31.01.2017 .

Baltic Savings experts: from a lousy start to a great finish – 2016 in retrospective

2016 was a year full of uncertainties, surprizes and unexpected outcomes, which left behind a feeling that financial markets were extremely volatile. However, the annualized daily volatility of the S&P 500 was at 13.1%, an average number since higher volatility was reported during 53% of the years since 1929, a fact pointed out by Nordea Savings experts in Baltic countries.

2016 saw changes in some well-established long-term trends. First, oil prices and commodities in general ended their downward trends, stabilized and even posted some moderate price increases. A reversal in commodity price trends, the improvement of global economic indicators and the potential for fiscal stimulus in the US have led to the return of inflation. Both inflation expectations and actual inflation numbers started growing in the second part of the year, causing so-called “reflation trade” – a bet on higher economic growth and inflation normalization. This signals the end of the downtrend in bond yields and most probably the lowest point in interest rates for this cycle. The environment was also positive for equities, which resulted in an almost 9% rise in world equity prices in 2016.

“Finally, 2016 witnessed the comeback of emerging markets. Helped by low share valuations, cheap local currencies and an economic tailwind from higher commodity prices, emerging markets have finally broken their downtrend. Furthermore, emerging markets still remain the most attractive sector for both equities and bonds,” says Anželika Dobrovoļska, Head of Nordea Investment Advice and Offering in the Baltic States.

Nordea funds also showed outstanding performance in 2016 – 68 funds reported positive returns and only 6 were down for the year. Moreover, 14 funds demonstrated phenomenal results with returns over 10%. The three best performing equity funds were:

  • Latin American Equity Fund (+31.11%);
  • North American Small Cap Fund (+23.89%);
  • Norwegian Equity Fund (+21.09%).

In the fixed income sector, all of the funds ended the year with a gain. The best performance came from high-yield bond funds, as credit spreads have contracted:

  • US High-Yield Bond Fund (+14.52 %);
  • North American High-Yield Bond Fund (+13.43 %);
  • International High-Yield Bond Fund – USD Hedged (14.32 %);
  • Global High Yield Bond Fund (+12.27 %).

To reap the full benefits of investing in funds, an investor needs to build a well-diversified portfolio with optimal allocation suitable for their goals and risk tolerance. And Nordea offers a great product precisely for this – Model portfolios, a collection of Nordea funds selected for optimal long-term results.

All the Nordea Model portfolios are beating their benchmarks in the longer term perspective (see table below*).

2016 confirmed the importance of sticking to optimal asset allocation despite market events. A well-thought allocation that is optimized for long-term results helped Nordea Model portfolios provide stability and good returns to investors during turbulent times in the markets. Moreover, choosing the best funds to cover the desired allocation enhanced returns and helped beat the benchmarks.

Looking at the year 2017, there is a great deal of uncertainty, including what Trump economic policies will be or the results of elections in major European countries. However, in reality uncertainties are good for the markets, causing them to “climb the wall of worry”, which prevents excessive greed and euphoria. As a result, we expect fairly positive developments from global financial markets in 2017, helped by the following factors: US fiscal stimulus, the gradual return of inflation and normalization of interest rates, moderate economic improvement and the return of corporate earnings growth.

* Model portfolio data as of 31.12.2016.


Historical returns presented in the article are solely for informational purposes and do not guarantee the same profitability in the future. Historical returns cannot be regarded as a safe indicator of future investment results – actual returns may differ significantly from the ones specified in this article. The value of the investment portfolio may grow or shrink depending on developments in global financial markets, which are affected by a number of risk factors. Investors may lose part or all of their invested capital. Nordea bears no responsibility for any losses that the customer might incur by relying on the information contained in this article. The historical performance of back-tested strategies does not include any transaction costs, taxes or any other fees that may apply.

Additional information:
Edgars Žilde, Communication Project Manager, Nordea Latvia, tel.:6 700 5434, mob.:28 452 975, edgars.zilde@nordea.com