Despite 2019 starting with investors worried about a host of concerns – Brexit and the US-China trade being just two – it actually ended up being one of the strongest years of the past decade for stock markets. 
Below, Trustnet looks at the returns made by various asset classes, investment styles and fund sectors over the course of another year in the ongoing bull market.
Asset classes
As noted above, global equities have just had a strong year with the MSCI AC World index achieving a total return of 21.52 per cent, in sterling terms. Risk assets rallied after global monetary policy began to loosen rather than tighten and worries such as the US-China trade war and Brexit started to have a rosier outlook.
Oil had a significant bounce last year as Brent crude went up around 24 per cent and West Texas Intermediate gained about 36 per cent. Oil rose on the back of a combination of production cuts and the improvement in US-China trade relations.
Performance of asset classes over 2019
Source: FE Analytics
But Craig Erlam, senior market analyst at OANDA, questions how long this rally can continue: “Naturally, the trade deal has been supportive of the rally we've seen over the last month or so but with that almost fully priced in by this point, the bullish case for crude may be waning. We may need to see that economic optimism turn into better data before we see more substantial gains.”
The chart above shows that volatility declined strongly in 2019 as the market went through another bull year. While the VIX specifically looks at the implied volatility of the S&P 500, a similar trend was seen on the global stage with the MSCI AC World’s volatility dropping to 9.49 per cent in 2019 – down from 12.12 per cent in the previous year.
Geographies
Drilling down to the major stock markets, the chart below shows how 2019 was a pretty good year for most regions despite the global nature of some of the worries that preoccupied investors at the start of the year.
However, it was another year where the US led the pack – with the S&P 500 gaining 25.65 per cent in sterling terms. While the US is working through its trade war with China, the country’s economy remains strong when compared with its peers and the Federal Reserve bolstered investor sentiment by lowering interest rates.
Performance by geography over 2019
Source: FE Analytics
The FTSE All Share had underperformed a lot of its international peers for much of 2019 as investor sentiment remained weak thanks to uncertainty over Brexit and the risk of a left-wing Labour government. However, there was a late rally in the home market when the Conservatives secured a strong majority and the FTSE All Share ended the year on a 19.17 per cent total return.
Emerging markets were the laggards once again but the MSCI Emerging Markets index still posted a 13.86 per cent total return. Individual markets had a very strong year indeed – Russia equities gained around 45 per cent and Brazil made 21 per cent for sterling investors.
Investment style
Last year saw a growing number of investors talk about the possibility that the value style of investing will eventually start to outperform growth.
Value has been outpaced by quality/growth for much of the post-crisis period after ultra-loose monetary policy and continued investor nervousness drove money into ‘bond proxy’ stocks that have reliable earnings and solid dividends rather than more risky, cyclical names.
Performance by investment style over 2019
Source: FE Analytics
There were several months in 2019 when value outperformed by a decent margin, although this wasn’t strong enough to put the style on top for the entire year. The MSCI AC World Value index made 15.93 per cent, while its growth counterpart was up 27.60 per cent and quality by 29.87 per cent.
That said, there are several investors who have argued that value has underperformed for so long now that a significant reversal of this trend must be on the cards at some point – although the question remains over exactly when this will take place.
Industries
On the global equity stage, the clear winner last year were tech stocks – the MSCI AC World Information Technology index made a total return of 41.22 per cent (in sterling terms), compared with the 21.52 per cent in the broader MSCI AC World.
Technology has been one of the strongest performers in the decade since the global financial crisis, posting a gain of 395.12 per cent over the past 10 years as investors flocked into stocks such as the FAANGs (Facebook, Apple, Amazon, Netflix and Google-owner Alphabet).
Performance by MSCI industry over 2019
Source: FE Analytics
Commenting on the strong 2019 for tech, GAM Investments senior analyst Amanda Lyons said: “Both software and storage were drivers for the outperformance as companies continue to move away from legacy software and shift towards the cloud. This in turn has led to increasing demand for storing data and memory.
