Following on from an eventful but rewarding 2017, what could possibly go wrong in 2018?!
In 2017 there was concern about Brexit and President Trump. This year my concern is interest rates. Not that I expect them to go shooting up, just that the powers that be might hike them a little too quickly thereby killing the good economic conditions.
Perhaps we should be worried about Kim Jong Un and Amazon? Possibly, although surely the world will learn how to contain North Korea and surely he does not have a death wish?
Amazon is here and so far so good.
Looking to 2018, the world looks in very good shape. My view is that 2018 will be a year for sticking to your investment strategy. And, that it may be time to consider buying bonds and fixed interest, as the cash in your portfolio increases.
In other words, reduce the risk in your portfolio in favour of steady gains, not by selling the growth assets of shares and property but by buying bonds and fixed interest, as the income from the growth assets builds up your cash account.
Australian Shares
- Last year some of the big detractors within your portfolio were in the industrial sector; Telstra down heavily, retail down heavily (more about confidence than Amazon), Media down heavily and banks pretty much a flat line.
- Resources did well; BHP, Galaxy, RIO up.
- Wage growth is still subdued, a puzzle as we have low unemployment.
- The Reserve Bank of Australia (RBA) is likely to increase rates.
- Finding value in Australian shares is difficult. Possibly consider Retail Food Group, Amcor, AGL and Stockland. For those who like gold mining with risk, Evolution Mining. As you know I do not generally favour gold stocks other than Newcrest.
- Also worth looking at Ramsay for health care exposure and Brambles as I expect the US dollar to strengthen against the Aussie dollar.
International Shares
- The world is looking good especially emerging markets which had a good 2017.
- America up, Europe up, Japan up, the UK up during 2017 and likely to continue.
- Do we have a goldilocks, (not too hot and not too cold) global economy for 2018?
- I remain optimistic for 2018. Companies that can benefit from higher interest rates will be the winners.
Property (Commercial)
- Still likely to offer yield only on listed Real Estate Investment Trusts.
- Possible exception to this is well targeted direct property trusts with reputable managers. Beware the liquidity trap with direct property trusts.
Interest Rates
- Expect increases generally globally.
Last year I said that the UK Pound will likely improve in value, as the terms of Brexit become clearer. Stocks like CYBG PLC, (the Clydesdale and the Yorkshire Bank), Wesfarmers and Henderson, should all benefit from this.
During 2017 CYB was up approximately 19%, Henderson approximately 25% and Wesfarmers approximately 6.5%. Nice to get a prediction right but it was a good year!
I also said stocks with US dollar exposure, Macquarie Group, Amcor, Brambles and CSL should benefit from the Trump effect.
During 2017 Macquarie up approximately 13%, Amcor basically flat, Brambles down approximately -20% and CSL up approximately 39%.
I continue to recommend, as I did last year, to hold banks for yield and buy health care. This year I also recommend that you build up bonds and fixed interest.
Ramsay health has had a small loss during 2017, basically flat. As mentioned earlier, worth considering as the world ages. Ramsay has exposure in the UK and Europe as well as Australia.
I look forward to our next meeting and as always please feel free to contact me any time.
Yours Sincerely,
Steve Burge