Over the course of 2017 it was almost difficult to lose as in investor. You may well have closed the year with the impression you had the Midas touch. Of course, the reality was that it was simply a case of almost every asset class showing positive returns.
Whether it was investing online in equities, funds or bonds through a digital investment platform or the bricks and mortar of investment properties, portfolios were buoyant. However, investors with any experience would always have known that the chances of a repeat over 2018 were always slim. Markets had been buoyant for a decade, carrying over the momentum from the beginning of the post-international financial crisis recovery.
And indeed, it has proven to be the case that most investment classes have seen a much more volatile 2018. Many end the year down on where they began it but there have also been success stories. Across the board, the 2018 can probably be considered a ‘correction’ and not crash. Where markets go from here is an open question and different economists and analysts have diverging opinions.
2018’s volatility could mark the beginning of a deeper, more serious international malaise across financial markets. Or, it could be little more than a safety valve taking steam out of overheating markets, allowing them to regroup and move forward again more sustainably. Alternatively, it could mark the beginning of a global recession. That’s the fun when of investing! You never really know until it’s happened.
But let’s review some of the major investment classes from equities to funds of different make-ups, property, gold and alternative investments to see what the year’s winners and losers were. Or at least, a snapshot of some of them.
Overall it has been a bad year for equities. Not a disastrous year but certainly one that can be given the label ‘major correction’. By mid-December the FTSE 100 was down 7.5% for the year even when taking account of reinvestment of dividends and its dropped further since despite a significant 2.27% rebound on Friday December 28th, the last full trading day of the year. That rebound was from a two and half year low for the UK’s benchmark index and globally, December 2018 was the worst months for equities in 6 years and the FTSE 100 looks set to record an annual loss somewhere around the 12% mark.
Slowing global growth, the U.S-China trade war, the international withdrawal of central banks’ policies of quantitative easing and the Fed, much to President Trump’s chagrin, maintaining a policy of gradual but regular interest rate hikes have all contributed to the equities sell-off.
Despite also suffering over the past few months, the S&P 500’s early year gains on the bank of Trump’s corporate tax cuts mean that the overall loss for the year is among the lowest globally, down only 5.5%. For UK investors, the overall return delivered by the North American sector was flattered by currency movements as the dollar gained considerable strength against the pound.
There were however still winners within equities. Any of you investing online in Ocado’s stock have doubled your money this year with the online groceries turned logistics technology business seeing a stellar year. Other FTSE 100 success stories included industrial metals and mining company Evraz, up over 50%, grocers Sainsbury’s, which plans a £3.7 billion merger with peer Asda subject to approval from the competition authority and publisher Pearson which has regained investor confidence following a painful previous 2 years.
However, the UK-listed company that delivered the best returns was AIM-listed technology stock Tern, which returned a whopping 700%. Another AIM stock, Bushveld Minerals has returned investors in its share price over 300%.
Among the biggest losers for equities investors this year was the broader retail sector. Online retail star Asos gave its investors a painful 12 months amid profit warnings. The bump in the road marks the first time pure ecommerce plays have faced investor concerns over slowing growth. Retail property companies also had a tough year and Intu, the shopping mall operator that combines both retail and commercial property exposure was hit by the worst of both worlds, slumping over 50%. Another property company focused on retail, Capital & Regional, was also among the year’s worst hit stocks.
With equities and fixed income investments having a tough year it naturally proved difficult for active fund managers to hit upon a winning combination and most funds focused on these investment classes, as most do, have fallen to losses this year. However, there were still some success stories and US funds were among the best performers, accounting for five of the top ten unit trusts from a total of 3000 offered to UK investors.
The investment direction of UK funds are broken down into 37 major ‘sectors’ by industry body the ‘Investment Association’, which cross industries, geography and company size. Over 2018, only 8 of the 37 delivered positive returns and even the best of those were far from stellar. The best performing sector over 2018 was ‘UK direct property’, which covers funds investing in commercial and residential property as well as healthcare properties such as care homes and private residential clinics and specialist student accommodation. However, the sector still only returned a relatively measly 4.75%. Next was UK index-linked gilts, up 3.25%.
