Money Matters

That was 2013

With 2013 behind us, and the New Year stretching out ahead, time for a look back at the experience of last year and the possibilities for 2014. I think that it is fair to say that last year was quite a successful one for investment markets. The FTSE100 closed up 14.4%, but with the addition of dividends, this rises to 18.7%. On a similar ‘total returns’ basis, the FTSE250 ended up 32.3% and the All Share, 20.8%. All very creditable, especially when compared to a static Bank Base Rate of 0.5% and the best of the High Street saving accounts struggling to return as much as a couple of percent.

Looking swiftly around the world, the US Dow Jones Industrial Average finished the year up by 29.64% on a total returns basis; in Japan the Nikkei was up 51.1% (the second best return); and the Eurostoxx 50, up 17.95%. The best performing index was in Venezuela, where the local index was up by 452%! To be fair, there are only 15 quoted stocks, and it is a difficult market to access. By way of contrast, the leader of the laggards was Turkey with a total loss of 32%. Indonesia lost 26% and Brazil 18%. Interestingly, there has long been a school of thought – amongst the more adventurous investors – that the worst performing indices or asset classes are worth a little punt, as there is often an improvement in fortunes over the next year or two. There have been notable exceptions however, Japan being a classic example, having suffered a number of dire years, from the end of the eighties, through the nineties, and into the early noughties.

As regards other asset classes, the big losers were commodities, with the relatively parlous state of world economies. It may seem that there should be quite a bit of economic growth given the increase in world equity prices, but one should remember that markets tend to be very forward-looking and do not necessarily reflect the current situation, concentrating instead on what is perceived to be coming in the next 12 months or so. Whilst there has been economic growth in many regions, demand for many commodities is nowhere near what it is during economic boom times. In fact, were it not for the continued growth in China, things would be much worse. The rate of growth there, however, is somewhat lower than it was a few years ago.

Gold, having been a great winner in recent history, had a pretty shocking year and for the first time in 14 years, it has lost investors money. Whatever the figures, the best strategy is considered to be a balanced portfolio with a broad spread of geographical areas and asset classes. For the future, it seems that 2014 may well be another decent year for investors, but with reservations. The US economy may have improved somewhat, but President Obama still has a job on his hands with the infamous Fiscal Cliff. It is still reasonable to say that “when the US sneezes, the world catches a cold”, so if the fiscal can of worms can be kicked further down the financial freeway, then we can probably enjoy continued investment returns.

David Foot

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