- December was a strong month for equity markets with many regional markets reaching new all-time highs. The global equity growth portfolio returned 3.3% bringing full year performance to 30.1%
- Eli Lilly and Company, Shenzhou International and Tencent Holdings Limited were the best performers during the month, all rising over 10%
- Cyclical sectors performed particularly strongly during the month, as did UK equities on the back of a decisive win by the Conservative Party in the British election. This was favourable for the newly established FTSE 250 index position.
Eli Lilly and Company, Shenzhou International and Tencent Holdings Limited were the best performers during the month, all rising over 10%. We believe that the research and development productivity of Eli Lilly and Company is beginning to be better recognised by investors along with their diabetes treatment franchise. The company will continue to benefit from rising global income per capita leading to co-current increases in obesity and hence diabetes. New holding Shenzhou International, the maker of sportswear for major brands, responded positively to surprisingly good results from Nike. The UK election result was favourable to the newly established FTSE 250 index position.
During the month trading activity was limited and there were no significant disappointments.
2019 saw particularly strong equity returns. The majority of these returns came from multiple expansion 1 rather than from earnings growth. The view that the equity market climbed a “wall of worry” seems fitting. Unease surrounded both the USA-China trade dispute and global economy. While something of a roller coaster throughout the year, USA-China trade talks look to have been positive with the announcement of phase one of a trade deal in principle. The response of Central Banks to disappointing economic data has been to continue easy monetary policy. In our view rates will remain low for even longer. Governments are likely to introduced fiscal measures if economies are not sufficiently stimulated.
The equity market bull run that started after the financial crisis is now one of the longest seen historically. Over the long term returns from investing in equities ought to follow underlying returns generated by businesses. After such a strong year of equity market returns in 2019 it is natural for investment houses to caution against expectations for such strong returns to continue. In the absence of unexpected macro disasters and gross overvaluations, that we seek to avoid, the environment for equity investing actually remains very positive. Some of the biggest returns from the equity market typically come in the run up to any market correction.
1 Multiple refers to the prices paid for companies relative to a measure of their profits. For example one of the most commonly used is the Price/Earnings ratio. Typically higher growth companies command higher multiples than lower growth companies. Multiple expansion refers to the increases in the amounts paid per unit of earnings.