Read our full Quarterly Investment Outlook

Following a flat third quarter, global equities rallied to the end of the year with the MSCI World index up over 7% in local currency terms. Returns for unhedged Sterling based investors were broadly flat as the Pound strengthened following the Conservative’s decisive general election victory. The late final rally was primarily driven by renewed optimism for a ‘phase one’ trade deal between the US and China, and left global equities up 25% for the year. It is of course important to note that, by contrast, markets ended 2018 in very pessimistic mood as the Fed continued to raise interest rates, and therefore a global equity return figure of around 8% from September 2018 is a more useful measure of equity returns.

Although uncertainty remains over the direction of Brexit, our Investment Committee decided that the definitive outcome of the election is likely to spur greater investment, making UK equities a more attractive proposition at current valuations. As such we have initiated a position in UK small-cap equities, moving marginally overweight equities as a whole, reducing cash and gold where we have been overweight. The decision was also taken to switch from index-linked gilts, which have performed extremely strongly in recent years, and instead purchase conventional gilts.

David Baker, CIO