Investment Perspectives 2018

Executive Summary

2017 was a good year for the global economy and an outstanding one for equity markets

The global economy enjoyed its strongest rate of growth since 2011 with the most noteworthy aspect being that growth was broad-based and expectations were upgraded during the year. Geopolitical tensions,
at times quite threatening, failed to dampen high levels of business and consumer confidence and had only a short-lived impact on capital markets. Concerns about European political events did not materialize as populist parties failed to create an upset in several general elections. Also, Emmanuel Macron’s spectacular rise to power in France was considered to be a major boost for the future stability of the European Union.

Equity markets had an unusually smooth ride throughout 2017 with strong and widespread corporate profitability and ample liquidity underpinning higher equity prices; volatility was consistently close to record lows and no major shocks were observed. Bond markets could be described as having been a little choppier but remained within relatively tight ranges. Surprisingly, the euro turned out to be the strongest major currency, on the back of a much more stable political landscape than expected in Europe.

 

Equity markets were the drivers of portfolio performance

The main reason for our good performance was our decision to hold an overweight equity allocation throughout 2017. Even though fixed income exposures also contributed positively to last year’s returns, equities significantly outperformed, with above-average performances recorded across all regional areas. In contrast to 2016, alternative investments performed in a more satisfactory manner. Finally, an underweight dollar exposure for non-USD portfolios limited the negative impact of its depreciation.

The foundations of the global economy are solid

The global economy is in a good shape due to solid and sustainable growth being quite evenly spread across all the main economic areas. The positive global activity momentum and low inflation should extend well into 2018 and, at this stage, the probability of a recession appears very low. Political risks have subsided, in Europe in particular, while the world is getting used to Donald Trump’s very unorthodox way of leading the United States. Liquidity conditions are still very accommodative, even if 2018 will be a key year of transition, from the quantitative easing era to more mainstream post-QE monetary policies.

Equities remain our preferred asset class

For the beginning of 2018, we maintain our favorable outlook on equities and remain underweight towards fixed-income. Overall equity valuations do not appear excessive as earnings growth should continue, even

if at a slower pace. We do not have a strong regional preference for our equity allocation. The fixed-income exposure is tilted more towards unconstrained strategies and convertible bonds. We do not plan on taking a high degree of currency risk and expect our hedge funds allocation to remain towards the high end of the strategic asset allocation range.

Table 0f contents

  • EXECUTIVE SUMMARY
  • 2017: REVIEW OF OUR INVESTMENT THEMES
  • 2017: ECONOMIC & POLITICAL DEVELOPMENT
  • 2017: THE FINANCIAL MARKETS
  • 2018 : ECONOMIC OUTLOOK
  • 2018: FINANCIAL MARKETS’ OUTLOOK
  • 2018: ASSET ALLOCATION

Download the Investment Perspectives