Signs of an end to monetary policy with a shift to fiscal expansion, cracks appearing in the political elite following a widespread move to populism, and the rebirth of value investing dominate thoughts going into 2017.
Here we take a step back and assess how best to play these themes in the coming 12 months. With no obvious buying opportunities, investors will undoubtedly have to work harder than ever to keep volatility down and returns up.
Perhaps the best place to start is by looking at how markets are reacting to change. It was market veteran Howard Marks of Oaktree Capital who summed it up best with a simple question: “How could the expectation of a Clinton victory make stock prices rise and then the reality of her defeat make them rise further?”
Dissection of the macro and market matters of a Trump presidency are covered elsewhere in this issue and online, but the point is this year has proven it is just as impossible to predict market movements as it is political and economic change.
Place your bets
With so many wealth managers positioned defensively at present, a big question as we head into 2017 is what the trigger will be for investors to put cash to work. Those waiting for a significant pull-back in markets have been disappointed in 2015.
It has certainly been a positive year for risk assets, with few real entry points in equities after March, as a look at the performance of the MSCI World shows. Even the EU referendum result saw markets climb. Indeed, from 23 June to 23 November, the index grew by 22%, though the FTSE 100 lagged behind at 9%.
Both have been beaten by MSCI Emerging Markets, again attracting the attention of wealth managers looking for the growth story of the next 12 months.
This is despite developing world markets having a tougher end to the year, both in equities and emerging market bonds, which have been subject of an almost violent sell-off post the US election.
Moving across the fixed-income spectrum during volatile times is no easy task, which may explain why strategic bond fund managers have kept their heads down this year.
Commentators, including us in the financial media, have been left with egg on our faces in prematurely predicting the end of the bond bull market, though Jan Dehn, head of research at Ashmore, goes a step further when he suggests developed bond markets are now “in danger of dying”.
