Nutmeg investor update: January 2018

Shaun Port

read 4 min

2017 was a good year for equities but less so for bonds. In this month’s investor update, Shaun looks at how the markets and Nutmeg portfolios performed during December and the year overall.

In December, we saw continued gains for both developed and emerging market equities as well as a positive return for bonds.

Economic growth in the US and Japan was a bit stronger than expected and commodity prices rebounded — signs of a positive environment for equity markets.

Closer to home, the UK moved on to the second stage of Brexit negotiations. While an interesting development, it didn’t have much of an impact on bond markets, equities or the pound.

How did Nutmeg portfolios perform in 2017?

For the month of December, the lower risk portfolios rose between 0.7% and 1.5%, while the mid to higher risk portfolios rose between 1.7% and 2.5%.

For the whole year, the FTSE 100 returned almost 12% (including dividends, but without costs or platform fees). The US stock market returned more than 20%, emerging markets more than 30% — but, unfortunately, the pound rallied by nearly 10%, depressing these global returns for a sterling-based investor.

So, for most of the Nutmeg portfolios, we saw gains for 2017: up to 13.5% in our highest risk portfolio, around 7-8% in our medium risk portfolios.

However, 2017 wasn’t such a good year for bond-heavy portfolios as short-dated government bonds, with maturities of less than five years, lost money during 2017. As a result, our lowest risk portfolio saw a small loss over the year.

Changes to fully managed portfolios

We reduced some of our holdings in medium-sized UK companies (the FTSE 250) in December. They performed very well last year, but we think it’s a good time to reduce that exposure given the lacklustre outlook for the UK economy.

We put this money into funds tracking the Swiss and US equity markets to mitigate the impact of currency movements.

Customer questions

Our first customer question is from David via Twitter: “How is Nutmeg likely to perform in a recession, whether in the UK, US or globally? I’m curious to hear what kind of temporary loss we might expect in recession like 2008?”

That’s a really good question. We spend a lot of time focusing on where we are in the business cycle and where the global economy is going. It’s important to know whether the global economy is accelerating or decelerating, or whether a slowdown is tipping over into a recession, for example.

At the moment, we think we’re still in a good part of the global economic cycle. The economic cycle doesn’t die of old age; it generally dies because of the tightening of monetary policies – notably rising interest rates.

In our view, global growth is currently accelerating. However, we expect that when we get to the middle of this year, people will be looking ahead to 2019 and asking whether it will be year the US goes into recession, after a series of interest rate increases. Currently, we don’t think it will, but it’s still an important question to keep top of mind.

When it comes to what losses to expect, we aim to manage portfolios around these big events, like a recession. If we thought we were going into a downturn, we’d certainly be looking to reduce risk in portfolios — likely by buying more bonds and moving to more defensive equity markets. This should help reduce possible losses but wouldn’t eradicate them. Moreover, we’d also be looking ahead to when the worst is over, as market gains can be especially large when the global economy comes out of a downturn.

It’s also worth noting that investing is widely considered to be a long-term game. Short-term losses can prick our emotions — no-one likes to see their portfolio go down in value — but staying in the market and resisting the temptation to tinker can pay off in the end.

Our second customer question comes from Phil via Facebook: “What’s coming up for Nutmeg this year?”

2018 is going to be another very busy year for Nutmeg.

To begin with, at the start of the year new rules called MiFID II came into force. This European legislation has some big implications for all financial services firms. From a customer perspective, it changes the way businesses represent costs and charges; these changes have already been reflected on our website and in our customers’ accounts.

We’re also working on implementing another new piece of legislation called GDPR, which comes into force in May. This focuses on how we hold customer data and how we obtain permissions from you, our customers. It affects every business and institution that holds any personal data; we think this is a really good, important regulation and welcome its arrival.

More specifically for Nutmeg, we’re releasing our Android app within the next few weeks so keep an eye on our website for the latest news on this.

Finally, from an investment perspective, Brad, our senior investment manager, has looked at what we think 2018 has in store for the markets — you can read his article on our Nutmegonomics blog.

About this update: This update was filmed on 4th January 2018 and covers figures for the full month of December 2017 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.

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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