What a great year for fund managers, or possibly not. If surveys of cash levels held by fund managers during the year are anything to go by, the investment community have continued to lack trust in the rally in stock markets. At the start of the year fund managers were also sure of the view that, despite the widening valuation gap between the growth and the value sectors, the belief inflation was dead meant that growth was the place to be invested. The outlook for global mining companies was so bad, one prominent hedge fund manager thought there was a real possibility of a major going bust. In the end these companies rallied hard, Anglo American rising five-fold. Rio almost doubling in value. Then came the rally in banks, another move that caught many fund managers offside.
The next one to vex the poor fund manager may be the oil sector. October’s Merrill Lynch fund manager survey had suggested money managers had been buying into metals, but were still believing the oils offered limited upside. This view appeared to be confirmed as the oil price and the underlying stocks failed to take part in the post Trump “Growth Rally”. Just as fish change direction at the same moment unit, so do fund managers. On Tuesday, a surprise rally overnight in the oil price, left fund managers waking up keen not to be caught on the wrong side of yet another move. Mining shares were dumped; oil shares were bought. There was a 7pct swing in one day between the share price in Rio and that of Shell, two of the individual sector’s majors.
As well as a sharp reversal in the oil price trend, the bond proxy sectors, as they are attractively termed, due to their enhanced yields had a better day post a weaker than expected UK inflation report. These sectors have recently been under the cosh as fund managers have been reassessing their growth expectations. Consumer Price Index rose in October by 0.1%, below the expected 0.3% increase. This was also a fall from the previous months 0.2%. The core CPI, which strips out the impact of food and energy year on year also rose less than anticipated. Sterling gave back some of its recent gains, as it took a little pressure away from Mr Carney having to reverse his recent rate cut decision.