Nutmeg investment strategy update – June 2016

Shaun Port


3 min read

Sentiment this May – especially in Europe – has been held back by the UK’s impending referendum. Getting through the vote will help improve things. Even so, May has been a relatively good month for markets.

It hasn’t all been plain sailing, however. Volatility in the pound was one of the main themes of the month, as sterling bounced up and down according to the latest EU referendum polling. The pound fell against the dollar but actually rose by 2% in value against the euro through May as polls swung towards a ‘Remain’ vote – but the euro rate fell back again in early June as polls began to indicate a more uncertain outcome.

Nutmeg portfolios have seen small positive returns for the lowest risk portfolios, and between 1% and 2% for our medium and high risk portfolios.

Managing risk as we approach the EU referendum

As we approach the EU referendum, some of our customers have asked whether they should reduce the risk settings on their Nutmeg accounts until the referendum volatility is over. Generally we recommend setting risk exposure not according to day-to-day circumstances, but according to long-term investment goals – which we help new customers to explore with our risk questionnaire.

In our view, the portfolios are well prepared. We’ve been planning for the referendum for many months, taking the opportunity earlier this year to protect portfolios as much as we can without incurring opportunity costs – cheap insurance, if you like. A good example of this is our decision to hold fewer UK equities than normal, in favour of overseas markets.

We’ve also developed contingency plans for various scenarios in the weeks ahead – including plans for a Remain or Leave vote, and plans for the days leading up to the 23rd if the vote begins to look closer than we currently expect it to be.

Our expectation – our “base case” – is that Remain will win, but we are holding daily meetings to monitor polls, betting odds, and events, and we’re ready to change tack if necessary.

Question from our customers

This is a question about stock market valuations, which we follow closely. The US looks a tad expensive to us right now, but not excessively so. Europe, Japan and emerging markets look fairly valued. The main support for continued good valuations in equities right now is low inflation and low interest rates. We believe that low inflation is here to stay, and interest rates will rise only modestly from here, and in a very gradual manner.

The Lifetime ISA

At the end of the video our CEO, Martin, mentioned the Lifetime ISA. This is a product we expect to be of interest to many of our investors under 40 years of age.

Although the Lifetime ISA doesn’t launch until April 2017, we’ve launched our LISA 333 offer to help customers save toward the LISA so they’re ready to invest the maximum £4,000 when the LISA launches next year. To do this, we’re offering free portfolio management on all LISA 333 investments until the end of May 2017.

About this update: This update was filmed on Tuesday 7th June and covers figures for the entire month of May 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. Tax rules may change in the future. Some of the Lifetime ISA rules are quite complicated and restrictions apply. If you’re unsure if a Lifetime ISA is the right choice for you, please seek independent financial advice.

 

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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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