James Sullivan, investment director & senior fund manager at Coram Investment Management is also optimistic about 2017, expecting it to be a very exciting year.
“There are 101 unknowns out there, both economic and political that will likely cause periods of unrest and volatility. And, with this volatility will come some “wonderful re-entry points” into risk assets,” he said.
Dry powder required
But, he too is also somewhat wary.
“The apprehension comes from opportunity risk. We de-risked going into Q4 because we were taking profits. The risk is if I am wrong in assuming that [US President-elect Donald] Trump won’t get away his huge fiscal spend and the markets double from here.”
This is not, however, what Sullivan’s base case is. Instead he is expecting a year that closely mirrors 2016, with one or two pockets of very serious volatility.
It is for this reason that he wanted to have some firepower because, he says, “The ability to act quickly has never been so important. It is about having the ideas on the sidelines ready to implement.”
Quilter Cheviot investment manager, David Miller agrees that being fleet of foot is likely to help in the coming year, especially because, “Tactically 2017 looks ideal for active managers”.
“The consensus is very consensual, assuming that the dollar will continue to strengthen, economic growth will be above trend, profit forecasts, which are at a six year high, will be met and inflation is expected to rise… Views on sectors are at their most diverse for years at a time when market volatility is extraordinarily low.”
Should anything emerge to disturb this benign view, markets will react Miller said, before adding that the good news for the more cautious investors is that diversification away from the ‘Trump trade’ is relatively cheap.
It is also along this so-called ‘Trump trade’ that the dividing line between optimists and pessimists currently runs. And, Miller expects by mid-year, to know much better whether or not the US economy will be strong enough to escape from years of low growth.
“As in 2016, it will be important to keep one’s nerve, focus on reality rather than rumour, while remaining warily optimistic,” he added.
