This year has been an interesting one for investors. Equities soared in the first nine months with the S&P 500 hitting an all-time high of 2,930 in September, but promptly corrected in the fourth quarter wiping out all their gains.
The Bank of International Settlements (BIS) argues that there are likely to be more sharp falls next year: It says that asset prices fell across the board and US government yields widened in October before retracing that increase and dropping further as the selloff of risk assets spread. Volatility and term premia jumped. A further round of turbulence, this time accompanied by lower yields, hit markets in December. The repricing took place amid mixed signals from global economic activity and the gradual, yet persistent, tightening of financial conditions. It also reflected the ebb and flow of ongoing trade tensions and heightened political uncertainty in the euro area. These bumps were a reminder of the narrow path that central banks are treading in their quest for policy normalisation, in a generally challenging policy environment.
"The market tensions we saw during this quarter were not an isolated event," said Claudio Borio, head of the monetary and economic department. "Monetary policy normalisation was bound to be challenging, especially in light of trade tensions and political uncertainty."
The question now is - with fiscal policy tightening and political uncertainty likely to continue - where to invest next?
Robo & AI
Robotics and AI are worth a look. There are now four ETFs tracking these types of indexes in the UK, all of which were launched this year. Most recently WisdomTree its ETF which gives investors exposure to the "exponential megatrend of AI technology".
There are over $3bn in assets in the AI and Robo ETFs listed on the London Stock Exchange. The sector is also in the early stages and shows great promise, but it's likely to be a long-term option.
Peter Sleep, senior portfolio manager at 7IM, says: "Buying tech, AI or robotics seems to be the consensus trade for many but I would not be overweight these areas."
Emerging Market Equity. It might not be an obvious choice, after all the MSCI Emerging Markets index was down -12.24 YTD (as of 30th November), according to MSCI data. They even briefly entered a bear market in September following a sell-off but might be reason to give them a chance.
Moodys put out a report in November that said the outlook for emerging markets would be broadly stable next year.
Emerging market equities are also trading at close to a decade long discount. The FT reported in October that "This year's sharp sell-off in emerging market equities has opened up a wide valuation differential with developed world stocks, by one measure at least. And if the past is any guide to the future, it could be time to fill your boots."
However, the paper warns that this could also be a sign that the market increasingly views EM stocks as lower quality or as more likely to face a harsher backdrop in the years to come ‚Äî in the form of a spiralling trade war, say, or weaker domestic economic growth.
Taking advantage of the Brexit mess and political uncertainty surrounding the European region and UK might not seem attractive but could be an easy win.
The FTSE 100 is down 5% since the beginning of the year with the losses really accelerating in the last quarter - no coincidence it was while the Brexit negotiations ramped up (or not as the case might be).
European equities in the form of the EuroStoxx 50 were down over 12% YTD. The FTSE MIB (-13%) and German DAX (-16%) are also suffering a similar fate.
Sleep says: "There is a so much political uncertainty surrounding the UK and Europe at present that these may be good opportunities. I am not saying that we are at the low, but with a longer view, I think we could look back and kick ourselves for not being braver and more contrarian."
According to a note from Bllomberg, Goldman Sachs predicts that 2019 will be the year for commodities. The forecast comes on the back of the raw materials sell off.
"Given the size of dislocations in commodity pricing relative to fundamentals -- with oil now having joined metals in pricing below cost support -- we believe commodities offer an extremely attractive entry point for longs in oil, gold and base," analysts including Jeffrey Currie said in a report.
Keep an eye on silver. Focus Economics reports: "Next year, industrial demand in the automotive and electronics sectors should remain robust, which should in turn support a rise in silver prices following a disappointing 2017. Risks include global trade tensions, higher global interest rates and the possibility of slower-than-expected growth in China."
Slightly off the beaten track crowdfunding is a sector that is growing. It's essentially a way to raise money efficiently while at the same time getting a base of early customers/investors backing the products.
According to Forbes, the UK's alternative finance sector, which includes peer-to-peer lending, grew 35% in 2017 to ¬£6.2bn, up from ¬£4.6bn in 2016, according the Cambridge Centre for Alternative Finance.
There are several types of crowdfunding, but perhaps the two most famous are peer-to-peer lending and equity crowdfunding.
Peer-to-peer fundraising is typically led by donors themselves. Equity crowdfunding is the other type of fundraising and involves investors buying a privately held company's debt or equity securities in order to give the company the financing it is seeking.
At the moment there are no ETFs tracking crowdfunding but Amplify ETFs in the US has filed with the SEC for an ETF that will provide exposure to the sector. With this in mind it's worth keeping an eye on.
A bear market
Saying all that if we enter a bear market then cash or safe haven assets are likely to be your best bet.
Sleep says: "If things do become more uncertain or liquidity tightens further simple is best and higher yielding illiquid areas of the market may become an area to avoid."