Our previous Neutral Asset Allocation (NAA) review took place in the immediate aftermath of the US Presidential election result. With so much coverage, the media and markets would be forgiven for experiencing election fatigue.

However elections continued to be the major preoccupation in the first half of 2017, with the focus primarily on Europe.

The victory in the Netherlands for centre-right Prime Minister Mark Rutte put a pause on the populist movement sweeping through 2016. Populism was ultimately stopped in its tracks by Macron’s march to the French Presidency. Theresa May’s attempt at increasing her Party’s majority ahead of Brexit negotiations instead resulted in the Conservative Party forming an unlikely coalition with Northern Ireland’s Democratic Unionist party to prop up her minority government. But wait, there’s more.

The coming months will see elections in Germany and possibly Italy, again. Outside of Europe, there is a leadership transition in China towards the end of the year.

On the economic front, as Trump moved from President-elect to POTUS in 2017, the prospect of massive fiscal stimulus (tax cuts and increased spending) and a move away from globalisation challenged the current low inflation, low interest rate equilibrium, giving the Fed a “Licence To lift”.

In our most recent review, conducted in May 2017, we witnessed a continued, but more muted, reduction in overall risk from traditional assets, driven by lower expected returns. This review saw us marginally increase our optimism for the long term economic climate, with reflation being the main theme. This has been offset however, by the increase in valuations that we’ve seen in the months since President Trump’s victory.