Investing for the long run – Investment strategy update September 2015

Shaun Port


3 min read

As we’re sure many of you will know, August was a tough month for the markets.

So, did we plan for this market downturn?

Yes, to an extent.

We’ve been uncomfortable about weak Chinese growth for a long time now and so we’ve held minimal investments in emerging markets, which have performed really poorly. We didn’t buy into the Chinese market when it was booming because it didn’t make sense to us – now it has collapsed, proving the market prices were over-inflated.

But, what we didn’t expect is that stock markets in developed economies, like the UK and US, would react so strongly to changes in Chinese government policy, aimed at trying to prop up their economy. This looks like a big over-reaction to us.

Since the market low on the 24th August, how have markets bounced back?

Clearly, the 24th August was a bad day for markets, but in the following few days they recovered a bit. When markets go through a big fall – often for no particularly concrete reason – like they have done in most of the past five years, investors wonder if there is something they don’t know, and often will become quite irrational.

So markets will be volatile for a while yet, but prices should go back up, erasing the losses in the last week of August. We think investors will start to see the value in their portfolios tentatively start creeping back up and recovering the losses that felt really scary at the time.

So how have Nutmeg portfolios been performing?

The highest risk portfolios lost about 5% in  August. In comparison, the FTSE 100 index fell by 6.7% in the month, so we think that shows the benefit of being diversified globally and not just investing in the UK. Medium risk portfolios fell by 3-4%, while low risk portfolios fell by around 2-2.5%.

While the first quarter of this year was great in stock markets, it’s been a pretty gloomy story since around April, so customers who joined us around the start of the new tax year may have only seen losses so far. What we’d say to customers, as always, is just to stick with it. Focus on the long term, as we know that your chances of making a loss in markets decrease the longer you are invested.

What changes are we making to Nutmeg portfolios?

This month we switched some of our allocation in the FTSE 250 and put it back into the FTSE 100. Hopefully this will position our portfolios to benefit even more from the rebound in markets. For a while now we’ve been holding a lower amount of FTSE 100 stocks than we usually would, focusing instead on the FTSE 250.

The growth from the mid-sized companies of the FTSE 250 has been much better than the FTSE 100, with it’s high level of exposure to energy firms which haven’t been doing so well because of low oil prices.

So what about the next 6-12 months in markets?

We think this is a great time to be investing in developed stock markets, but not emerging markets. A big sell-off like this can often be a catalyst for strong longer-term gains – a bit like pruning a tree.

Looking at the real economy, commodity prices have fallen again, which is good for growth in developed economies – like a tax cut. Unemployment is falling steadily pretty much everywhere – even in the eurozone.

Today, Japan’s Nikkei index rose 7% – which is a huge rise for just one day. We’re sticking to our previous prediction that Japan and Europe will be strong performers over the rest of this year and into next year. Our customers are well-positioned to benefit from that growth.

Most equity markets look a lot cheaper than they did a few months ago and outside of the energy sector, earnings are growing. We expect most major stock markets to deliver double-digit returns over the next 12 months.

About this update: This update was filmed on 9th September 2015 and covers figures the full month of August 2015 unless otherwise stated.

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 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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