/ 2016 IN REVIEW /
Trusts that invest in the US have been among the best performers this year . The IT North America Equities sector is up 36.03 per cent so far in 2016 , while IT North American Smaller Companies is up 26.42 per cent , its highest annualised return since 2009 .
However , Rob Morgan , pensions and investment analyst at Charles Stanley Direct , said that Trump ’ s win overshadowed the most important trend of the year – a rotation away from bonds along with a move away from defensive equities into cyclical ones .
“ All the politics has kind of masked what has been an important trend of market leadership – though Trump has been a catalyst for an acceleration of it ,” he said .
He added that a mini rotation began in July when global economic data beat forecasts and inflation expectations began to creep up . This resulted in the yield on 10-year UK gilts rising from 0.5 per cent to 1.4 per cent today .
“ Now , with the election of Donald Trump , investors are forecasting additional fiscal stimulus , tax cuts and infrastructure spending ,” Morgan continued . “ These ingredients are seen as likely to ignite economic growth in the short term , increase inflation and mean the US Federal Reserve raises interest rates further and faster than previously thought – and this may be a bad recipe for the bond market .”
Morgan says this has led to the underperformance of areas
Trump ’ s win overshadowed the most important trend of the year – a rotation away from bonds along with a move away from defensive equities into cyclical ones
such as consumer staples and so-called “ bond proxies ”, which benefited the most from the expectation that low interest
40 % 30 % 20 % 10 % 0 % -10 % -20 % -30 %
Source : FE Analytics rates and sluggish global growth were here to stay .
“ Industrial shares are starting to do better as investors factor in an improving economic outlook . Meanwhile , shares in resources companies have been buoyed by expectations of global growth and infrastructure spending , and banks are up strongly as higher interest rates tend to mean greater profits from lending activity ,” he said .
But will it last into 2017 ? Morgan says markets may have got ahead of themselves in pricing in an economic boom .
“ With so little policy clarity , a divided Republican party and a heavily indebted economy , investors await evidence that Trump will be able to deliver the stimulus many have anticipated ,” he said . Although if 2016 has taught us anything , it is that you should take predictions with a healthy pinch of salt .•
PERFORMANCE OF SECTOR IN POUNDS AND YEN
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IA Japan ( Yen ) IA Japan ( Sterling )
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