‘Twice and thrice over, as they say, good is it to repeat and review what is good’ – Plato
As this will be the last of these Dynamic Opportunities Fund weekly updates this year it is a good time to think about what we have learnt as investors throughout 2017 and especially since the mid-September launch of the Fund.
First, the UK stock market is out-of-favour…but there is hope. We have remarked many times that the leading global investment sentiment surveys have consistently throughout 2017 identified the UK as the area where pessimism has been the greatest. And yet…opportunities have presented themselves during recent months – and we believe will continue to present themselves looking into 2018. The rise in DixonsCarphone shares following an update which highlighted a difficult mobile phone retail market (but a solid electrical goods market) illustrated nicely that much scepticism is currently factored into UK share prices where the twin spectres of Brexit and domestic political intrigue continue to linger.
This is why the largest individual current geographic allocation for the Fund remains the UK.
Second, we have observed how polarised the current global stock markets are. Leaving aside the current mania around bitcoin, the enthusiasm towards the technology sector has been a sight to see during 2017. We too shared some of that enthusiasm earlier in the year but price appreciation had already taken anomalously cheap share prices into much firmer territory by the time we formally launched the Fund. There will be a time and a place to buy shares in companies who are at the forefront of the ongoing information and internet revolution but our current view is that it is not yet. By contrast we are finding better opportunities in other sectors including consumer, industrial and energy.
We remain very committed to sector diversification as we search for opportunities to invest in.
Third, a change is slowly crossing global financial markets. The lengthy era of very low interest rates and Central Bank stimulus activities is edging closer to an end as both the Federal Reserve in the US and the European Central Bank start policy evolutions. Whilst the Bank of England is likely to remain largely on the backburner in 2018 the overall impact around the world may well result in higher bond yields. This is an environment where the lowly volatile and near-euphoric background many global financial markets have existed in throughout 2017 (and for some time before) will slowly change. Politicians will have to step up and provide new policy ideas and leadership. From an investment perspective we believe the world is moving further away from a ‘buy and hold’ mentality to one which has to appreciate change.
This is why we believe our strategy of looking for shares that are anomalously cheap is well-suited to today’s backdrop.
Overall we look into 2018 with hope and faith and would also like to take this opportunity to thank you for your support and to wish you a Merry Christmas and a Happy (and successful) New Year. The next weekly update will be published on 8 January.