2018 was a confusing time for markets with a good first half, followed by a poor end to the calendar year. How your portfolio performed will depend on the mix of different asset classes that comprise it.
So what were the best and worst performing asset classes for 2018?
Australian shares ended the year down with a negative return of -2.8% and if you had a heavy exposure to small caps in particular, your portfolio would likely have suffered. In Australia, a small cap company is one which is just that, small. It generally has a market capitalisation of $50 - $400 million. And with that, small caps were the worst performing asset class for the year, finishing down -8.7%.
Cash has remained stagnant for some time now, which is not surprising given the RBA cash rate hasn’t budged. While there were predictions of slow rate rises starting in 2019, those predictions may have been premature with Australian economic data being soft and declines in house prices. We may even see further rate cuts this year.
Australian Fixed Interest finished the year as the best performing asset class, with a subdued return of 4.5% which is nothing to get too excited about and not enough to offset the poor performance in equities markets. But a small saving grace nonetheless.
It’s too early to say if we’ve seen the bottom of this. So what were the factors that have had markets so tense? Trade negotiations, the US Government shutdown, Brexit uncertainty, slowing growth in China and a looming Australian election to name a few. There has been a lot of noise. We may see further volatility in the short term, so buckle up and hold onto your seats.