“This trend is not limited to 2019 and we believe is set to continue. Survey work indicates that IT budgets continue to rise as businesses replace outdated technology.”
While tech led the pack in global indices, in the UK it was financial services that made the highest total return of the FTSE industries, gaining 41.73 per cent. It was followed by technology (up 33.65 per cent), industrials (30.94 per cent) and healthcare (28.28 per cent).
Market capitalisation
As the chart below shows, UK mid-caps had the strongest showing in 2019 when compared with large– and small-caps, after the FTSE 250 made a 28.99 per cent total return. The FTSE 100 was up by 17.32 per cent over the year.
Performance by FTSE market cap over 2019
Source: FE Analytics
Recent years have seen investors take a cautious stance towards UK small– and mid-caps after the Brexit result scared many away from stocks with a heavy exposure to the domestic economy.
But the chart below – which shows the performance of the FTSE 100, 250 and Small Cap ex Investment Trusts indices on a quarterly basis – reveals how these areas went to being very much in-favour after a degree of certainty was created by the Conservatives winning a majority at the end of the year.
Performance by FTSE market cap by 2019 quarters
Source: FE Analytics
Equity funds
The strongest performing broad equity fund sector in 2019 was IA UK Smaller Companies, where the average member was up 25.31 per cent after investors warmed to the prospects for the UK economy following the Conservatives’ election victory.
Some of the sector’s members generated very high returns indeed last year. ASI UK Smaller Companies was the fourth best performer of the entire Investment Association universe after making a 46.24 per cent total return while another 20 UK small-cap funds made returns of more than 30 per cent.
Performance by fund sector over 2019
Source: FE Analytics
It was also a strong year for US and Chinese equity funds, despite the fact that the two countries are at the heart of the trade war that has dampened sentiment in recent years. In fact, it was an IA China/Greater China fund (Allianz China A-Shares) that made the largest total return of 2019.
Bond funds
Over in the fixed income peer groups, returns were much more muted as improving sentiment focused investors on stock markets.
Reflecting this risk-on attitude, IA Sterling High Yield was the best performing bond peer group with an average total return of 11.09 per cent.
Performance by fund sector over 2019
Source: FE Analytics
Hermes Global High Yield Credit led the sector with a total return of 16.25 per cent in 2019, followed by Invesco High Yield (UK) (14.87 per cent), GS Europe High Yield Bond Portfolio (14.17 per cent) and Liontrust GF High Yield Bond (13.85 per cent).
Multi-asset and specialist funds
Given the strong performance of global tech stocks, it should come as little surprise to see that the IA Technology & Telecommunications sector was the highest-returning Investment Association peer group of 2019.
Its average member made a 30.98 per cent total return over the course of the year, led by the 41.02 per cent gain from L&G Global Technology Index Trust. Fidelity Global Technology (up 39.27 per cent), Wellington Asia Technology (39.23 per cent) and Close FTSE techMARK (38.49 per cent) also had good years.
Performance by fund sector over 2019
Source: FE Analytics
The general risk-on environment meant the IA Mixed Investment 40-85% Shares and IA Flexible Investment sectors, which have relatively high weightings to equities, were the strongest multi-asset sectors. Royal London Sustainable World Trust, Margetts Sentinel Enterprise Portfolio and Liontrust Sustainable Future Absolute Growth were some of the best performers here, all making more than 25 per cent.
However, the worst average return from this group of fund sectors came from IA UK Direct Property, where the average member made just 0.21 per cent during 2019. The sector – which has suffered outflows and is at the centre of liquidity worries – does have some members that made decent returns last year: VT Redlands Property Portfolio made 6.27 per cent, for example.
However, some of its biggest names made losses: Aberdeen UK Property lost 8.04 per cent, the suspended M&G Property Portfolio fell 7.58 per cent and Aviva Investors UK Property was down 7.30 per cent.