Let it snow, let it snow, let it snow

‘Oh, the weather outside is frightful
But the fire is so delightful
And since we’ve no place to go
Let it snow, let it snow, let it snow’

As I am sure almost all of you know, the above lyrics form the first verse of the popular Christmas song “Let It Snow! Let It Snow! Let It Snow!” What you may not know is that the song was written by lyricist Sammy Cahn and composer Jule Styne in July 1945 in Hollywood, California during a heat wave as Cahn and Styne imagined cooler conditions. It also is a popular Christmas song that…makes no mention of Christmas.

This all popped into my head as I survey the wintery scene outside the window of the room I am writing this in.  The landscape looks wonderfully different with earth, grass and pathways covered so systematically you cannot tell what is beneath.  It sure looks beautiful though and fun…for a while.

When we look back on 2017, it will be on a year which has lived up to almost all of the excitable financial market expectations.  Most stock markets are higher and the world index has racked up an unparalleld run of eleven successive monthly gains this year.  At the time of writing you would not bet against Santa Claus providing the necessary magic to supply a twelfth in just under three weeks time.  Bond investors typically may not have seen the gains of the last few years but especially longer maturity and corporate bonds typically made some price gains that augmented coupon payments.  And let us not even get started on the subject of art prices or bitcoin.

If I put my rational hat on I would talk about the positive risk environment influence of the lower US dollar and how this helped to rebalance global investor perceptions towards Continental Europe and the emerging markets and pacified any near-term threats of the new US President from kicking off a trade war.  And on a similar theme I would observe that those great fears of European populism or overt Chinese economic and political challenges have not come to the fore.  Whilst North Korea attempted to be provocative and the UK suffered a barely conclusive General Election and Brexit discussions that only seemed to periodically take two steps forward to counter the one step back, the financial markets shrugged off such matters.

Optimism is certainly back and, in the usual form of such matters, some hope leads to greater hope with talk of ‘goldilocks scenarios’ of synchronised global economic growth.  Part of me wishes such unguarded optimism will turn out to be true because it usually makes investing life easier.  However the difference with a year ago is that I am struggling to find many situations where I can live up to Warren Buffett’s famous advice of being greedy to buy investments because others are fearful.  Certainly – as discussed in previous weeks – UK-centred investments remain a significant proportion of the Dynamic Opportunities Fund because of the current high fear of the impact of the ongoing Brexit discussions.  To put it in winter weather terms blizzards are set to sweep the UK for the whole of next year whilst many other geographies and asset classes are set to have a Christmas card perfect backdrop.  The truth probably lays somewhere close to the middle of these two scenarios especially as the world’s central bankers are slowly getting more Scrooge-like.

The wise investor should treat the financial markets in 2018 a bit like driving or walking in the snow.  Be more careful than usual, acknowledge the landscape has changed but ultimately do not feel compelled to stay indoors.  There is a beautiful world out there to explore still – even if it snows a little bit more.

Chris.bailey@danielstewart.co.uk Chief Investment Officer Dynamic Opportunities UCITS Fund