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Pacome Breton, head of portfolio strategy, reviews market performance in May. He outlines some changes we've brought into the portfolios, and assesses the potential market impact of upcoming elections. 

Markets had a difficult month in April, was May a more positive month for equities and bonds?

May was a positive month, with global equities up by a solid 2.8% in pound sterling terms. The US market grew by 3%, with similar returns for US smaller listed companies, or small-cap, stocks. 

In the UK, the FTSE 100 continued to perform well, with a monthly return of 2%, while medium-sized companies, or mid-caps, posted a 4% return.

Most developed markets had low single-digit returns, with the exception of Japan which had a negative month due to the weakness of the yen. Emerging market equities were also down, pushed lower by South Korea and Brazil.

Fixed income rebounded in May after a difficult April. UK gilts were up close to 1%, and corporate bonds performed similarly. However, it is worth noting that the correlation between bonds and equities remains high, meaning both tend to perform positively, or negatively, at the same time. 

Also of note in May was the strong performance of the pound, which was up almost 2% against the dollar.

Did you make any changes to Nutmeg portfolios during the month?

We removed our small overweight position in the Japanese yen, which we had held for some time across our fully managed portfolios. We had anticipated that the difference between relatively high base rates in the UK and the US versus low levels in Japan would narrow, which would favour a rebound in the yen. This has not materialised, and we are now neutral on the yen, finding it difficult to have any conviction in its direction.

We also introduced a position in European industrials in higher-risk portfolios and opened a small position in US technology stocks, which we are building as a long term conviction trade, via a holding in the Nasdaq. This is in anticipation of ongoing strength in these sectors in both regions, which we believe should continue to perform well in the current environment.

Should Nutmeg investors be concerned about the market response to upcoming elections in the UK and the US?

In the UK, neither of the main parties is expected to propose policies that would have a large impact on markets. Labour, which currently appears to be the most likely winner, isn’t proposing radical changes to economic policy. They aim to maintain discipline with public finances and make limited changes to taxes. These policies shouldn’t significantly impact what matters for our portfolios, namely the gilt markets, local stocks, or the pound.

Markets are also unlikely to be impacted too much by whoever wins in the US as both the Republicans and the Democrats would potentially face a split Congress, making major changes to the economic programme unlikely. We will continue to monitor the situation actively, and you can read more about the historical impact of elections on markets in a new article on our website.

It is not unusual for investors to be concerned about significant events happening globally, whether political elections or geopolitical risks. However, what has really driven markets in recent years has been corporate earnings and central bank interventions.

Currently, our portfolios remain moderately pro-risk with an overweight position in equities, which has so far proven beneficial this year as the environment continues to be favourable for these more risky assets, as we saw in May.

The Nutmeg investor update is also available as a podcast. Listen to this month's update below. 

Spotify link to Nutmeg PodcastApple podcasts link to Nutmeg investor update

About this update: This update was recorded on 4th June. All figures, unless otherwise stated, relate to the month of May.

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.