As we reflect on the record-breaking year that was 2019, we also take the opportunity to look forward to what 2020 might have in store. In the ‘Q4 Market Commentary’, our investment team provides an around the world look at how different asset classes performed as well as providing some commentary on what should be an interesting year ahead.


Performance – Equities/index and Bonds (Government, Corporate and Index-Linked Bonds)

Returns of UK markets:

  • FTSE 100: circa 2.7%
  • FTSE All-Share: circa 4.2%,
  • UK Corporate Bonds: circa -0.1%
  • UK Gilts: circa -4.4%
  • Index-Linked Gilts: circa -9%


The UK economy in Q4 2019 was in stagnation. The service sector, which accounts for almost 80% of UK economic output, saw all its key indicators (economic data used to interpret current or future investment possibilities) worsen compared to Q3 2019. These indicators remain well below their historic average.


In the General Election on the 13th December, Boris Johnson won a majority of 80 seats, the biggest Tory majority since 1987. This was in part won with the help of a big swing from Labour to the Conservatives in the Leave-voting areas of the UK, with many of these seats gained in historic and long-standing Labour strongholds.

Our view

We are cautiously optimistic that there are signs of the UK market performing well in 2020. The uncertainty around whether Brexit will happen or not has been removed and UK companies remain relatively cheap when compared with other developed markets. We can already see the interest from foreign investors seeking opportunity in the UK. This is a positive sign for the whole market.


Performance – Equities/index & Bonds (Corp & Gov)

The S&P500, an index of 500 large US companies, rose circa 9% during the quarter and circa 31.5% for the year. This was the best annual performance for the index since 2013. Government bonds rose circa 0.5% this quarter and US corporate bonds were up circa 2.8% over the same period.


The US Federal Reserve cut interest rates for the third time this year in October, with the target federal funds range currently between 1.5- 1.75%. Inflation remains around the target of 2%, meaning it’s unlikely the Fed would hike rates anytime soon. Unemployment has fallen to a historic low of circa 3.5% with limited upside wage pressure.


Donald Trump signed a ‘Phase One’ trade deal between the US and China in mid-January. This means that the planned new tariffs will not be imposed, and China has also agreed to increase purchases of US goods, in particular, agricultural products. This news brought optimism into the global markets.

Our View

We expect the US economy to grow further in 2020. However, we do not assume that the equity market will perform as well as in 2019. The performance has been driven by big technology stocks, that have elevated valuations, and we believe the rate of growth in this area will slow down. However, any potential slow down depends on what the US might do to stimulate growth.


Performance – Equities/index & Bonds (Corp & Gov)

The MSCI European Index returned around 5% in the last quarter. The German DAX index was up circa 6.6% and the French index (CAC 40) was up circa 5.5%. The European Corporate Bond Index EURO STOXX 50 CB lost 0.7% during the quarter and the Euro Government Bond Index has fallen 3%.


The market was supported by better economic data from Germany, the announcement of the ‘Phase One’ deal between US and China and the US temporarily abstaining from increasing the 2.5% tariffs on the auto industry to 25%. The new European Central Bank chief, Christine Lagarde, called for a new policy mix in order to address slowing economic growth and weak inflation. With interest rates already at extremely low (negative) levels and with continued bond repurchasing, Lagarde believes it is an attractive time for countries to increase fiscal spending to provide another means to boost growth. Increased fiscal spending is something that might be seen across the globe.


The French economy has been dealing with ongoing public strikes as some citizens protest against pension reforms introduced by President Macron. After 14 years in power, Angela Merkel announced her intention to step down as Germany’s chancellor when her term ends in 2021. Spain held its second general election of the year in November and the victory of Boris Johnson brought Brexit certainty.

Our View

Valuations remain attractive relative to other regions. European equities could benefit from a few tailwinds in the year ahead, including the growing focus on sustainability and environmental, social, and governance (ESG) with investments by both regulators and asset owners. There is also the possibility of fiscal stimulus from Eurozone governments.



Japanese equity markets benefitted from the relative easing of US-China trade concerns when December tariffs were not implemented in favour of a prospective trade deal. This led to the Yen’s slight depreciation against the US Dollar despite the rising tension in the Middle East, allowing for strong gains in Japanese equities with the Nikkei 225 returning 8.7% over the period. The slight move from safe-haven assets led to a fall in the return of Japanese Government Bonds (JGBs), returning a negative 1.2% in Q4.


Japanese economic indicators provide a mixed outlook. Real GDP growth and inflation have rebounded whilst the Purchasing Managers’ Index (an index of the prevailing direction of economic trends in the manufacturing and service sectors) reflects a contractionary manufacturing sentiment. Unemployment remains at an extremely low level, although is not producing the expected inflationary pressure as wage growth edged into negative territory.


In October a scandal involving illicit payments led to the resignation of two ministers, further souring the public image of the Abe cabinet. Abe’s premiership is set to continue until the September elections next year, though public support is waning as suspected cronyism and corruption scandals continue to tarnish the party’s reputation.

