2017 was a year to remember for both global financial markets and our portfolios.
Investors focused on the positives in 2017; with strengthening economic data and easy monetary conditions helping risk-assets increase in value. Politics was a clear headwind in Europe – think the stop-start Brexit negotiations and Dutch, French and Germans general elections. But, this all failed to derail the positive market sentiment, and 2017 saw UK equities deliver a 13.1% return in sterling terms, and global equities 13.2%.
Even better was the return from emerging market equities; which rose 25% over the year.
The above is a very strong return, and investors must be mindful that future returns are likely to be lower.
While equity markets soared ever higher, bond markets generated only small positives for investors in 2017.
Debt markets are most influenced by central bank monetary policy, and 2017 saw the third interest rate hike by the US Federal Reserve since the 2008 Global Financial Crisis. This caused US Treasury yields to rise to 2.4% – remember bond yields act inversely to prices.
Closer to home in the UK, the Bank of England initiated its first rate hike since the global financial crisis. While tightening monetary policy tends to be negative for bonds, UK gilts delivered a positive return in the year due to uncertainties around future growth and inflation.
However, all-in-all, 2017 was a continuation of the positive market sentiment that we’ve seen over the past five years.
Chairman, Flying Colours Investment Committee