The performance of equity markets over the first quarter has been nothing short of remarkable, particularly considering how we ended 2018. At the close of 2018, investors were concerned about the US-China trade war, the tone of the Federal reserve was hawkish, that both the European and Japanese Central banks were no longer armed with sufficient tools to help them navigate towards recovery, whilst the political and economic outlook for the UK was clouded by the prolonged uncertainty of Brexit.
Roll forward to the first quarter end and globally, some equity markets have delivered double digit performance, US-China relations look a tad less frosty whilst investors are now anticipating the Fed’s next move to be an easing one. The Fed has actually fuelled a more supportive outlook for monetary policy and indications for the US have improved too following the Atlanta Fed’s upward revisions of Q1 2019 annualised growth. Fiscal easing might very well come to the aide of European markets, or maybe not, but sentiment has marginally improved here too. As for Japan – data remains disappointing and with respect to the UK and Brexit, that really is for an entirely different article, although it must be said that the UK economy has remained resoundingly resilient throughout.
Improvement in investor outlook, most certainly, but enough to merit some Goldilocks economy claims that the press would have you believe?
Going forward, we will continue to watch the markets and economic data closely, but fundamentals remain unchanged. We consider the Q4 2018 correction as an overreaction and this most recent quarter’s performance as the normalisation following that overreaction.
As it relates to portfolio allocations, how should Portfolio Managers have reacted? Our answer here at Swiss Global is a simple one – ensure client portfolios remain, at all times, well within risk / return tolerances. Q4 2018 would have been extremely difficult if clients risk limits were close to being breached. In such a scenario, it is likely that exposures would have been scaled back, selling at depressed prices and compounded by going into the first quarter rally with a reduced allocation to equity markets.
Equity markets don’t always rise, and can be very volatile at times, but it is imperative remain steadfast with portfolio that are actually performing well within their risk parameters and where the medium and longer term assumptions remain unchanged.
Michael Zacharia
Investment Director
This article has been prepared for information only. Any opinions or view’s expressed are for information purposes only. The views expressed herein are generally those of Swiss Global which sets the long term asset allocation models, long with both the strategic and tactical allocation. Any material is provided for informational purposes only. It is important to note that the value of any investment and the income derived from it can go down as well as up. It may be affected by exchange rate variations and you may not get back the amount invested. Past performance is not necessarily a guide to future performance and individual taxation circumstances may vary. You should consult your tax adviser if in doubt. Any information provided does not constitute a recommendation and you should consult your adviser, consultant or financial representative for advice concerning your specific circumstances. Any opinions expressed should not be relied upon and are subject to change without notice. This material is for the sole use of the intended recipient and is for distribution only under such circumstances as may be permitted by applicable law.
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