Investment takeaways from 2019 and the best performing funds

January had a rocky a start. Stock markets around the world – worried that the US central bank would go too far raising interest rates and put an end to global growth – had spent the previous two months or so in free-fall.

The FTSE 100, having hit an all-time high of 7,778 mid year, had fallen to 6,734 by 31 December, and many wondered if the declines would continue into 2019.

Stock markets rose

But the opposite occurred. And, with valuations cheaper – if not exactly cheap – in hindsight it proved a good time to invest. The FTSE 100, following a post-election ‘Boris Bounce’ is back up 7,512* and stock markets around the world have done well.

The US stock market has led the way, up 21.6%**, with the UK stock market not far behind with a rise of 18.7%**. Europe is up 18.5%**, while Japan is up 13.8%**. Even Asia and emerging markets – under pressure all year from trade wars and a still-strong US dollar – returned 10.3%** and 10.1%** respectively.

The turning point was the US Federal Reserve pausing its interest rate rises, then subsequently cutting them. Europe and the UK followed and all developed market central banks – and indeed most emerging market ones – went back to, or maintained, monetary easing policies. The saying “Don’t fight the Fed” seems to still hold true.

Yields turned negative

As interest rate rises came to a grinding halt, many developed market government bond yields turned negative – and the yield curve inverted.

As we explained at the time, a negative yield curve has historically predicted a recession – albeit 18 months away. We are still not out of the woods yet, but given it is a US election year, it seems unlikely this will be the case in 2020 at least. 2021 may be a different kettle of fish.

That said, decent returns were still made in the asset class: GAM Star Credit Opportunities, the best performing Elite Rated fixed income fund, returned 13.3%. Rathbone Ethical Bond wasn’t far behind with 12.7% gains, while Baillie Gifford High Yield Bond and Aviva High Yield Bond were in joint third with returns of 11.6%**.

Trade wars

Trade wars rumbled on between with the US and China, with regular tit-for-tat tariffs being applied. Huawei was blacklisted and investors held their breathe, waiting to see what would happen next.

But in the background, deals were signed or agreed with Japan, South Korea, Canada and Mexico – four of the US’s top seven trading partners. These countries obviously pose less of a ‘world-dominating’ threat to Trump, but nevertheless, the progress is encouraging.

Brexit

And of course, back on home shores, we’ve had Brexit. Or rather we haven’t. After numerous failed attempts to agree a deal with her fellow MPs, Theresa May resigned as prime Minister and Boris Johnson took on the job.
After a failed attempt himself, we of course had the general election. And with all the uncertainty, the UK stock market became very unloved.

However, as we’ve already pointed out, the resulting Tory majority caused a ‘Boris Bounce’, and the FTSE has finished the year in a much better position – not just our larger companies, but also our mid and small caps.

In fact, Franklin UK Mid Cap is the best performing Elite rated fund of the year – up some 40.3%**. That’s quite a turnaround.

Ten best performing Elite funds of 2019

*At as 17 December 2019
**Source: FE Analytics, total returns in sterling, 1 January 2019 to 17 December 2019