Budgets and bailouts – Investment strategy update July 2015

Shaun Port

read 3 min

How have Nutmeg portfolios been performing?

After small gains in May, June was a very difficult month for financial markets and Nutmeg portfolios.

Medium risk portfolios lost around 3%, high risk around 4.5%. By comparison, the FTSE 100 index fell by 6.6% in June.

July so far has also been poor, with Europe down around another 3% at the time of filming on 9th July. The vast majority of this is due to the current situation in Greece.

It’s important to remember that this kind of fluctuation isn’t out of the ordinary in stock markets. In each of the past five years we’ve seen months where markets have fallen around 10%, and in each one of those years the markets have ended in a positive position overall for the year.

Investing is a long-term undertaking, and the results over a few months should not be seen as significant. Your chances of success are far better if you stay in the market.

Japan is the only major equity market to have recorded any gains since mid-April. Overall, Asia has lost 11%, Europe is down by 10%, and the UK by around 7%. Bonds, commodities and property have also fallen over that period as well. We like Japan, and we’ve got a decent amount of exposure to this resilient market in portfolios.

In essence, there is nowhere to hide from the losses in markets at the moment. It’s at times like this when having a globally diversified portfolio is so important.

What is driving this downward trend?

Greece has a lot to do with it. Following the ‘No’ vote in the Greek referendum on the 5th, the probability of Greece leaving the euro is much greater although a deal is still possible. A euro exit is likely to make markets very volatile in the following weeks, and this is something that we all need to be ready for.

However, we think the outlook for European stocks even with a Greek exit is still good, so we’re sticking with our holdings in Europe. We’ll continue to publish weekly updates as the situation evolves.

It’s not all Greece though – there’s also a lot of volatility in China

We’ve been concerned about the weakness of China for a while, but the stock market has been quite detached from economic reality.

For the year up to 12th June, the local market was up 122%. We’ll quite freely say that we don’t know why the market has been going up, so we’ve held back from joining in. It’s appeared much more like a casino than a long-term investment. 12 million new trading accounts were opened in May in China, and around 15% of trading is based on borrowed money. Since then the market has fallen around 30%, with many days having a trading range of 12%. That’s hurt sentiment for the rest of Asia.

So is there any good news?

There is some good news out there if you know where to look.

Over the past few years we’ve seen emerging markets as quite weak, and we prefer developed markets. One of the positive features of this weakness is low and falling commodity prices.

Oil has fallen again in the past few days, which will help global recovery.

Despite Greece crowding the headlines, the broad European recovery in gathering momentum, and the US jobs machine is running at full tilt. Ignore the headlines, the fundamentals are still good.

Have you made any changes to portfolios?

No changes were made to portfolios during June. The portfolios are positioned towards longer-term returns, so we don’t believe we should react to this noise. A resolution to this Greek crisis one way or the other will be good for markets over time.

About this update: This update was filmed on 9th July 2015 and covers figures for the full month of June 2015 unless otherwise stated. Data sources: Bloomberg, Macrobond

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 or future performance indicators are not a reliable indicator of future performance.


Shaun Port
Shaun is the chief investment officer at Nutmeg. He has over 25 years’ experience developing and implementing investment strategies for clients ranging from central banks to pension schemes to charities and private individuals. Shaun holds a degree in Mathematical Economics from the University of Birmingham and is a Chartered Alternative Investment Analyst. He can be found tweeting @ShaunPort.

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