February was a good month for markets — UK, US and emerging economy equities performed particularly well — and Nutmeg portfolios were well positioned for growth.
The markets were quite buoyant in February, despite a few opposing forces at play.
Excitement continues to persist with the prospect of the Trump administration delivering tax cuts later this year or early next. On the other hand, the French elections have raised political risk in Europe, reflected by investors buying German government bonds.
Performance for Nutmeg portfolios
During February, the UK equity market returned just over 3%. In comparison, our medium risk portfolios delivered 2-3%, while our highest risk portfolios delivered up to 3.7%.
Have you made any changes to portfolios?
During February, we added more emerging markets exposure to portfolios. Growth in the US economy is strengthening and global trade is improving — both are good news for emerging markets.
We’ve also reduced our holdings in US small companies. They’ve had a big Trump-related run, and we think they’ve now got a bit ahead of themselves, so we decided to lock in some of our gains.
And we’ve been moving into US inflation-linked bonds. These are bonds that have a payment linked to how far inflation moves up. With global growth improving, and the US economy doing so well, we naturally worry about inflation down the road. So, in our view, it’s a good time to own inflation-linked bonds offering an inflation ‘hedge’.
Tax-free dividend allowance to be cut
As part of the Chancellor’s Budget speech on Wednesday, investors received some bad news. Philip Hammond revealed that the tax-free allowance on dividends is going down from £5,000 to £2,000, as of April 2018.
While not good news for directors, shareholders and others relying on dividend income, it could make the stocks and shares ISA more attractive as it shields dividend income from tax. With the tax year-end coming up on 5th April, it’s now even more important to use this year’s ISA allowance before you lose it.
Customer question: How will Nutmeg lock in capital growth?
This is a great question. It’s an interesting topic currently because markets have had a good start to the year. As we know, markets rise, and markets fall. However, just because they’ve had a good run doesn’t mean they’re going to have a bad run in the future.
So it’s important not to try to time the markets. At Nutmeg, we think the market prospects are good, with improving global growth and a generally positive environment. That said, we’re still thinking about risk in our portfolios. If we think markets have gone too far and there’s too much risk in portfolios, we’ll start to dial down that risk. But as it is, we’re pleased with the way markets are performing.
About this update: This update was filmed on Wednesday 8 March 2017. Figures cover the entire month of February unless otherwise stated. Data sources: Macrobond and 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 or future performance indicators are not a reliable indicator of future performance. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek independent financial advice.
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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
