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Here we give an update on the Nutmeg Smart Alpha portfolios, powered by J.P. Morgan Asset Management, in terms of key holdings, and positioning for the months ahead.

Nutmeg Smart Alpha portfolios are a suite of five globally diversified multi-asset models across different risk levels. They are invested in J.P. Morgan Asset Management’s specialist range of ETFs with active management insight. The portfolios combine Nutmeg's core investment principles with the in-house, multi-asset expertise of one of the world's leading investment firms.

How have the Smart Alpha portfolios performed so far in 2024?

Year-to-date (end of May), the Smart Alpha portfolios have delivered positive returns across all risk levels. The lower-risk portfolios, which have more exposure to bonds as a historically less risky asset class, lagged those with higher equity allocations.

Performance was largely driven by allocation to US and global equities, closely followed by our regional allocations to UK and European equities. The active element of the portfolios - the team's security selection within the UK and Global Research Enhanced Equity Index ETFs - also contributed positively to performance.

However, the fixed income portion of the portfolios weighed on performance. Bond markets struggled, as investors pushed out expectations of rate cuts on the back of resilient economic activity and stickier inflation. Conversely, the JPM GBP Ultra-Short Income ETF which targets a duration of one year or less, delivered a positive return in 2024 so far.

Within credit, global high yield, held within the Global High Yield Corporate Bond Multi-Factor ETF in the portfolios, outperformed investment grade. Lower interest rate sensitivity and easier financial conditions contributed positively to high yield bond performance.

Which sectors and stocks have contributed to performance?

Positioning within the semiconductor sector added value in equities. Against the portfolios’ benchmarks, an overweight position in Nvidia, and an underweight in Intel, contributed positively in both the US and Global Research Enhanced Equity Index ETFs, held within the portfolios at all risk levels. Nvidia remains a big beneficiary of rapidly accelerating artificial intelligence infrastructure demand, while the implementation of Intel’s business plan has been behind schedule. Additionally, positioning within pharmaceuticals and medtech as well as retail sectors has been positive.

While Japan was once again the best performing market of the first quarter in 2024 (in local currency terms), the Japan Research Enhanced equity ETF underperformed its benchmark over the period, after a strong relative performance in the last quarter of 2023. More recently, Japanese stocks were one of the weakest performers regionally in May, returning 1.2% in local currency terms. 

How the fund allocated across different sectors negatively impacted performance, though stock selection, especially within the consumer discretionary sector, contributed positively. Toyota Motor, a large Japanese auto manufacturer, contributed the most, as the company’s share price rose thanks to increasingly positive market perceptions about hybrid vehicles - where Toyota is a significant player. 

Market highlights so far in 2024

As highlighted in our quarterly update, the first three months of 2024 were broadly positive for investors, as resilient economic data and strong earnings reports continued to drive equity markets upward in almost all regions.

Developed market equities had a strong first quarter thanks in large part to the performance of 'growth' stocks, which means shares in those companies expected to increase their revenues at a rate higher than the market average.

This was especially true in the US which outperformed most of its peers. The US was buoyed by strong economic data, and stellar performance of the ‘magnificent seven’ stocks, which posted average earnings growth of 50% for the first quarter of 2024. This is the name given to a grouping of US stocks for their market dominance and technological and consumer impact: Alphabet (Google), Amazon, Apple, Meta (Facebook, Instagram), Microsoft, Nvidia, and Tesla.

However, April proved to be a tough month for both equity and bond markets with corrections across most markets. After falling in April, US equities rebounded in May, supported by better-than-expected first quarter earnings results across a number of sectors. 

What’s the outlook for the rest of 2024?

While inflation remains a little ‘sticky’, the J.P. Morgan Market Insights team expects a moderation in the rate of price rises throughout the second half of 2024. However, the team believes that core inflation will still be above central banks’ targets at year end – the Bank of England and the Fed both have stated inflation targets of 2%. After the ECB cut in June, it seems the Bank of England is likely to be next, possibly in late summer, with the Fed to follow possibly as late as into 2025.

From a growth perspective, the J.P. Morgan Asset Management team expects activity in Europe to pick up from a low base, offsetting the slight drag from moderating US growth. The team believes that the positive environment we are currently seeing will likely support steady but not spectacular earnings growth, and it does anticipate positive returns from equities in the coming months. 

Why invest in Nutmeg Smart Alpha portfolios?

The Nutmeg Smart Alpha portfolios have a track record going back to November 2020. Unlike other Nutmeg styles, Smart Alpha leverages both tactical adjustments to allocations and innovative active ETFs that seek to outperform their respective benchmarks by going slightly overweight or underweight in positions, based on the views of J.P. Morgan Asset Management research analysts. 

The portfolios may be suitable for investors who want to seek additional returns beyond the market through active, transparent security selection by the managers of the underlying funds. 

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 reliable indicators of future performance. We do not provide investment advice. Always do your own research.