The other 6 sectors ending the year in the black are, based on research conducted by investment manager Tilney, UK gilts, technology and telecommunications, global bonds, money market, short-term money market and property (other). The property ‘other’ sector covers specialist real-estate investments and securities.
Until mid-December, North America-focused funds had been the strongest sector but the pre-Christmas plunge turned those returns into losses even when taking the increase in the value of the dollar against the pound into consideration. European small companies was the worst performing sector, down 14.42%.
For those with investment properties, 2018 was a mixed bag with major regional divergence a key trend. Prime central London residential property prices dropped by around 4% over the year with the capital’s outer regions sliding by around 5%. However, regional capitals further north are still doing well, with Edinburgh prime property prices up over 10% and high double figure gains recorded in cities such as Manchester, Liverpool, Birmingham and Glasgow.
Rental returns have remained steady in most areas but sales have generally slowed both in terms of numbers of properties on the market and average selling times, except in remaining hotspots such as Edinburgh.
Changes to tax breaks for buy-to-let investors have also continued to bite this year as the government moves towards the staged removal of relief on mortgage interest payments. Property as an investment class is undeniably changing in character. It’s no longer the relatively easy pickings it once was. Nonetheless, while investors may need to be a little more careful and focus more on rental returns than capital growth as the business model, it is almost certain that investment properties will remain a favourite for UK investors.
Gold & Precious Metals
Traditionally considered a ‘safe haven’ investment that blooms during times of economic turmoil, volatility and fear, gold might have been expected to do well over 2018, particularly the year’s latter stages. However, things haven’t worked out that way as the precious metal slid by just under 6%. Silver and platinum have done even worse, with both losing over 15% since January.
A further disadvantage to investing in commodities such as gold is that they offer no income so investors are entirely reliant on capital gains for returns.
However, despite the travails of most investment classes over the course of 2018, there has still been one clear winner when it comes to the worst performance of all – cryptocurrencies. Having started the year at over $14100, Bitcoin is now trading at around $3800. That’s a loss of over 70% of value. The wider cryptocurrency market has dropped by even more, down almost 80% for the year.
Opinion is now split between the view Bitcoin is as good as dead, along with cryptocurrencies as a whole and the contrasting take that 2017’s bubble has popped like an exaggerated version of the dotcom bubble but that the cryptocurrency concept is here to stay and the market will make a major comeback in 2019. Cryptocurrencies can certainly be considered a zero-sum game of an investment. Take the plunge and you’ll almost certainly realise either a huge return or a huge loss.
What Does 2019 Have In Store?
Well, if we knew the answer to that we wouldn’t be wasting our time writing these articles but sunning ourselves on a tropical beach somewhere. But what we can do is mention some of the trends analysts believe may unfold.
Jason Hollands, a managing director at wealth managers Tilney believes there is the potential for a 2019 recovery. He’s quoted in The Times as commenting that the equities sell-off may have been overdone, leaving room for improvement next year:
“…investors have woken up to the possibility that the boom times won’t go on for ever. That said, the global economy is in decent shape and shares are very reasonably valued now, having been aggressively oversold.”
Brexit fears mean investor sentiment is low for UK-centric investment classes such as London-listed equities, UK bonds and UK property. However, brave investors might see deflated prices as an attractive contrarian move.
Emerging markets, particularly China, are also tipped by many to bounce back next year following a particularly bad 2018.
Whatever happens, remember that investing is a long term game. There will always be good and bad years. It’s how they average out over 10, 15 and 20 that is what will make your investment portfolio a success or not. So don’t take fright. If you’ve built a robust, well-balanced portfolio on solid fundamentals, you can ignore bad years and focus on a bright future.