In this week’s IDB, the last of the year, we provide an overview of our thoughts for 2017 across Equites, Hedge Funds and Fixed Income.
2016 provided plenty of event risk for financial markets, but somewhat surprisingly, equities remained resilient when tested by the BREXIT referendum and Trump’s election shock. Political risks, particularly in Europe, already look set to challenge investor risk appetite further in 2017. We are confident that our selective focus on quality businesses with good earnings visibility and potential for self-help, will help reduce downside risk for portfolios in the event these political risks intensify.
The Hedge Fund industry have failed to deliver outperformance versus market indices this year. While this is a relatively rare event, it has resulted in significant outflows for large funds; small to medium sized funds have still managed to attract investor inflows. In 2017, we will continue to focus on opportunities that generate uncorrelated low beta returns, focusing on market neutral, sector specific equity long short, macro/CTA and commodity strategies.
It has been a very eventful year for Fixed Income too, in the first half, a series of market risks pushed US government bond yields lower, however, as the year progressed, US yields stabilised and then jumped higher following Donald Trump’s Presidential election victory. The challenges for Fixed Income markets next year could translate into both bull and bear case scenarios. For example, it is far from clear if US fiscal loosening will urge the Fed to increase rates earlier or if the pace of the increases will remain unchanged.
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