4th Quarter 2018

Q4 saw significant drawdowns across all major asset markets. Equities fell precipitously with US markets falling well into double digits, having outperformed in the prior 3 quarters. December was the worst monthly performance for the S&P500 since February 2009 and the worst December since the Great Depression. Other regions fell similarly, though went into the quarter already significantly down.

Investing today is not straightforward. In the shorter-term, there appears to be the willingness of authorities to respond and take action to support the economy and, by default, markets. There does not appear to be complacency, far from it and it could be argued they are being too responsive to market sentiment. In periods of such volatility and fear as Q4, there is often indiscriminate selling, which does offer investment opportunities. These will be somewhat correlated with markets and would suffer in a further sell-off. However, assuming no imminent recession, there are investments which look attractive.

Longer-term, we remain extremely concerned by the level of debt in the world combined with the lack of policy options in the next downturn. However the timing of that is very difficult and could be some years out. We are looking for balance within portfolios where we can capture some of the idiosyncratic opportunities we see but also providing significant protection to capital in the event of a large sell-off. Our portfolios generally will have less exposure to markets.