Nutmeg investment strategy update – February 2016

Shaun Port

read 2 min

January has been another very turbulent month – in fact, it was one of the worst Januaries on record. Global markets experienced large losses in the first two weeks of the month, with some recovery in the second half.

UK equities lost around 3%, the US around 5%, Europe and Japan lost 6% and 8% respectively.

What’s behind all this volatility?

Investors are still worried about what’s been going on in China, but also about the falling oil price, which has continued to plummet – falling below $30 in January.

Is this another market crash?

While growth has been subdued recently and is a lot lower than expected, we don’t see this being another period of global recession.

Central banks are aggressively trying to stimulate growth, which should be extremely helpful. Many countries are also considering negative interest rates as an experimental option to push up growth. This is one of the things that we believe is likely to restore positive sentiment.

The other two are:

  • China starting to stimulate its economy through government spending
  • The oil price finding its floor and beginning to stabilise

It’s a very different global outlook from 2008 and, once the unrest over China and commodities calms down, it’s quite an encouraging picture.

How have Nutmeg portfolios been performing?

Our very lowest risk portfolios made a small gain, our medium-risk portfolios will have lost around 2% during the month of January, and highest risk portfolios will have lost 3-3.5%.

When will these losses be recovered?

It’s difficult to put a time-frame on how long we think it will take to recoup these losses, but history has some lessons for us. In the worst of the global financial crisis in 2008, UK equities lost almost 50% and those losses were recovered in about 20 months.

The last large equity fall was in 2011, after which losses of 20% were recouped after six months.

It will take some time for markets to recover the losses that we’ve seen over the last couple of months, however it’s important to point out that ‘cutting losses’ will in fact crystallise these losses, making them permanent rather than temporary.

Changes to Nutmeg portfolios

We made some changes in December and some more in January to take some risk out of our customer portfolios. We’ve also cut some more risk from portfolios in February as a prudent measure, given the volatility in markets at the moment.

In European equities we’ve trimmed our exposure to German and Italian stocks.

Closer to home we have sold all our holdings in mid and small-sized UK stocks. Our view is that these stocks have become too expensive with many big funds having quite high exposure. This has been the best-performing segment of the UK stock market in recent years, and we’ve held between 5% and 23% in mid-risk portfolios over the past three years.

We’ve also moved some money from company bonds into government bonds, and we’re holding a lot more cash than normal – around 4-5%. This is in order to balance risk and re-invest in the next few months.

About this update: This update was filmed on 10th February 2016 and covers data for the whole month of January 2016, unless otherwise specified. Data source: 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.

Image: Leonieke Aalders


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