June started well, with a good rebound in stock markets, but renewed tension around trade and tariffs pushed markets down quite sharply in the second half of the month.
What’s been going on in the markets?
In the first few weeks of the month, we saw some reasonably good returns, as stock markets bounced back. That was until Trump’s tweets on trade and tariffs had the same unsettling effect we’ve seen time and again since the start of his presidency.
Over the course of the month we saw stock prices across most developed markets gain or lose around 1%, while in emerging markets, stock prices fell by around 4% in US dollar terms – that’s quite a significant loss.
If you look at China, over the course of eleven days (12th – 27th June), the stock market fell by over 10%, leaving the market down by more than 20% in total since the end of January. The Chinese stock market is normally quite volatile, but that’s still quite a big fall, and it affected sentiment across the Asia.
The bond market has also been somewhat volatile, with small losses in both UK government and corporate bonds.
Against this backdrop, how did Nutmeg portfolios perform in June?
In line with what we saw in the markets, Nutmeg portfolios achieved gains in the first part of the month, but losses followed as the month went on. For the whole month of June, performance ranged from essentially flat, down to very small losses of one or two tenths of a percent.
All equity markets other than the US were down over the course of the month, so that’s caused a drag on the performance of our portfolios, with emerging markets having the biggest impact.
With this in mind, have you made any changes to the fully managed portfolios?
We’ve lowered our expectation for Japanese Prime Minister Shinzo Abe to significantly improve the performance of Japan’s economy. And we have lowered our exposure to Japanese stocks as a result, even though valuations there remain attractive.
Instead, we’ve taken more exposure to US tech stocks and emerging markets in Asia, despite caution around trade. That’s because we feel the outlook for emerging market stocks is still good, with valuations around 25% lower than developed markets and economic momentum starting to pick up.
On the whole, we remain positive on equities in emerging markets. They are typically higher risk, but have the potential for more returns. Despite US interest rates going up, which can often hurt emerging market performance, we still expect them to do well.
Customer question
This month, our customer question comes via Twitter.
“What happens to the dividends that are paid out on Nutmeg investments, do they get automatically reinvested?”
This is an important question. Whether it’s income from bonds or companies paying dividends, almost all our investments do produce income.
The income is generated within the ETF (exchange-traded fund) that holds the investments and most ETFs pay out this income regularly. We invest this income back into the portfolios with no extra cost to customers, helping them to benefit from the potential for compound returns.
About this update
This update was filmed on 3rd July 2018 and covers figures for the full month of June 2018 unless otherwise stated. Data source: Bloomberg
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
