Well, after a couple of weeks of camping, beach, BBQs, and watching too much tennis & cricket, its time to get back to thinking full time about investing.
Actually I never fully disengage; I’m always watching what is happening with investment markets (unless I’m fully off grid with no wifi, which does happen from time to time!).
Fortunately, my summer break has coincided with a very healthy start to 2017 for equities, with most investment markets surging forwards over the New Year, and clients seeing a healthy growth in their portfolio values in a very short space of time.
Which actually nicely highlights one of the investment principles I hold most dear. Markets do tend to surge, often unexpectedly, and its important to be invested in the market to get the benefits of days when the surges to occur.
A 2014 US study by JP Morgan Asset Management illustrates this nicely:
An investor staying fully invested in the S&P 500 from 1993 to 2013 would have had a 9.2% annualized return.
However, if they missed just the ten best days during that 10 year period, then those annualized returns would collapse to 5.4%.
The obvious message here is to stay invested. Missing out on some of the best surge days will seriously reduce your returns.
OK, so what are the prospects for 2017?
Looking at a variety of sources, my one line assessment for the investment prospects of major asset classes over the short term (ie the next few months) are:
NZ equities: Neutral. Strong economic growth, but reasonably high company valuations.
Australia equities: Neutral. Economy rebalancing continues away from mining, but valuations are reasonable.
US equities: Neutral. Trump administration policies will boost growth prospects, but company valuations are at elevated levels.
Asia equities: Positive. China economic reform continues, strong growth prospects for Japan.
European equities: Neutral-negative. Uncertainties over Brexit, upcoming elections & future US trade policies.
Emerging market equities: Positive. Economic reforms and low valuations.
Bonds: Negative. Rising global interest rates and higher inflation likely to negatively impact bond valuations short term.
Commercial property: Neutral. Solid property fundamentals, but countered by increasing interest rates.
All up, the investment market outlook for the short term is OK; not stellar but also not terrible. Let’s see what actually transpires!