Evercore Pan Asset

If you looked at the headlines you would think 2010 had been a disaster. China was always talking about curbing inflation. The two Koreas were shooting at each other. The US felt so weak it needed more quantitative easing. There was a Greek sovereign debt and spending crisis, and an Irish banks and sovereign borrowing crisis. Interest rates were rising in several parts of the world. Pundits argued over two bearish scenarios – the dreaded double dip crushing output and profits again, or runaway inflation courtesy of the loose monetary policies. 

Neither fear materialised during 2010.  Despite all that it was a pretty good year for investors. The world economy pushed on at a reasonable pace, led by the emerging market economies. The US and UK managed a recovery, Germany had its best year for a long time, and even Japan temporarily perked up a bit. This was reflected in Stock markets. The stars were most of the emerging markets. The laggards were in Europe. The US and UK rallied at the year end to give holders respectable real returns. 

Anyone who owned gold and other commodities did well. These will be near the top of the leader board at year end. Quoted Property has fared quite well, outpacing ordinary shares in the US, UK and Euroland with solid double figure returns for the leading REITs. Even most US and UK bonds produced a small  return, despite the firming of rates at the end of the year. 
 
Anyone with an Asian and or commodity oriented portfolio will be thrilled with progress. Balanced portfolios with decent representation in these areas have also had a good year, producing double figure nominal returns against UK inflation of 3.3% on the CPI and 4.7% on the RPI, and lower inflation in the other major advanced countries. Our main portfolios run on our balanced lines have delivered a third good year of returns (2008 was in most cases a part year for our clients as we were a new business), and kept well ahead of absolute return benchmarks. 
 
Next year is not looking great. 2010 was the year of the great deferrals. The US has put off sorting out its own finances. Euroland has put off finding a working solution to its banking and state debt crises. In China and India controlling inflation is work in progress. We recommend continuing with balanced portfolios. We are entering the new year with a bit more cash than in 2010. 
 
We wish all our clients and readers a prosperous and successful New Year. We will all need agility and alertness to stay ahead of the pitfalls and opportunities when there remain such huge imbalances and debt problems around the western world.