New Year's Resolutions

For many, the New Year is a time for change, a time to rid yourself of the previous year’s sins and a time to pick up some good, new habits.

Charles Younes, research manager at FE, shares his thoughts on three investment habits to pick up and fads to avoid in 2019.

The trend is not your friend

When it comes to positioning your portfolio for the year ahead, it’s not always the best idea to model your choices on the previous year’s winners.

The IA Technology and Telecommunications sector had a stellar 2017 with the sector’s average fund giving its investors a return of 23.80 per cent, while 2018 has seen the sector produce an average of 0.09 per cent.

Younes comments: “While academics have tested and proven the momentum effect (investing in market trends), it doesn’t mean that following the trend from one year to the next always works. Academics have identified certain seasonal market inefficiencies, such as the January market rotation, that prevent trends from persisting year after year.”

The dash for cash

While many are abstaining from alcohol in the pursuit of a ‘Dry January’ in the New Year, Younes advises investors to think carefully about giving up alternatives to cash.

This year, cash has generated a positive return of 0.43 per cent but both gold and UK gilts have performed better, up 3.04 per cent and 1.01 per cent respectively.

Younes comments: “Cash was one of the best-performing asset classes in 2018, as almost all other asset classes recorded losses. But this doesn’t mean that investors should give up on investing in a diversified portfolio. Amidst the global equity sell-off, we have seen the return of safe-haven asset classes over the last quarter of 2018 with government bonds and gold performing pretty strongly.”

January Sales - be wary of attractive valuations

In the face of political uncertainty and underperformance, investors are continuing to shun UK equities. As a result, there are some cheap price tags to be found but Younes advises to approach them with caution.

Since the Brexit referendum in July 2016, the FTSE World ex UK has returned 32.35 per cent while the FTSE All Share, a proxy for UK-listed companies, is down more than 10 per cent on that figure, at 19.42 per cent.

Younes comments: “UK equities are trading under their long-term average, but political uncertainty makes the asset class unattractive for foreign investors - a situation similar to that of European equities during the debt crisis. As long as the political gridlock remains, we don’t see any upside from this asset class.”

For more information or additional data points, please contact the FE press office at: James.Hoey@financialexpress.net