So where was the clever money made in 2017? With little attraction for sitting in cash, investors have had to be flexible in where they place their money for a decent return – as well as try to balance risk and rewards.
Martin Bamford, chartered financial planner at Informed Choice agrees that cash was probably the worst place to be this year. “Despite interest rates starting to rise in the UK, cash returns remain pretty dismal and rising price inflation in the UK will have eroded the buying power of cash again this year.”
With cash offering such paltry returns, the increased investment limit of £50,000 (introduced in 2015), NS&I Premium Bonds remained an attraction for ultra-low risk investors.
Playing the markets
But 2017 was not really a year for being ultra-cautious as Bamford explains. “It’s been a positive year for every major asset class, although some have delivered better returns than others.
“Looking at the Investment Association (IA) sector average returns for the year to the start of December, Global Emerging Markets was the best average performer, rising by close to 25% in a year. There were also strong returns from Europe ex UK (+24%), Japan (+18.5%), and UK All Companies (+15.5%).”
Investors have been enthusiastic about their appetite for risk assets this year, continuing to pile money into domestic and global equities and thereby driving up valuations. Justin Modray, IFA at Candid Money explains: “Equities have generally performed well with Asian markets, notably China, doing very well. UK physical commercial property has also bounced back after a difficult 2016.”
Undoubtedly equities were a good place to be. The FTSE and the Dow Jones both performed strongly – albeit with a few blips on the way.
In mid-December 2016, the FTSE stood at 6,890 and it hit a high in early November 2017 of 7,562 before dropping back a little in December.
Similarly, the Dow Jones stood at just below 20,000 in mid-December 2016 but had risen to 24,300 by mid-December 2017.
The largest increase during the year reported the Mongolian benchmark, which expanded by over 110% since January.
The Argentina’s index saw a stellar rise too by more than 59% since the beginning of the year. Not that every investor would be diving head first into Mongolian and Argentine stocks – unless you are an adrenalin junky with an insatiable appetite for white-knuckle rides. What these numbers do show is that 2017 was a good year for markets globally.
Index-tracking funds that closely track the performance of a stock market index (such as FTSE 250 or S&P 500) are an attractive and cheaper option to active funds. Given how most indices have moved this year – investors will have made money.
However passive investing is not to everyone’s taste even if a fair percentage of tracker funds beat their active counterparts each year.
Given how buoyant global stock markets were in 2017, which equity funds performed strongest? According to Interactive Investor the five top funds over the year (excluding tracker funds) are Legg Mason IF Japan Equity; T Rowe Price Global Technology Equity; Baillie Gifford Greater China; Ashburton Africa Equity Opportunities and Alquity Indian Subcontinent fund.
The Legg Mason fund was the best performer amongst this five at 46.98% while fifth place Alquity returned 39.35% over the year.
Perhaps not surprisingly given the depressed price of oil and gas over 2017, energy/mining and natural resources funds struggled over the year – Ashburton Global Energy and HC Charteris Gold & Precious Metals funds were amongst the weakest performers returning – 23.78% and -18.81% for the year to mid-December 2017respectively. As Modray points out, energy funds did not fare well with many falling 10-15%.
He goes on to pick out a few specific funds that had a torrid time in 2017. “Manek Growth is the worst performing fund this year to date and it was recently announced the fund will wind-up at the end of the year, long overdue given its dismal performance history.
Modray adds: “CF Woodford Equity Income also warrants a mention after having a fairly disastrous year by the manager’s usual high standards. Neil Woodford has suffered from some poor stock picks, notably provident Financial, and badly needs 2018 to be a good year to restore some faith with investors.”
The best performing currency this year was the euro, which rose by 12% against the US dollar, making it the best-performing base currency.
Sterling has seen something of a rocky ride over the year not helped by Brexit uncertainty. Its low point was in mid-late January 2017 when it hovered around the 1.20 mark against the dollar but as the year drew to a close, it was up to around 1.33, still along way from the 1.70 high in June 2014 – so relatively speaking still a weakened currency.
The Japanese yen had a decent year. The dollar fell 1.66% against the Yen.
Amongst the biggest fallers were the Polish Zloty and the Czech Koruna which saw falls of around 15% and 16% respectively.
Given what happened to Bitcoin over the year- it deserves a category all in itself – not least because many investors see it more as a speculative asset than a currency. The rise of Bitcoin has been dramatic and worrying in equal measure.
The virtual currency has continued to astound as supposed valuation barriers continue to be broken. Despite the odd correction, notably when some retailers such as games platform Steam announced they would no longer accept the cryptocurrency, Bitcoin soon started to rise again.
Whether it is a bubble or not (and many insist it is) those who boarded the Bitcoin bandwagon early have been handsomely rewarded. The crypto has seen its valuation rise from $775.25 back in mid- December 2016 to $16,699 in mid-December 2017. The clever money undoubtedly went into Bitcoin at the beginning of 2017 – the wisdom of entering the fray now is highly questionable.
This year is definitely the year of palladium. Starting the year at level of around $700, it reached historic record levels of over $1,000, represent a price increase of 40%.
Palladium is powering on with the increased demand for cars. Both platinum and palladium are used in catalytic converters in car exhaust systems.
However, palladium is in higher demand in the US and the Caribbean, particularly lately as consumers replace vehicles damaged in recent storms.
There’s more need for palladium, which cannot be reclaimed as easily or as often from junked automobiles as platinum.
Platinum is more heavily used in diesel vehicles that have fallen out of favour since the Volkswagen AG emissions-rigging scandal of 2015.
Gold prices have been fairly volatile over the year. In January gold hit a low of 1,127 then hit a high of 1,351 in September before falling back to 1,246 by mid-December 2017.
The election of Donald Trump as US President, saw investors look to gold once again. Hedging against future financial instability is always a consideration, however, US markets have not shown the turmoil some had predicted in 2017.
The real moves in the gold market happened a good year earlier – so those who invested back in December 2015 when prices were down to 1,060 will have fared better.
The weakest among the raw materials in 2017 was sugar. It has fallen over 20% since the beginning of the year – currently at around 366.
Crude oil has jumped around a fair bit in 2017. Starting 2017 at around $52 the price slumped to 42.50 in early July before recovering to around $57 in December 2017 – still a long way from the $107 high back in August 2013.
In 2017, even fixed income securities surprised – they should have suffered amidst rising interest rates, but showed positive returns over a year. Sterling High Yield Bond is up on average 7.8%, Sterling Corporate Bond is up 5.5% and UK Gilts by 1.9%.
Where to now?
But what of 2018, will equity markets move much higher? Will Bitcoin prove to be the bubble many predict?
Will fortune favour the brave in 2018 or will it be a time to tread cautiously? Time will tell.