Another year of muted returns has masked some periods of volatility that rattled markets, but we see reasons to be cheerful as we look ahead to 2016.
While perceptions often drive markets in the short run, our long-term investment approach is to look for economic reality to reassert itself. For example, last year’s big plunge in oil prices was widely regarded as a sign of a sharp slowdown in global growth, but we saw it as good news for the world’s consumers, who tend to spend the windfall from lower fuel bills.
As we explain in our title feature Reasons to be cheerful, we think global growth in 2016 has the potential to bring a positive surprise. There are risks to emerging markets from the slowdown in China. But as investors we aim to balance the huge potential of these markets against these risks through careful selection of high-quality companies that we believe can deliver solid returns over the long run.
After standout performances in 2015, we still see plenty of opportunity in mid-sized UK companies and Japanese equities.
One major theme of this outlook is ageing, and we take a look at UK pensions in particular. We also consider the growth in medical devices for dealing with the complications that arise from an ageing and weightier population.
Government bonds – perceived to be the safest assets – remain an important diversifier of returns (tending to go in the opposite direction when equities are falling). Yet we are presented with a quandary – yields on these bonds remain exceptionally low when compared to the last 40 years. In our final section, we look at some alternatives to low-yielding bonds.
Swings in investor sentiment will be a regular feature in years to come. But we aim to follow the facts and not market panic or euphoria, and look forward to the opportunities that this will bring in 2016.
We wish you a prosperous and happy 2016.