2018 Recap of the Markets
“May you live in interesting times” So, says the Chinese curse.
2018 was in so many ways an interesting year for investment professionals. The economies globally seemed to be in good shape at the start of the year and equity markets showed strength and confidence. Markets were further boosted by President Trump’s tax cut — perhaps akin to throwing fuel on a fire. The hope was that the tax savings would be passed onto corporates and individuals leading to genuine reinvestment in businesses and goods. This would then push the economy to higher highs. But sadly, it didn’t entirely succeed as excess monies seemed to go into stock repurchase programs instead.
The bond markets also believed that the move in rates upward was on and this was borne out by the Fed duly hiking interest rates as a precautionary measure to slow down the “runaway growth”. In fact, in 2018, the Fed hiked rates on four separate occasions. Yields on 10-year US government bonds moved from 2.00% to 3.25% during Trump’s reign so far and looked to go even higher. The global markets midway through 2018 looked rosy indeed!
Then, bitter realities began to show themselves as the trade wars began to concern the global market; especially the ongoing tussle with China. Global economic stability started to look a lot less stable and cracks began to appear. The continued political circus in Washington also exacerbated the global fears. The incessant bickering between the two sides of US politics, the ongoing Mueller investigation and subsequent report, Brexit confusion, the concerns surrounding North Korea, Iran and Syria add to the uncertainty. Extreme volatility has crept into the daily trading vocabulary. Few currently have a good grasp on where we are going.
For Kensington, it is very much business as usual as we for the most part work to avoid the public market swings. Our focus on the private marketplaces has paid off handsomely in 2018 for our investors across our various alternative products:
Since Kensington’s inception nearly 23 years ago, we have striven to make private markets a growing part of investors’ investment portfolios. We strongly believe that an investor program with an allocation to private products will consistently outperform public market risk weighted returns. We see that the lead taken by many of the world’s largest investors to have healthy allocations to private investments (see below) has provided superior returns over many years. At Kensington, we have been articulating the potential for higher returns with lower volatility through allocations to Private Equity, Venture Capital, Hedge and Mortgage products for many years. More and more investors are beginning to hear us.
We do not believe that allocations today are “too late” to benefit from alternative asset performance. Kensington has a long-term view and believes that over the long run, outperformance will continue.