Political storms, economic calm

Saunderson HouseThe last 12 months proved to be a period where it would have been advisable to observe the turmoil in world politics with detached interest and under no circumstances attempt to alter one’s investment portfolio in response. In the link below, we discuss how our recommended asset allocations changed in response to the political turmoil over the year and consider the performance of the model against both its peer group and industry comparators.

Prior knowledge of the UK electorate’s intention to vote for Brexit and of Donald Trump’s unlikely but ultimately successful bid for the US presidency would have tempted all but the most hardened investor to pack up his portfolio and head for the safety of cash or government bonds until the dust settled. While understandable, such action would have caused the investor to miss a very good year for markets. The explanation for this disconnect lies, for UK-based investors, in developments in foreign exchange markets and more widely in an improving economic picture. Gains for UK-based investors were, in some considerable part, driven by the sharp fall in the pound in the wake of the referendum. This boosted both the value of holdings of overseas assets, and the value of foreign earnings of UK listed companies. Meanwhile, the election of the populist Donald Trump to US presidency also acted to fuel optimism in markets, as investors decided to ignore his many anti-market policies and focus instead on promises to boost growth through tax cuts and infrastructure spending.

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