Euro Pacific Bank

Euro Pacific Advisors’ Portfolio Commentary: Q4 2018

Published: January 10, 2019

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Market Overview

Equity markets struggled in the final quarter of 2018.

Concerns mounted over equity valuations amid continuing uncertainty over a trade war between the US and China.

The US Federal Reserve raised interest rates for a fourth time for the year in December. However, expectations for further increases were cut slightly with two further hikes now expected in 2019 from three which were previously indicated. Even so, other central banks are gradually following the lead of the US as Quantitative Easing has reached its practical limits.

The pound was weaker against the other major currencies, including the dollar, euro and yen, due to fears over Theresa May’s Brexit deal.

Economic data indicate that growth is faltering.

The strongest data have been in the US, although there have been some signs of slowing momentum in leading indicators such as industrial production and durable goods orders. The outlook in the UK, Europe and Japan remains insipid whilst growth in China continues to moderate from a relatively high level.

Overall, 2018 was the weakest year for financial markets since 2008…

And most asset classes ended the year significantly lower. The optimism moving into 2018 fell away quickly and double digit falls would have been commonplace for multi-asset strategies generally were it not for the strong performance over the summer from US equities (especially tech) boosted by the impact of tax reforms.

Mindful of already rich valuations, our Core Portfolio Components missed out somewhat having not been heavily weighted to the US, while tactical opportunities in European equities opened in the Tactical Portfolio Components have been adversely impacted by the on-going US/China trade rhetoric. Other Tactical activity has produced positive returns, but this has been insufficient to overall outperform.

Despite significant weakness in the equity markets over the final quarter, it is important to bear in mind that global GDP growth of 3% is still expected this year.

This only marks a small fall from the 3.2% which was achieved in 2017 and is also likely to be the final outcome for 2018. Many commentators are forecasting sentiment to reverse and we will be positioned to benefit strongly from any green shoots in the UK and Europe in 2019.


The US equity market suffered a ‘fall from grace’ as investors showed concern over the valuation of technology stocks in particular. On a total return basis in sterling terms, the NASDAQ crashed by 15.2%. The broad based S&P 500 declined by 12.2%.

Other developed markets fared little better with the Nikkei 225 down 12.4%, the FTSE100 down 9.7% and the MSCI Europe Index off by 10.5%.

In a sad indictment of the quarter, the best performing sector was Emerging Markets which declined by 5.1%.

Fixed Income

Bonds benefited from a modest scaling back of expectations for interest rate hikes. Index linked gilts made a total return of 2.1%. Conventional gilts were close behind at 2.0%. The high yield sector fell by 4.1% as investors began to demonstrate some concern over lower quality issues. Corporate bonds and strategic bonds were little changed, down 0.4% and 1.2% respectively.


Gold advanced by 10% in sterling terms benefiting from uncertainty in equity markets.