Central banks have started to talk about the unwinding of emergency stimulus; these discussions resulted in losses across global markets during June. In this month’s investor update, we discuss how Nutmeg’s investment strategy resulted in comparatively smaller losses for customer portfolios.
For most of June, financial markets were relatively stable. In the last week of the month, however, we saw some notable losses in equity markets and bond markets – particularly in the UK and Europe.
The FTSE 100 index fell 2.8%, while UK government bonds lost 2.1%. Similarly, European stocks lost almost 3%.
Nutmeg portfolio performance
Against the backdrop of losses across the markets (UK market falling by 2.8%, gilts by 2%), Nutmeg’s fully managed portfolios lost between 0.2% and 0.8% during June.
While it’s always disappointing to see markets falling, our losses in comparison to the UK markets demonstrates the value of a global, diversified portfolio. Our holdings in Japanese and emerging market equities performed well and our lower risk bonds lost quite a bit less than the broad markets.
What changes have you made to portfolios?
In early June, before the snap general election, we reduced our holdings in UK equities and moved into more Swiss and European stocks. This helped portfolio performance to some degree.
Our portfolios are positioned for higher global interest rates, which has helped over recent weeks.
Banks starting to unwind emergency measures
Central banks around the world are starting to talk about how they begin to unwind the stimulus measures put in place after the crisis and more recently to stop economies going into deflation (falling prices).
Here in the UK, the Bank of England (BoE) put some emergency measures in place after the EU referendum, to help banks lend at lower costs to UK consumers. Now, the BoE is starting to openly discuss how it unwinds those measures, and when.
However, this doesn’t necessarily mean the bank rate will go up any time soon – we believe this is more likely to happen next year than in the next few months.
Customer question: the MSCI has announced plans to include mainland Chinese equities in its emerging markets index. What does this mean for my portfolio?
MSCI is an index provider, which means it tracks the performance of the various stocks and markets around the world. It has a great deal of influence on how people invest.
The MSCI recently announced that, starting in May 2018, the first mainland Chinese shares will enter the MSCI emerging markets indices. While this will only be a small proportion of mainland Chinese equities, investment managers will begin to adjust their portfolios accordingly.
Over the long term, the impact of adding all the mainland Chinese equities to the emerging markets indices would be significant for investors, as the investment universe for emerging markets would shift and be more China-oriented. We own Chinese equities indirectly through our broad exposure to emerging markets, in all but our lowest-risk managed portfolios.
About this update: This update was filmed on 3rd July 2017 and covers figures for the full month of June 2017 unless otherwise stated.
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.Other posts by Shaun Port
