We need to start this month’s commentary with the acknowledgment that we were completely wrong last month. We thought at the time that “conditions may be met for the notorious “Santa rally” to take place…at least outside of the UK”. As it turned out, this could hardly have been further from the truth. Not only did the Santa rally not occur but global equity markets saw their worst month in 8 years. After having outperformed for months, the damage was focussed this time on the US which was down more than 15% at one point and saw an extraordinary succession of 10 consecutive down days in the run-up to Christmas. Although this was followed by a strong rebound on Boxing Day (which isn’t a bank holiday in the US), it still left US equities down 9% on the month and down for the year. The drivers of this sharp correction varied from economic ones (the US Federal Reserve raised rates for the fourth time in 2018 and dampened expectations that it would slow down its pace of hiking soon) to political ones (ongoing trade tensions between the US and China and US government shutdown) interspersed with the obligatory presidential tweets.
Although we didn’t foresee the succession of events above and their impact on markets, we have avoided direct US equity exposure in the fund all year due to stretched valuations. Global returns in December are quite telling in that respect because the US didn’t drag the rest of the world down with it. In a traditional risk aversion move, this would tend to be the normal market reaction. So far, it appears instead that the most expensive market had a much-needed correction, bringing it more in line with the rest of the world. This adjustment could also be the reflection that the US exceptionalism observed in 2018 might be coming to an end.
In terms of our other predictions, we had been expecting increased volatility in 2019 and, despite an earlier start than anticipated, this forecast is certainly proving right for now.

In the context described above, the TB Wise Multi-Asset Growth fund was down 2.2% in December. While this is certainly a disappointing month in absolute terms, it outperformed both its benchmark, the Cboe UK All Companies, down 3.7% and its peer group down 4.3%. Our underweight in US equities relative to our peers certainly helped our performance. It was also good to see that the defensive positions in the portfolio helped in limiting the downside, particularly our position in gold via the Merian Gold & Silver and the BlackRock Gold & General funds, which proved their value as a hedge, up 8.5% and 9.5% respectively this month.
On the negative side, unsurprisingly given general concerns about global growth and valuations, our worst performers were at the more expensive end of the market, namely technology (Herald Investment Trust, HG Capital Trust or Woodford Capital Trust) and/or growth strategies (TR European Growth or Schroder UK Mid-Cap). We still believe that this selective subset of our portfolio offers exciting upside potential and are comforted by the attractive historical discounts the funds trade at.

For 2018 as whole, the TB Wise Multi-Asset Growth fund was down 4.3% compared with the Cboe UK All Companies index down 9.8% and its peer group down at 6.6%. As shareholders ourselves, we don’t take any satisfaction in delivering negative returns. It is comforting though to see our fund in the top 25% in its peer group over what has been a very difficult year. Of even more significance to us, over 3 years, the fund is the top performer in its sector, outperforming the broad UK equity market by close to 23%.
On this note, as 2018 draws to an end, we would like to thank all of our investors for their support and wish you a very happy new year!

Vincent Ropers 31 Dec 2018
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