After the diverse returns of 2015, 2016, thus far, has been a year of disarming uniformity. Equity markets are all sharply lower with the FTSE 100 entering ‘bear market’ territory as we write, having fallen 20% from its peak in the second quarter of 2015.
In our first update of 2016, we consider the drivers behind the recent sharp declines in share prices and the evolving economic picture in order to re-test our conviction in our recommended asset allocations.
While the outlook did deteriorate in 2015, we find that the current pessimism is overdone. As with Ben Graham’s parable of Mr. Market*, who periodically lets his enthusiasm or his fears run away with him, in our view, investors with long-term time horizons can afford to ignore the current volatility and focus on valuation.