Taking equity risk to neutral: remaining overweight US equities

Brad Holland

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The Nutmeg team traded Friday 10th May to reduce the equity risk in customers’ fully managed portfolios. One of the three “pillars” of the 2019 equity rally has been shaken this week as China baulked at completing the trade deal that was 90% complete and expected to sign sometime in May 2019. On Friday, the US moved to increase tariffs on $200bn of imports from China; Beijing has said it will be forced to retaliate.

The remaining pillars are holding; a robust United States economy and a Federal Reserve (US Central Bank) looking to be more supportive of the global economy. In view of this, we are retaining a “neutral” exposure to equities; i.e. levels proportionate to the long-term risk characteristics of each portfolio.  We retain an overweight to US equities.

Across all portfolios, we have reduced our Japanese and Emerging Market equity exposure to around neutral and moved that money into a mixture of US Treasury and Corporate Bonds, increasing our exposure to “safer assets” such as the US$ and government bonds. Our highest-risk equity fund (Portfolio 10) continues to be 100% allocated to equities, albeit with a more defensive equity allocation (US overweight).

We expect that we would reinstate a higher equity weight in the future but are taking this precaution in view of the potential trade impasse, together with a number of other concerns flagged by our investment process (increasing tension with Iran, Latin American politics and the likelihood of new auto tariffs on European and Japanese cars, once the US takes its main focus off China).

The Nutmeg investment team continues to watch events carefully and will make changes as the US-China trade environment becomes clearer.


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 is not a reliable indicator of future performance

Brad Holland
Brad is Nutmeg’s director of investment strategy. A veteran – 28 years at last count – in financial markets, he started his career as a professional economist at the Australian Reserve Bank. He now specialises in economic and financial market strategy within investment management. Brad studied post-graduate quantitative economics at the University of Queensland, Australia. Despite living in London for 20 years now as a naturalised British citizen, he’s still not quite ready to support England-v-Wallabies.

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