The FTSE 100 ended 2017 over 7% up from where it started as last year's rather late Christmas rally gave a terminal boost to what would have been a lacklustre performance.
This a reasonable return especially considering the clouds of political uncertainty that have loomed over the markets. By that I mean the General Election result and BREXIT.
Whilst the TV and newspapers tend to focus on the “Footsie,” it is only part of our share market. What we have seen is consistent with research carried out in the USA, that smaller companies outperform larger companies over time. Why? Because the investor is being rewarded for carrying additional risk. In simple terms, a small company is more likely to go pop than a very large one. Diversifying over a large number of companies clearly reduces the risk of catastrophic loss.
The performance of the UK equity market was well below the global average. In sterling terms, the MSCI World Index was up 20.1%. That was not simply the buoyant USA market (just over half the World Index by weight and up 19.4%, as measured by the S&P 500): the MSCI World ex USA was up 21.0%.
It is important to have diversification into the different markets of the world and not to be too UK centric.
Peter Rutherford, Director, Rutherford HughesIn the emerging markets, returns of around 20% was also the order of the day. The MSCI Emerging Markets Index was up 22.72% in sterling terms.
What can we glean from all this?
Firstly, it is important to have diversification into the different markets of the world and not to be too UK centric. Secondly, overweight your mid and smaller company exposure as this will boost your returns over the medium to longer term. Finally, how do you think our strategies are, and always have been, positioned?
Peter Rutherford is a Director at Rutherford Hughes Ltd. He can be contacted on 0191 229 9600 peter.rutherford@rutherfordhughes.com
