Olivier de Berranger

2019 : 20/20

That’s the mark we would give to the financial markets in 2019; the final year of the decade was certainly more appealing than the disastrous 2018.

In 2018, all asset classes – from European to Chinese equities and from oil to corporate and high yield bonds – ended the year down. In contrast, 2019 was a positive year for the majority of these asset classes and the risky ones fared especially well in the final four months; after the summer, all delivered an impressive performance to say the least.

f, at the start of 2019, an investor had been persuaded that the European economy was sinking into an inevitable “Japanification”, in other words virtually zero growth and minimal inflation, they would have felt compelled to invest massively in government bonds. A 20-year French Treasury bond’s performance, for example, was around 20% at the start of September.

If, on the other hand, they were convinced that central banks’ accommodative policies or wage demands were set to cause rampant inflation (a strategy diametrically opposed to the previous one), the investor would have chosen gold or oil. Their investment’s performance would also have hit 20% at the start of September.

And if, setting aside sometimes contradictory economic forecasts, the investor had entrusted their capital to S&P 500 companies, once again their performance would have hovered at around 20%.

Fortunately, the last four months of 2019 largely oftened this unprecedented situation. While gold remained steady and government bonds delivered negative performance (-6.5% for 20-year French Treasury bonds), the stock markets finished the year at a high. As a matter of fact, the CAC 40, dividens reinvested, ended 2019 at a record level, generating an annualised performance of 8.7% over the last 10 years.

“The future is a convenient place for dreams”, said Anatole France. If we wish to achieve a similar performance over the next 10 years, selectivity will become essential in a market of polar extremes. For the first time in 25 years, the top five companies* in the S&P 500 came very close to accounting for 20% of the index’s total capitalisation.

Faced with this real risk of concentration, long-term performance, now more than ever before, will be achieved far from the benchmarks.

*Apple, Microsoft, Alphabet, Amazon and Facebook