The US and Japan continued to lead markets in producing positive returns unlike the main European indices.
Oil prices fell by 40% in the fourth quarter, finishing the year at $57 (£37) a barrel.
Commentators find it difficult to justify this extreme fall but look at oversupply factors as the main contributor. Comments from OPEC members in December stated they would not cut production, presumably in an attempt to increase pressure on the US shale market. These low commodity prices have consequently impacted inflation levels.
The fourth quarter saw some divergence in central bank policies in the US and Europe.
The Federal Open Market Committee announced it is to conclude its asset purchase programme. Later in the quarter it became apparent the European Central Bank was to introduce fresh stimulus into its programme of quantitative easing.
This divergence has been witnessed in currency markets as the dollar continued to strengthen, at around 4% versus the euro and sterling, respectively, in Q4. Forecasters are now looking for hikes in US interest rates to begin in the second half of 2015.
Uncertainty about Greece’s future in the euro and its debt restructuring plan with Europe came to the fore at the end of the year when it was announced a general election would take place on 25 January 2015.
More uncertainty came when anti-austerity party Syriza won the election. Geopolitical tensions in Russia/Ukraine, sanctions by the West as well as the fall in oil prices resulted in the rouble hitting an all-time low against the dollar. Russia swiftly increased interest rates to 17% to combat the devaluation of the currency.
In terms of individual equity market returns during the quarter, the FTSE 100 (capital only) fell by 0.86%, European equities fell by 0.41% in euro terms and the US market increased by 4.39% in dollar terms.
Emerging markets decreased in value by 4.88% in the quarter and the Japanese market produced further positive performance with an increase of 7.9%.
Government bond prices rose by 6.6% in the UK, 2.2% in the US and 2.4% in Europe. Oil prices were down 4% and gold 2%.
The Trustee Managed Portfolio Indices demonstrated positive returns across the three risk profiles during the quarter: the Low Risk index increased by 2.1%, the Medium Risk index by 2.3% and the High Risk index by 1.9%. Positioning in US securities will have added to positive portfolio performance due to the stronger dollar.
Headline asset allocations remained constant in 2014. Investment managers still tend to favour equities, though we note comments on seeking value due to high prices and volatility concerns in 2015.