People who try to predict the short-term direction of financial markets are usually wrong. In 2014, for instance, almost no one predicted the collapse in the oil price or many other commodities including dairy prices.
Likewise, consensus expectations were that interest rates would start to normalise, albeit at lower levels, and so the spectre of global disinflation and the accompanying fall globally in bond yields was - for most - a surprise. At the start of 2015, we thought it would be interesting to look at what major outcomes investors were expecting over the next 12 months and what risks were associated with those views.
At Devon, we build all our client portfolios based on what we refer to as bottom-up research. What this means is that each of our investments is driven by the fundamental views that we have, based on our research on individual companies.
What we do not do is get caught up in trying to forecast what will happen to the major macro drivers, such as where sharemarkets or interest rates will go or how much economic growth there will be around the world. The reason we do not do this is because it is simply too unpredictable to base serious investment decisions on.
What we do know is that good-quality shares will deliver solid returns over time and that most "experts" get their macro calls wrong (otherwise few of them would be working).
As an example, almost no economist or strategist globally saw the biggest financial event of our lifetime coming - the global financial crisis.
While our focus is on finding the best listed businesses that we can and thoroughly understanding what they are worth, it is useful to know what major investment themes exist across the markets.
This is because deviations from the "common view" are what create pricing volatility, which in turn creates the opportunities for us as long-term investors.
Investment markets are, by their nature, the outcome of an almost infinite number of different views. But when we look around the world today there are several major themes that many economists and strategists agree on. We thought we would focus here on four of them.
The clear consensus across almost all economists is that the United States economy will continue to grow in 2015. We agree with the consensus here that the platform for further economic progress appears solid, job creation has been impressive and US economic competitiveness has been restored.
Given the successful level of repair to household and corporate balance sheets that has been achieved since the global financial crisis, the risks to the United States story are more likely to be associated with policy mismanagement by the Federal Reserve (unlikely), a disorderly rise in the US dollar or an unexpected negative geo-political event (perhaps catalysed by the extreme movements in the price of oil).
Any hope for global growth to even closely approach trend performance this year will absolutely depend on this positive US prediction playing out.
US dollar strength
The second common view is the US dollar will continue to strengthen. Much of this expectation is built around the views described below around global monetary policy but any divergence in outcome here would have implications for growth, trade and investment returns.
Monetary policy divergence leading to currency wars
The third major consensus view is associated with the execution of monetary policy by the world's major central banks.
Expectations are that during this year we will see a major divergence in policy shifts with initiation of tightening by the US Federal Reserve and Bank of England at a time when the European Central Bank and Bank of Japan are expected to engage in significant quantitative easing programmes. There are always many factors at play when decisions around these policies are being made and the outcomes can vary dramatically from where investors have forecast.
Obviously, growth and inflation are critical but so are the many different personalities and objectives that exist within the decision-making groups. This is especially the case in the eurozone where the economic outcomes across the different member states are so different - and these can jeopardise the effective workings of the ECB's governing council. Over the past few weeks we have seen Switzerland, Sweden and Denmark move to negative interest rates to try to weaken their currencies and a similar tension exists between Japan and China.
Finally, we cannot talk about major consensus views among the investment community without talking about China. After years of delivering published growth rates of 10 per cent plus, the world's second largest economy is slowing quickly.
We have observed first-hand the shift in Chinese policy that is currently being engaged in to sponsor a more sustainable growth profile. Essentially, the policy requires a shift from capital investment to consumption.
Although we agree with the theory here, the Chinese Government is trying to manage something which few policy makers have ever managed before - to gently deflate a credit-driven investment bubble. Most financial commentators expect growth to occur in a range between 6.5 per cent and 7.5 per cent but the clear risk is that this strategy under-delivers and growth falls well below expectations.
We are already seeing evidence across commodity markets as to what can happen with a slowing China, but if growth was confirmed as being below the lower end of the expected range then the economic and financial market consequences around the world could be dramatic - particularly given the levels of debt present in parts of the Chinese financial system.
We at Devon try not to spend too much time thinking about these macro conditions, but it is an unavoidable fact that the manner with which each of these issues plays out during 2015 will have major implications for the short-term performance of all financial markets.
Paul Glass is principal at Devon Funds Management. This column is general in nature and should not be regarded as specific investment advice.