2018 will be a year that many investors would rather forget. A lucky few will still be looking for an overall gain for the year, but the past few months have proved extremely uncomfortable. What have been the highs and lows of the year?
Research by Willis Owen shows that eight sectors delivered a positive return in 2018. Unsurprisingly, technology held the top spot, with a 6% return over the year. However, most of those gains were in the first half of the year and investors have had to deal with a painful correction since October.
The North America and North American Smaller Companies sectors were also strong performers. While this was largely thanks to the technology sector, much of corporate America benefited from President Trump’s tax reforms, which gave a significant boost in corporate earnings. Indirectly, it also helped UK investors, by boosting the US dollar, which supported dividend payouts from UK companies paying in Dollars.
If investors wanted stability, UK Direct Property was the place to be. It delivered a 4.3% return over the year, but this came without the highs and lows of the technology sector. Proporty ‘other’ was another strong sector, with areas such as infrastructure proving resilient over the year. Investors saw the value in predictable, inflation-adjusted cash flows. Index-linked gilts also did well as inflation protection became an increasing priority for investors. Other sectors in positive territory were UK gilts and global bonds.
There are no prizes for guessing the worst performers. Bottom of the heap are emerging markets, notably China. Emerging markets have been hit by a storm of different concerns, from the US/China trade war, to an apparent slowing of the Chinese economy, to a high Dollar and rising US interest rates. It is only towards the end of the year that a pause in raising tariffs has helped China recover.
Europe has been almost as weak. Political risk returned as Italy’s coalition government went head-to-head with the European Union on its budget. The UK has been held back by Brexit uncertainty, with investors waiting for greater clarity before investing, which never came.
At a time when most ‘defensive’ asset classes did well, gold funds were a surprising poor performer. This highlighted an important point about 2018, not only were markets weak, they were unpredictable. Defensive assets didn’t necessarily defend and growth assets didn’t necessarily grow. Investors will be hoping for some equilibrium to return to markets in 2019.