DecemberMarket update and investment risks

The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.

These views are as at the end of December 2019.

The value of investments can go down as well as up. Investors could get back less than they put in.

Please remember that past performance is not a reliable indication of the future performance.


Investor sentiment improved steadily throughout the fourth quarter of 2019 as hopes of a trade deal between the US and China grew. Risk appetite was further boosted by improving economic data and a widely anticipated cut in US interest rates. Most major stockmarkets around the world made gains; in the US, the S&P 500 Index and the technology-laden Nasdaq Index reached record highs. In an environment where investors were prepared to take more risk, the price of Western government bonds fell and yields rose. The oil price ended the quarter relatively unchanged as oil supply from US shale producers continued to grow. Prices were pushed higher from time to time by production cuts and positive economic news. In the foreign exchange markets the British pound strengthened against most major currencies, as the Conservative Party secured a sizeable majority in the December general election.

Equities (or shares)

The UK reacted positively to signs that a trade deal might be agreed between the US and China, as well as to signs of some improvement in global economic data. However, local factors were a bigger influence. Hopes that the Conservatives' decisive victory in the general election might remove the uncertainty over Brexit led to significant strength in sterling. A range of positive features acted as tailwinds for US stockmarkets, including distinct signs of progress in trade negotiations between the US and China, another cut in interest rates, improving economic data and most corporate results being better than feared. European stockmarkets rose in the fourth quarter, extending their gains for the year. Japanese equities rallied strongly in the fourth quarter and were among the best-performing major equity markets globally in local currency terms. In a recurring theme China was one of the best performing markets, supported by expectations that the world’s two largest economies would reach a trade agreement and signs of improving economic activity. 

What do you mean by Equities?

  • Equities are commonly known as "shares". When a fund buys a company share, it is investing in a company and, in exchange, receives a share of the ownership of that company. Shares give two potential investment benefits:
    • share prices may increase as the value of the company increases.
    • companies may pay dividends - regular payments made to shareholders based on how well the company is doing.

What are the general risks of this type of asset?

  • Over the longer-term (over 10 years), equities are considered to offer greater growth potential than many other asset types. However, the value of any investment can go down as well as up and so there is a higher risk of losing your original capital than investing in fixed interest securities (see below).
  • The financial results of other companies and general stock market and economic conditions can all affect a company's share price, and consequently the value of any fund investing in that company.

Fixed interest

UK government bonds (gilts) declined in the fourth quarter of 2019. with the asset class largely reversing the strong gains registered in the summer months. UK corporate bonds proved more resilient than gilts, with sterling credit reacting favourably to the Conservatives' decisive general election victory.

US monetary policy remained a focal point for global bond markets in the fourth quarter. As expected, the Federal Reserve (Fed) confirmed another cut in interest rates in October. However, based on comments from Fed Chair Jerome Powell and signals that the US economy was performing well, investors felt further interest rate cuts were unlikely for now. Against this backdrop, US Treasury yields edged higher. Yields also ticked up in Europe, although they remained in negative territory in segments of the eurozone market. 

What do you mean by Fixed Interest?

  • Fixed interest securities, more commonly known as "bonds", are loans issued by companies or by governments in order to raise money.
  • Bonds issued by companies are called Corporate Bonds, those issued by the UK government are often called Gilts or UK Government bonds and those issued by the US government are called Treasury Bonds.
  • In effect, all bonds are IOUs that promise to pay you a sum on a specified date and pay a fixed rate of interest along the way.
  • Index-linked securities are similar but the interest payments and redemption value are normally increased by a price index e.g. for UK government index-linked securities, interest payments and redemption value are increased in line with the UK Retail Price Index.

What are the general risks of this type of asset

  • On the whole, investing in Government or Corporate Bonds is seen as lower-risk than investing in equities. To date, no UK government has ever failed to pay back money owed to investors. But with Corporate Bonds there is a risk that the company may not be able to repay its loan or that it may default on its interest payments.
  • Corporate and Government bonds are sensitive to interest rate trends. An increase in interest rates is likely to reduce their value, and hence the value of any fund investing in them.


UK commercial property recorded a small positive total return in October and was flat in November, according to property consultant CBRE (December data was unavailable at the time of writing). However, the overall return masks a sharp contrast between Offices and Industrial (where capital and income increased in both months) and Retail (where valuations continued to be affected by negative sentiment). The Retail sector is suffering ongoing structural challenges, as the rise of e-commerce and recent retailer failures have increased uncertainty across the sector. However, some sub-sectors are expected to be more resilient than others. Examples include supermarkets, central London shops and well-located retail warehousing, typically on the edge of urban areas, where occupier demand is holding up.

What do you mean by Property?

  • For our funds we would mean commercial property investment. This generally means the fund is sharing in the returns from the ownership of some buildings (for example, offices and shopping centres).
  • The value of the property may increase and tenants may pay rent to the owners of the building.

What are the general risks of this type of asset

  • Property can be difficult to buy and sell quickly. Fund managers may have to delay withdrawal of money by customers from a property fund until they can sell some of the buildings the fund invests in.
  • The actual value of a property is what someone is prepared to pay for it - an actual sale value. As sales are infrequent, interim valuations are based on a valuer's opinion and may be revised up or down from time to time. This can affect the value of a fund invested in commercial property, with the value possibly fluctuating significantly and could result in an investor not getting back the amount they originally invested.
  • This leads to a number of risks for funds investing in property:
    • Cash could remain uninvested as property assets can be difficult to buy, leading to lower returns than expected.
    • The value of the fund may be reduced if a large number of withdrawals are requested and it is necessary for properties to be sold at reduced prices.
    • There may be delays removing your money from the fund if property cannot be sold.
    • Property fund valuations may be revised periodically, upwards or downwards.
    • Rental income is not guaranteed. Defaulted rent and unoccupied properties could reduce returns.
    • If the size of the fund falls significantly, the fund may have to hold fewer properties, and this reduced diversification may lead to an increase in risk.

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