1st Quarter of 2014

The first quarter of 2014 has been rather filled with nervousness amongst investors. After an extraordinarily good 2013 many feared that the equity markets had become overvalued and there was a correction of prices coming. Moreover, many economic and political events worldwide created a negative investment climate. Ukrainian crisis reemphasised the geopolitical risks and instability of the region, whilst the slowing Chinese economy continued to worry investors. More west, investors have been facing the reducing quantitative easing in the US and the growing risk of deflation in the Eurozone. Very uncertain times indeed! Thus the beginning of 2014 will be remembered by the volatile markets and overall relatively modest returns.

MSCI World Index was up +1.2%, S&P 500 +1.8%, MSCI Europe +1.9%, whilst other developed markets like UK and Japan were down (FTSE 100 was -1.3%, MSCI Japan -7.4%). Emerging market equities ended the quarter flat amid various tensions (MSCI EM IMI being -0.5%). Barclays Global Aggregate Index measuring performance of the world bond market was up +2.4%.

Going forward, we expect more volatility but solid returns too depending on the asset class. Equity return expectations are held relatively constant as the global economy is expected to grow modestly and we believe there is still potential in these markets, just one needs to be more selective. Fixed interest should bring similar returns as recently, primarily as there are no changes in interest rates of the major developed world central banks for the time being. Meanwhile, return expectations for alternative investments are generally in line with the prior year. Over the long term we believe that portfolios that contain alternative investments can achieve performance comparable to a portfolio of traditional assets like stocks and bonds, but with potentially less risk.