing liquidity, pushing income investors toward riskier asset classes. Alternatives and real assets were favoured as investors sought to diversify their systematic risk exposure. UK Real Estate performed exceptionally well, with returns exceeding 30%. Global infrastructure, historically a hedge against inflation, also attracted investors with returns of over 22%. Gold, a popular safe haven asset, delivered over 14% total return due to increased political and market concerns. However, hedge funds continued to disappoint, returning just over 2% on average.
Interactive investor's Super 60 list of funds maintained strong performance, aligning with expectations in both absolute and relative terms. Most active funds delivered positive returns over five years, and 98% of them delivered positive returns over one and three years.
The majority of rated trust discounts remained consistent or improved over the past year, with no trusts having significantly high gearing levels (+30%) that would raise concerns.
Index funds generally displayed tight tracking errors over the long term and performed below their peer group averages throughout the year.
