EDITOR'S LETTERMerryn Somerset Webb
When we look back on 2016 in a decade or so, I suspect we will see it as a turning point. Not a year in which much actually happened, but one in which an awful lot of things began to happen. The UK voted against staying in the EU; the US voted against the political status quo; and Italy voted against Renzi.
But note the “against” bit. We know what we don’t like. But we aren’t 100% sure what we think we do like. Next year things might be a bit clearer. In the UK, clearer means understanding more about how Brexit/Brenaissance will work. John Stepek and I are beginning to think that we would like the UK to take the most simple way possible out: we’d like Theresa May to notify the EU of our intention to leave (Article 50, clause 1). And then we’d like to just leave (ignoring the two-year negotiation bit). More on this in our cover story where we’ve had a go at explaining exactly how all the options may pan out.
In the US, clearer means seeing what Trump might actually do. So far a Trump presidency, rather like a Brexited Britain, has been no more than a vehicle on to which commentators have projected their own hopes and fears. Next year we will find out what it really means. We might also get more of a hint about how soon the EU will start on its path to its inevitable disintegration.
This isn’t just about the UK. Italy isn’t happy. Greece certainly isn’t happy. And elections in France and the Netherlands early next year should show us just how unhappy their populations are too.
So what does all this politics mean for markets? Look at how the big indices have performed this year and you will see more evidence that less has happened than you might think. For all the fuss over “unprecedented” events around the world, stockmarkets have had a pretty workaday year: most of the major ones are up 7%-10%. I can’t see 2017 being as normal-looking. Rising inflation and rates could change a 30-year dynamic in the markets – as could trade wars, tax changes and, in the UK at least, a political shift against the excesses of big business. This year felt exciting. Next year might actually be exciting.
How do you invest with that in mind? We will be answering that question in detail in the first issues of the year. But the short answer is: “with a good margin of safety”. You can start by turning to page 18 where we look at Miton Global Opportunities, a fund that looks for – and often finds – the few pockets of value left in the global markets. But if you just want to keep things safe and simple, you can always divide your money between the six trusts we hold in our investment trust portfolio (Caledonian, Scottish Mortgage, Finsbury Growth & Income, Personal Assets, RIT and Law Debenture). They have returned an average of 12% this year so far. A very happy Christmas and New Year to all our readers.