Macroeconomic events may have caused headlines about market volatility in the last year, but swings in global equities were largely driven by style factors. The unpredictability of these two elements is why we consider the fundamentals of stocks, rather than investing on the basis of sentiment or style. Our long-term outlook, emphasis on diversification and compounding returns make the Hermes Global Equities Fund a suitable core for a broader portfolio.
With macroeconomic events such as the vote for Brexit and the election of Donald Trump dominating conversation and turning economic sentiment negative in 2016, investors would be forgiven for thinking that global equities suffered a tumultuous year. However, markets followed a largely upward trajectory, despite persistent uncertainty for various economies globally. Instead, style factors were more influential on the markets than macroeconomic risks. These outcomes showed the folly of trying to forecast market returns on the basis of sentiment.
At Hermes, we take a long-term view on stocks and consider their fundamentals as the most persuasive indicators of future performance. This perspective enables us to avoid the pitfalls of concentrating on the macroeconomic climate and predicting the direction of markets when making investment decisions. Focusing on stock fundamentals has, time and again, proved to be a more rewarding approach: in 2016, the Hermes Global Equity Fund outperformed the MSCI World Index by 1.8%, its eighth consecutive year of outperformance.