No one can be sure what lies ahead, yet the beginning of the year is always littered with forecasts. I find these predictions often provide clues as to what not to expect. If a trend appears in the papers I habitually make an effort to take the opposite view.
The early days of 2017 look and feel much the same as last year in terms of pessimism. Headlines herald recent stockmarket highs as proof we are heading for a fall. Who knows, they could be right: 10 or 20 per cent corrections are relatively commonplace. However, it is worth remembering these same commentators shouted similar messages when the market reached previous barriers of 5,000, 5,500, 6,000, 6,500.
US interest rates dominated many predictions and forecasts. I would be very surprised if the Federal Reserve were to hike interest rates four times over the coming year, as many analysts suggest. There is no need. A strong dollar and rising bond yields have done much of the job a rate rise could be expected to achieve.
UK rates generally move in line with those in the US but the uncertainty caused by our decision to part ways with the European Union now makes this less likely. That said, I would hope to see a reversal of the rate cut the Bank of England made following the referendum.
As for Brexit, no one knows how it will play out – least of all the Government. The most beneficial outcome would be to stay in the European Economic Area. This would allow us to remain in the single market but have selective control over EU immigration and negotiate trade deals with the rest of the world. If this were to occur, I would expect sterling to strengthen considerably.
Unfortunately, our focus and worry over future events is not confined to the first few weeks of the year. The Dutch, French and German elections occur over the next few months and will undoubtedly be analysed ad nauseam.
Advising for uncertainty
So what is the humble investment adviser to do? Most important is to accept an obvious truth: stockmarkets and currencies are near impossible to predict. You might be lucky and correctly call the outcome but there is harsh punishment for making big calls and getting it wrong.
It is very important not to try to appear too clever in front of clients. It has a habit of showing you up later down the line.
A far more sensible approach is to ensure the client has a foothold in most areas and a good spread of management styles. Growth strategies have flourished for the past few years, with funds such as Fundsmith Equity reaping the rewards until recently.
Value has been making a comeback, particularly over the past few months, and funds such as M&G Recovery have returned to strength. Investing with experienced managers means they are much less likely to panic at the sight of trouble and best placed to pounce when their style comes back into favour.
I often cite equity income as the solution to most investment problems and I make no apology for that. Given UK interest rates are likely to change very little over the next few years, UK and global income funds should sit at the heart of most portfolios, particularly when exceptional investment trusts such as Edinburgh Investment and Standard Life Equity Income can be bought at a discount – a sign there is no euphoria.
Finally, alongside a balanced and diversified portfolio, I like to make a few speculative investments in areas that have been left behind and present good value.
For example, Marlborough’s Nano Cap fund has experienced a few boring years and could be set for a vintage 2017.
Mark Dampier is head of research at Hargreaves Lansdown