Most investors will be glad to see the back of 2018 when both US equity and government bond markets generated returns that were lower than cash. Such an outcome has only been registered in two previous calendar years since 1900 and highlights the challenge for investors in the current environment.
At the start of 2018, expectations were high as a result of the synchronised recovery in global activity in 2017. However, global growth disappointed and remained a concern as trade tensions escalated. At the same time, a stronger US dollar and the tightening of global liquidity held back the performance of risk assets.
In terms of asset allocation, we have moved to a more neutral stance over the quarter by closing our overweight in equities and commodities in recognition of the less positive macro backdrop. On bonds, we remain underweight in government bonds and credit given unattractive valuations.
Looking ahead into 2019, there are some key themes for markets. Global liquidity is likely to slow further with the continuation of the Federal Reserve’s (Fed) quantitative tightening (QT) and the European Central Bank (ECB) ending its asset purchase programme. While the tightening of global liquidity and trade wars will not help, a pause in tightening by the Fed could bring relief to dollar borrowers and emerging markets. Populist pressures could also see governments turn to fiscal policy to generate growth
Meanwhile, this quarter, we also take a look at the investment implications of the US cycle, particularly as we approach the slowdown phase, a more challenging and volatile phase of the cycle.
Find out more at schroders.co.za
Important information: For professional investors and advisers only. The material is not suitable for retail clients. We define ‘professional investors’ as those who have the appropriate expertise and knowledge, e.g. asset managers, distributors and financial intermediaries. This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the Company). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. Subscriptions for shares of the Company can only be made on the basis of its latest Minimum Disclosure Document and prospectus, together with the latest audited annual report (and subsequent unaudited semi-annual report, if published), copies of which can be obtained, free of charge, from Schroder Investment Management (Luxembourg) SA. An investment in the Company entails risks, which are fully described in the prospectus. The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change. The sectors and securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell. Schroders has expressed its own views in this document and these may change. Risk factors: collective investment schemes are generally medium to long-term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from the manager. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The manager has a right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate. Issued by Schroder Unit Trusts Limited. Registration number: 2015/358369/10. (Incorporated in England and Wales).