Over the last 15 months we have seen commodity stocks rise from the ashes, UK domestic shares devalued on Brexit, global titans vibrant through the summer months as investors clamoured for overseas earnings, then a reversal into cyclical and financial plays as Donald Trump swept in to the White House.
In 2017, quality has certainly steadied a rocking ship, buoyed by M&A activity, and economically sensitive shares have yielded, but is the pendulum swinging once more back the other way? Does anyone have a coin I can borrow, or should I just lick my finger, hold it up in the air, and judge for myself which way the wind is blowing?
We can be distracted by so much “noise” that it is easy to make the wrong judgement call as to the direction of the market, and we would certainly contend that 2017 may evidence enough volatility to render short-lived any trends. We argue that equities have priced in most of the good news extrapolated from the comments of Trump, and we now have to wait and see if words develop into policy and then action.
In the UK, inflationary pressures are likely to come to bear, but we have to deal with the triggering of Article 50, and the influence that has on a less than robust domestic economy. And what else may derail markets: Scottish Referendum talk, European elections, Chinese growth, the health of emerging markets?
We are wary of our ability to predict the future. As ever, the key is to manage a balance of risks across the portfolio. If economies and markets surprise on the upside, we hope to participate; if markets fall, we hope that quality will outperform. The point is, our philosophy and mandate encourages playing a longer game, and we believe that our unit holders understand and want this.
Therefore, we spend less time worrying about the latest trend, recognising that it may prove fleeting, and more time understanding the drivers behind all the businesses that we own, both individually and collectively.
Carl Stick is a manager of the Rathbone Income fund