DISCOVER HOW POSITION TRADING CONSISTENTLY OUTPERFORMS THE MARKET

Author: AliCatCapital , Last Modified, 2022-03-09

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DISCOVER HOW POSITION TRADING CONSISTENTLY OUTPERFORMS THE MARKET

Disclaimer - Past Performance is NOT a Guarantee of Future Performance

Investing carries risk and uncertainty and investors can loose all of their money so should always seek professional advice before making any investment. This article is not investment advice and is provided for your education only.

2017 was in many ways quite a strong year for investors and it is worth taking a look at the 5 main investment themes that are attracting the attention of investment professionals in 2018.

• 1. Equities are likely to outperform bonds in 2018.
• 2. Equities performance is likely to be concentrated in the US Europe, and emerging markets with a big focus on Asia.
• 3. Selective Credit Risk still makes sense.
• 4. Portfolio diversification is worth emphasising as much as possible.
• 5. Active Management is likely to out perform comparative passive management.

1. Equities Outperformance

There are two key reasons for this investment thesis. First off the Key Economic Cycle indicators are not forecasting an imminent recession and secondly equities are showing better valuations than bonds.

2. Equities Geographic Focus

In 2017 equities strength came from a combination of very strong emerging market performance and also broader developed market equities, particularly the United States and Europe (excluding the UK), and Wealth Managers are expecting to see a similar pattern in 2018.

This is driven primarily from the top down macro economic view which supports certain regions more than others and secondly, taking a bottom up perspective examining particular favoured equity sectors including technology, financial and industrials.

Thirdly equities valuation, in particular Europe (Excluding the UK) and emerging markets provide good value.

3. Credit Markets Risk

Of course with the advent of rising rates and other headwinds facing the credit markets it might well appear that it is simply too late to seek out additional credit exposure, for example the yield spread above government bonds has tightened from a year ago in addition bond prices in the coming year are likely to get slightly lower, but having said that there is still a lot of demand for assets that have a yield, and it is because of these reasons that it could make sense to seek out high yielding bonds and emerging market credit.

4. Portfolio Diversification

Investors are leaning towards some bonds, some credit and a generally good level of diversification, in an attempt to eek out more return for their levels of risk. This year there is more uncertainty in the investment markets and so any increase in diversification should provide added levels of defence to investor portfolios, against certain markets heading south. This is key of course to getting good long term results, required to stay invested

5. The Active Management Advantage

Active managers seem to be out performing the passive benchmark funds and it looks like they will continue to improve their results in comparison. Over time there is a belief that Active Management does provide more value to wealth management firms clients. Of course it is always important to take into consideration the costs and complexity of active investment strategies over a more passive approach. Different investment products will of course suite the different active versus passive investment approaches.

In 2018 investors should factor in a more volatile market compared with 2017 and expect the unexpected. Certain economies are heating up somewhat and showing increased signs of inflation. This will in turn put pressure on central bankers to raise interest rates, thus adding increased volatility to asset prices, which again supports an active investment management thesis.

Fixed Income Asset selloffs are of course likely to increase as a consequence. Additionally the consensus view seems to be that equities are likely to perform well in 2018 such a view is likely to push prices into unsustainable levels at times, that said the assertion in the investment thesis is that it makes sense to be tilted more towards equities than bonds.

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