Manager Commentary

The “Trump Rally” has confounded the bearish predictions contrived by many of the same financial market experts that had precipitately forecasted a sharp slowdown in the UK following the Brexit vote. There has been no mass exodus away from risk-assets. In fact, just the opposite has occurred. Investors have taken a more optimistic view and large-cap equity markets in the US and UK have risen to all-time highs. The outlook for growth remains positive and global GDP has returned to the long-term trend line of 4%. The recovery is likely to be sustainable given that the Chinese economy is growing at an annual rate of 6.70% and the President-elect plans to invest in large-scale infrastructure projects. In December, the MSCI World rose 2.29% and the FTSE 100 gained 5.29% to close the year up 14.43%. The Nikkei 225 climbed 4.40% and the Dow Jones Industrial Average rose 3.34% to finish at the highest level in its 120-year history. The transition to a higher rate environment has begun as the US Federal Reserve raised interest rates by 25 bps and adopted a more hawkish stance. The Bank of England left rates unchanged and reiterated its concern that inflation is set to rise above the target range of 2%. A short covering rally in the US treasury and UK gilt markets supported bond prices and ten-year rates closed at 2.43% and 1.24% respectively. The upward trend for the US dollar continues unabated. It appreciated 2.12% versus the Japanese yen and 1.34% against sterling. Commodity prices increased and the GSCI rose 4.60% with much of the gains coming from the energy spectrum. Light crude oil climbed 8.66% and natural gas surged 11.10% following OPEC’s agreement to restrict output. Looking ahead, further rotation out of bonds and into global equities will be the dominant investment theme in 2017 as inflation returns with a vengeance.