Volatility returned to markets in March, centred around US trade policies and the ongoing relationship with China. It all made for a difficult month for investors.
Volatility across financial markets in March has been driven by the US stock market; first, as a result of the Trump administration’s decision to introduce tariffs on steel and aluminium imports, which has seen China react, albeit in a very measured way at this stage, by introducing small and very targeted tariffs on US goods at this stage. This has been combined with woes in some high-valued tech companies, with some very specific stock price declines at the end of the month, for example Tesla, Nvidia and Facebook.
Developments in the US have had an impact across global markets. If you look at the 46 stock markets that we track, almost all developed markets have seen some quite sizeable losses this year. In particular, the UK has had a particularly challenging start to the year and ranks 43rd out of those countries, with the FTSE 100 index declining by 8.2% in the first quarter.
FTSE100 performance year to date 2018. Past performance indicators are not a reliable indicator of future performance.
How did Nutmeg portfolios perform in March?
Against a backdrop of developed market losses, March was a tough month to be an investor. Nutmeg’s highest risk portfolios saw losses of around 3.3% in March, which – while still a notable loss – is in the context of a month when equity markets have been up or down by 2% in a single day. Medium risk portfolios saw losses of around 1.8% and cautious portfolios saw losses of around 1%.
For the year to date, losses have ranged from around 2% in cautious portfolios to just under 5% in highest risk portfolios. This may seem like significant losses, but it is not uncommon in the context of how global markets behave.
Customer question
This month our customer question comes from Andrew, who contacted our customer service team. He has asked: “Given the ongoing US issues, China trade war, etc, will you be changing strategy on any of your managed investment plans? Concerned as the trade tariffs are here to stay and will affect global markets.”
That’s a great question and one we are commonly asked by our investors: “What are we doing in response to market volatility?” We are watching the tensions between the Trump administration and China very carefully; for example – will this trade friction escalate into a trade war, which we haven’t seen for a long time. As a result, the Nutmeg investment team have been mapping out a range of possible scenarios – from the most optimistic scenario to the least – to assess the different risks.
The key anchor that determines how we respond to market volatility and whether or not we make changes to our fully managed portfolios, is the global economy. The global economy is the strongest we’ve seen over the last decade: company earnings are forecast to grow by more than 20% in developed markets and by more than 23% in emerging markets over the next 12 months. Inflation isn’t accelerating very fast across the developed world, which means that interest rates don’t need to go up very fast or very far. As such, the global economy is still in a ‘goldilocks’ period.
If the position of the global economy was to change, then we would expect to change the position of our fully managed portfolios.
About this update:
This update was filmed on 3rd April 2018 and covers figures for the full month of March 2018 unless otherwise stated. Data sources: Bloomberg and Macrobond. Company earnings forecast growth source: MSCI via 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 performance and forecasts are not reliable indicators 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.Other posts by Shaun Port
