2017 has been a Goldilocks year for equities, buoyed by economic growth that’s "not been too hot or cold", according to Seven Investment Management (7IM).
Data released by 7IM suggests that over the year to date, the S&P 500 has closed at a record high some 57 times, representing 25 percent of trading days. Much of this growth came from FAANG type stocks, with the IT sector accounting for around 23 percent average weighting of the S&P 500.
It has also been a record breaking year to date for the FTSE 100, hitting a new record close on eight percent of trading days over the year to date (some 20 times).
Justin Urquhart Stewart, co-founder and head of corporate development, stated that the "not too hot and not too cold" global economic backdrop has been a "perfect Goldilocks environment" for stock markets.
This year’s stock market "exuberance", he said, is all the more reason to have a balanced portfolio. "Without wanting to call the top of the market, there will always come the part when Goldilocks screams for ‘help’ and runs out of the room. That’s where multi asset investing can be key, because it spreads risk not just across different stock markets, but asset classes too.”
Bitcoin, 7IM noted, has also grabbed the headlines this year, smashing new highs as the cryptocurrency market moves towards mainstream.
For investment manager Ben Kumar, the rise of Bitcoin has been about taking back control at a time when governments are less trusted than they might have been before.
“But is it pure hype, or is there some substance? Whilst we’re steering clear, most likely, it is both. Look at who Bitcoin was created by – some reclusive coding genius with a specific world view. For many people that is enough to dismiss it as a nerdy niche to be ignored. Yet reclusive coding geniuses have in recent years built some of the most successful companies in the world. But with Futures on Bitcoin to be launched later this month, the question is will that be the death knell, or another leg upwards, once hedge funds/pension funds get involved? The jury is out, but hedge funds/pension fund involvement won’t necessarily chime with those who were attracted to Bitcoin in the first place,” he commented.
Low volatility has also been a key theme of 2017, which is shaping up to be the least volatile year in 50 years for the S&P 500. Alex Scott, chief strategist, noted that since the 1950s there has been an average of around 40 days a year where the market rose or fell more than one percent . In contrast, there have only been eight days this year where the US stockmarket moved by one percent or more, in either direction. He believes that whilst there’s a chance this low volatility could persist, a sudden movement in volatility would remind investors that this calm is "highly unusual" and could potentially raise questions about valuation in more expensive areas.
7IM looked at emerging markets, describing the performance as a "stunning year to date", with the MSCI Emerging Markets index up 33 percent. Howver, in US dollar terms it still hasn’t reached its pre global financial crisis peak in terms of price.
Damian Barry, senior investment manager, said: “2017 has been the year when most assets classes delivered positive returns – one of the best places to have been invested was in FAANG stocks or their Asian equivalents. It’s the year when Buffet’s 'be fearful when others are greedy' rang in many of our ears, but with the conflicting chime that the market momentum trend was still your friend.
“For us, 2017 has been a year of caution but also contrarian conviction, for example on the multi manager side we added exposure to some overlooked areas such as frontiers, which we think look better value than emerging markets, and US microcaps. And in a year when active managers came under sustained scrutiny, we have increased our active allocation in our multi manager funds. When markets are on a relentless upwards trajectory, the time for good specialist managers who can hunt for value is more important than ever,” he concluded.
7IM provides investment services to professional wealth managers, planners, advisers and investors, including discretionary investment management with advice; a range of multi-asset portfolios; and an investment and open architecture trading platform.