September was an unusually difficult month across almost all asset classes, with most markets seeing losses.
Slowing momentum
It’s becoming clear that the global economy has lost some momentum. Despite the US and UK economies firing on all cylinders, elsewhere growth has stalled. European output fell in August and emerging market economies are slowing. Commodity prices have fallen very sharply, with oil prices now down 20% since mid-June.
So far this month we have seen European stocks down 5% and UK stocks have lost 2.5%. For the year, UK large company stocks are now down over 4%, while mid-sized companies are down over 6%.
We think this slowdown in the global economy is likely to prove temporary, and so equity markets look like good value, particularly in Europe. But it is likely to be a bumpy few months until investors become comfortable with this weaker outlook.
Gold loses lustre while bonds hold firm
Commodity markets have been suffering. Gold, which normally does well when people are nervous, is close to its lowest levels in the past four years.
Bonds have performed strongly. However, we think that when interest rates start to go up, bonds are likely to lose significant amounts of money, so we have been cautious in the way we invest in bonds. This has resulted in only small gains from the bond funds we hold.
With the recent softer outlook for global growth, we’ve changed our stance on bonds, buying some UK government bonds, known as Gilts. We’re unlikely to hold Gilts for long, perhaps only for the rest of this year. With interest rates still likely to go up in 2015, we think this is prudent given that global growth is softening.
Nutmeg portfolio performance
Nutmeg portfolios have been protected to some degree from some of the overall decline because of the range of different investments we hold. This means that the average Nutmeg portfolio saw only a 1% drop in September, against a backdrop of much larger losses in many markets.
About this update: This update was filmed in October 2014 and covers figures for the full month of September 2014 unless otherwise stated. Data sources: Bloomberg and 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.
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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.Other posts by Shaun Port