This time last year I wrote, “We believe on balance that the world will continue to grow in 2016, that equity market valuations by and large are low enough to make positive returns likely, and that western government bonds remain overvalued.”
"Buying things cheaply will tend to produce good investment performance over time"
Notwithstanding sterling’s weakness during the year, most equity markets around the world posted decent returns, with the MSCI AC World Net Local index itself returning 9.0%.
As for safe haven bonds, they proceeded over the first nine months of the year to become even more overvalued, with the yield on the Barclays World Inflation Linked Bonds index falling from 0.0% to -1.0%. The last three months of the year saw real yields rise, though only back to -0.7%.
I also wrote last year that, “High yield bond spreads have moved out, which given our expectation of future growth means this is an attractive area for us.” High yield spreads in both the US and Europe fell significantly during the year (in the US from 660 to 409bps and in Europe from 460 to 334bps). Returns will also have been boosted by the falls in government bond yields.
So, overall, I’d give our predictions a B+, which I would downgrade a notch or two for not gauging Brexit to be more likely. Nevertheless, our three public funds all had reasonable years, and all three now look very good based on volatility-adjusted total returns over five years (the income fund and the trust both look very good based on unadjusted total returns).
Our new investment process that we introduced in April 2015 is coming up to two years old, and it has undoubtedly been helping to improve our investment proposition. We remain completely committed to our unique style, Multi-Asset Value Investing, and its core principle that buying things cheaply will tend to produce good investment performance over time.
Published in Investment Letter, January 2017
The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.