Investment strategy update January 2015: is the eurozone starting to crumble?

Shaun Port


2 min read

2014 was a volatile year in stock markets. One of the biggest disappointments of the year was UK equities. The FTSE fell 3% over the year and, even with dividends included, the FTSE All-Share returned 1%. Other markets posted gains of around 5%. The UK ranked just 20th out of 23 developed markets in 2014.

In a difficult year for UK stocks, we managed to make some positive gains on customers portfolios. For the year as a whole our customers portfolios returned around 2%-7% across different risk levels, which compares well against the 1% return from the UK stock market. Much of the returns seen were driven by strong returns in bonds, as well as better returns from the US and Japan.

We also avoided some pitfalls last year which could have dented gains. For example, we deliberately avoided emerging markets through the year and that turned about to be correct: emerging markets underperformed for the third year in a row.

A final positive development was that the costs for exchange-traded funds came down further last year, which is great news for our customers.

Has the oil price continued to drive markets?
There was a strong rally in stocks in early December as the oil price appeared to stabilise at around $60 and the US showed strong growth. But it wasn’t to last. The oil price resumed its decline, taking stocks with it.

Recently, the oil price has fallen from $60 to under $50 and is driving sentiment lower. In several days we have seen oil decline by 5% which is quite unbelievable.

The emergency election in Greece coming later this month has also scared investors. The party leading the polls, Syriza, advocates not repaying all of Greece’s debt, while at the same time German politicians are freely talking about Greece leaving the euro.

Greece only accounts for 1% of the overall eurozone, so we don’t believe the market would take a shock if there was a Greek exit, however it would raise questions about the relatively weak economies of Italy and Spain.

Russia’s collapsing currency and recession have become less of a factor.

Should we worry about falling oil prices?
The oil price movements bearclose watching because often, when we see such a vicious fall in commodity prices, it can cause problems in emerging markets. As a generalisation we think the much lower oil price is very bullish for global growth and stock markets this year, as it effectively acts as a tax cut and could add around 1% to the global economy.

What changes have we made to portfolios?
We have made some small changes, reducing our exposure to Italy because of the impact of Greece’s elections, and raising holdings in Japan. At the moment, we hold a lower amount of large UK companies than normal, preferring the US, and we’re holding on to the extra government bonds we bought in October.

About this update:  This update was filmed in January 2015 and covers figures for the full month of December 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.


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