Nutmeg investor update: August 2025

At a glance

• Portfolio positioning was largely unchanged in July.
• July was a positive month for global equities, with most major stock markets rising despite the US president's announcement of tariff modifications at month's end.
• The S&P 500 and Nasdaq hit record highs, as did the UK's FTSE 100. European equities ended lower due to the tariff news.
• In fixed income, government bond prices fell across the US, Europe, and UK, with corporate bonds experiencing a slight decline.

What are the latest changes to Nutmeg portfolios?

We didn't make any significant adjustments to the way portfolios are positioned over the month. Although we continue to closely monitor market events, we believe portfolios remain well positioned for current market conditions. 

Equity exposure at the portfolio level remains overweight. We continue to favour the US, and maintain our US equity overweight relative to our long-term benchmark. Our portfolios have broad US equity market exposure, but we have also built a more targeted position in large US financial companies, which we believe are particularly well supported.

Another more sector-specific view we have is on European industrials, which we think will benefit from the long-term support of increased infrastructure and defence spending in the region. As a result, we are overweight here too. 

Conversely, we are happy to remain underweight UK equities, relative to our long-term benchmark, for now, as we believe both mid- and larger-sized companies face headwinds. We also believe the outlook for Chinese and emerging market equities looks challenging. They face macroeconomic difficulties tied to both tariffs and the weaker US dollar, and our portfolios reflect this. 

In terms of fixed income positioning, our government bond exposure is in line with our long-term benchmark, the team having recently taken the decision to lower our holdings in longer-term government bonds. Major central banks have generally been in a phase of lowering policy rates. However, the persistence of inflation, and uncertainty around how it will be impacted by US tariff policy, means the outlook on monetary policy is now more clouded. 

We have more exposure to corporate bonds than our long-term benchmark, especially to high yield corporate bonds, also known as high yield credit. We believe high yield credit can generate compelling returns that are less contingent on the policy backdrop, and more linked to the positive shape of the global economy.

What happened in financial markets in July?

For global equities, July was a positive month overall, with most major stock markets moving higher. This was despite a bit of a sting in the tail, with the US president announcing further modifications to tariff rates, on the last day of the month. 

In the US, the S&P 500 and Nasdaq indices both hit fresh record highs late in July, before the last gasp tariff news took the shine off things during the first day of August trading. The indices are still both showing year-to-date gains, having recovered from that sharp sell off between early February and the start of April. 

Larger UK companies – those traded on the FTSE 100 – also reached new highs in July and ended the month ahead. Chinese equities made gains despite a late dip, whereas European equities, reacting more strongly to the latest tariff news, ended the month lower.   

In fixed income, government bond prices fell in the US, Europe and UK. Corporate bonds also declined slightly.

What was behind July's market movements?

When the US Republican administration announced its so-called 'Liberation Day' tariffs introduced in early April, many investors initially feared the worst in terms of the ramifications for global growth. Most of the tariffs were quickly paused, and in the time since, individual countries have been busy thrashing out their own deals with the US.

Much still hangs on how US tariffs talks progress. The situation is clearly shifting frequently, and a lot is still unknown about where and when they will settle. That said, investors have generally been encouraged by the Republican administration's apparent openness to enter tariff discussions, and its willingness to delay some tariff implementation deadlines.

What's more, the global economy has, on the whole, been more resilient than initially anticipated. The latest data suggests both US and European economic growth was stronger in the second quarter of 2025 than expected. The UK economy looks to be on slightly less stable footing, but investors responded well to the US-UK tariff arrangement reached in May, which secured a lower tariff rate than the EU agreed with the US in July. 

On top of that, there have been encouraging earnings updates.  US equity earnings for the last quarter of 2024 and for Q1 2025 have been especially robust. We expect that US earnings will also beat consensus for Q2 2025, helped by a weaker dollar.

Overall, equity investors are still in pretty good spirits.  

Bond markets are a slightly different story.

A big part of valuing a bond comes down to what its future cash flows are worth today. Inflation expectations are important to these calculations, so bond investors don't like it when the inflation outlook becomes muddied, as it is today. 

Inflation has on the whole, been trending downwards. This has been allowing major central banks to steadily cut rates. In theory, rate cuts should push bond yields down and therefore bond prices up. But while the initial tariff shock has faded, it hasn’t disappeared, as we saw from the latest announcements. The impact of tariffs on inflation in the US and beyond is yet to be understood, which makes life difficult for central banks that set policy rates. 

Until the long-term impact on inflation is better understood, some bond investors are holding back. As we touched on earlier, this is why we are keeping our government bond exposure more limited.

About this update: This update was recorded on 5 August 2025. All figures, unless otherwise stated, relate to the month of July 2025.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not a reliable indicator of future performance. We do not provide investment advice in this update. Always do your own research.