In the UK we experienced typically low trading volumes as institutions wound down towards Christmas. Broadly speaking healthcare and utilities continued to struggle while miners and oil & gas companies responded positively to higher raw materials prices. From an economic perspective we saw inflation reach 3.1% which requires the Governor of the Bank of England to write a letter of explanation to the Chancellor. From what I understand there is an acceptance that inflation can be transitory and that restorative action (i.e. an interest rate hike) is not necessarily going to be forthcoming in the short term.
As such it appears that the themes we have discussed in the past remain; domestic political and economic uncertainty, more appealing valuations available in certain overseas markets, bonds remaining out of favour based on valuation and the prospect of rate hikes and alternatives seeming to provide some of the characteristics that have previously been sought from fixed interest. This brief overview is reflected in our asset allocation where we remain moderately underweight UK and US equity relative to our neutral allocation, underweight bonds and overweight alternatives.
Within portfolios we have been implementing the outlook detailed above and are actively seeking tighter risk management within the UK equity space through closely controlled position sizes and enhanced diversification achieved through a) the number of equities held and b) the correlations between them. This more cautious and defensive stance echoes the sentiment above and should come as no surprise given all that we have seen.
Finally we have received a number of queries about Bitcoin and cryptocurrencies in general. To be clear this is not something that we will be investing into for a number of reasons. Rather than go into them in too much detail here I would encourage anyone considering such a flutter to acquaint themselves with previous bubbles (Tulip Mania would be a good start) and the “Greater Fool” theory before making up their own mind.
Anyway, that’s it for this month; as ever do get in touch should the need arise and here’s to a happy, healthy and prosperous 2018.