Our View

Easing trade concerns and attractive valuations relative to developed peers offer an attractive investment opportunity; however, we are aware of the demographic headwinds that face Japan in the near future. Whilst monetary policy remains accommodative, sectors such as auto manufacturers and financials present a less obvious upside over the coming years, which will likely favour an active investing approach.

Asia Pacific & Emerging Markets


Asian equities recorded strong gains in the last quarter of 2019, as the MSCI Asia ex. Japan rose 10.1% over the period, encouraged by the positive trade news that contrasted the negative outlook in Q3. Russian equities outperformed in Q4, finishing a strong year for the relatively undervalued index, and driving returns of the MSCI emerging markets to 9.54% over the quarter. The US dollar pared gains against EM currencies made throughout 2019, resulting in EM debt returning 2.1%.


Growth momentum in the region has trended lower as global export volumes continue to decline. Accommodative monetary policy is expected to follow, however, this could be subject to change as inflation spiked throughout Q4 in China (4.5%) and India (5.5%). US Dollar weakness continues to underpin Emerging Market outperformance, with many constituents sensitive to the affordability of their dollar-denominated debt.


China dominated geopolitical headlines throughout Q4, as December tariffs were scrapped in favour of a ‘Phase One’ trade deal signed in January. In October, unrest in Hong Kong intensified, as protesters were met with violent force during the 70th anniversary of Communist rule in China. A landslide victory in the November district elections highlighted democratic resistance, which saw several pro-Beijing candidates lose their seats.

Our View

We remain positive in our outlook for emerging markets, as the likelihood of positive trade talks between the US and China increases, we will potentially see the major headwind of 2019 become a tailwind in 2020.  The rise of protectionism has dampened sentiment towards a region that still relies heavily on global exports and globalisation. However, structural shifts within these economies such as urbanisation and the growth of the middle class provide different, but equally attractive opportunities to allocate capital to higher growth markets.

Absolute Return

Performance – Index/IA

The Targeted Absolute Return sector remained almost flat for the majority of Q4 2019, rising only 1% following the General Election outcome on 13th December. Most of the funds that we hold in our portfolios in this sector have comfortably outperformed the index, with returns in the region of 2%.

Our View

The funds within the sector aim to deliver positive returns in “any market conditions”, but despite the name, returns are not guaranteed. The sector holds a variety of funds, with a variety of underlying holdings. We closely monitor the funds we hold in order to make sure that the asset allocation benefits the entire portfolio.



Prior to the election in November 2019, the average house price in the UK was £235,298, and the UK House Price Index stood at 123.41. Property prices rose by 0.4% compared to October 2019 and this represented a 2.2% rise compared to the previous year. After the election, there was a 2.3% surge in the price of property coming to market. This was the largest monthly rise ever seen at this time of year. Further indicators of post-election optimism came in the form of a 15% increase in buyer enquiries and a 7.4% growth in the number of agreed sales. This serves as an indicator of reduced uncertainty following a decisive election.

Our View

Within the commercial property sector, liquidity remains a key issue. December 2019 saw M&G suspend withdrawals from their property portfolio. Brexit uncertainty and difficult trading within the retail property sector, due to ongoing pressure from the popularity of online shopping, led to sustained outflows. The fund was unable to meet redemption requests as a result of its low cash position of circa 5% of the fund. It is important to emphasise that the M&G Fund does not feature in our portfolios. Our commercial property holdings, Aberdeen Standard UK Real Estate Income Feeder and Janus Henderson UK Property, whilst experiencing similar headwinds, have maintained high cash positions (>15%) to meet potential liquidity requirements in the event of significant net outflows. Thames River Property a real estate investment trust in the portfolio continues to perform well. There doesn’t appear to have been a knock-on effect, but we continue to monitor our exposure.



The progress of trade talks between the US and China led to a rally in Global Listed Infrastructure due to positive macroeconomic news. The conclusive UK General Election result also provided tailwinds for the sector. The FTSE Global Core Infrastructure 50/50 Index returned +1.8% over the course of the month, while the MSCI World Index gained +0.6%.

The end of 2019 saw the owners of towers (mobile masts) perform well within the sector, whereas airports did not fare so well with concerns over passenger numbers acting as a headwind. Latin American infrastructure companies performed well over the period. However, concerns over bond yields and high valuations in Australia and New Zealand led to performance dips in these regions.

Environment, Social and Governance (ESG)


The latter part of 2019 saw the Extinction Rebellion protests bring the threat of climate change and the resulting ecological disaster to the forefront of investors’ minds. Whether you agree with their disruptive methods or not, it’s hard to deny that they got the country talking about environmental challenges. The magnified awareness amongst the general public of climate change is reflected by a growing interest in responsible investing. This has led to a shift in the investment landscape.

An increasing number of investment houses are launching sustainable investment products and promoting their efforts to integrate ESG considerations into their existing investment processes. The evaluation of ESG risks has moved from a niche focus into an essential part of analysis for most asset managers. The transition to a climate-resilient economy will only be possible if this trend towards a greener financial system continues. Holden & Partners are proud of their strong history of considering environmental risks and will continue to help our clients in planning for a sustainable future.

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