2017: the year in three charts

Regional winners and losers

2017 was a good year for equity investors. The UK was the laggard but even here, given the relatively high yield London-listed shares offer, total returns were acceptable. The other main regional markets got to similar positions to each other but via different routes. The US was the steadiest performer, as real growth picked up the baton after early Trump-related optimism was tempered by political realism. Europe picked up the pace after the relief of the elections in the first half of the year and was supported by good earnings growth thereafter. Japan was going nowhere until the autumn when an easing of North Korean tension and the re-election of Shinzo Abe boosted sentiment. Asia was the stand-out performer. This might raise alarm bells were it not for the low base the region was starting from. Looking back at the executive summary from a year ago, we were positive on the US, Europe and Japan and neutral on Asia and the UK. Not a bad hit rate.

Source: Thomson Reuters Datastream, as at 31.12.17, rebased to 100

Technology leading the pack: sector returns

At the risk of sounding like a cracked record, it is hard to overstate the importance of diversification in an investment portfolio. Even in a relatively calm year in the markets, with low volatility and supportive growth and policy, the gap between the best and worst performers has been significant. There’s no doubt which sector led the pack in 2017. Technology was the stand-out performer but comparisons with the dot.com bubble are wide of the mark. Despite the fact that technology is finally delivering what it promised two decades ago, valuations are notably more realistic thanks to the sector’s remarkable profitability and growth. Energy had a disappointing year despite the more recent rally in the oil price. Financials had a good second half, buoyed by the prospect of rising interest rates and deregulation. Consumer staples went sideways in the second half as the sector was less favoured as a safe haven in a recovering global economy.

Source: Thomson Reuters Datastream, as at 31.12.17, rebased to 100

Fund picks: beating a benign market

The past year certainly provided benign conditions for investors so it would have been disappointing if the year’s fund picks had not done pretty well. The thinking a year ago was that growth would accelerate in the US, so two of the four recommended funds had a bias towards the world’s largest stock market. Old Mutual North American explicitly so; Rathbone Global Opportunities thanks to its heavy US weighting (around 60%). Higher growth expectations also informed the choice of Fidelity Special Situations, although the market stuck with its preference for more defensive plays for much of the year. Schroder Tokyo came good later in the year, rewarding our support over two years among our fund picks. With some of this year’s growth undoubtedly brought forward into 2017, it would be wrong to expect a repeat performance in 2018. Our picks for the next 12 months can be found on here.

Source: Thomson Reuters Datastream, as at 30.11.17, rebased to 100

Past performance is not a reliable indicator of what might happen in the future. When investing in overseas markets, changes in currency exchange rates may affect the value of an investment. Reference to specific securities or funds should not be construed as a recommendation to buy or sell these securities or funds and is included for the purposes of illustration only. For full 5 year performance figures please see Market Data.

Acknowledgements
I would like to thank the many knowledgeable and experienced people within the wider Fidelity organisation who have helped me develop the ideas in this Investment Outlook. Although the views expressed here do not represent the shared opinion, or house view, of Fidelity's investment team, the combined expertise of over 380 investment professionals in 13 countries is a very significant resource on which I have been able to lean. In particular, I would like to thank Adnan Siddique, Senior Investment Writer; Paras Anand, Head of European Equities; Richard Lewis, Head of Global Equities; Toby Gibb, Investment Director, European Equities; Jeremy Osborne, Investment Director in Tokyo; Tim Orchard, Head of Asian Equities in Hong Kong; Natalie Briggs, Investment Director, Emerging Market Equities; Matthew Jennings, UK Investment Director; Curtis Evans, Investment Director in our London-based Fixed Income team and Neil Cable, who heads Fidelity'’'s Real Estate investment team.

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