Nutmeg investor update: March 2018

Shaun Port

read 2 min

February was quite a difficult month for investors, as the long period of low volatility came to an end and bonds, commodities and global stock markets all experienced losses.

February was quite a difficult month for investors, as global stock markets lost more than 4% – the largest loss since January 2016 – and there was an abrupt end to the extended period of low volatility that we had seen throughout 2017 and into the start of this year.

This increased market volatility was prompted by the release of US economic data at the end of January, which showed faster wage growth, and meant investors started to worry that US interest rates would go up further and faster than they had expected. This hit bond markets and had a knock-on effect on equity markets. During the course of this year we expect to see four interest rate rises from the US Federal Reserve, which we think the markets will adapt to. However, it does mean that the unusually low volatility that was seen in 2017 seems unlikely to be repeated this year.

How did Nutmeg portfolios perform in February?

With difficult market conditions, where a portfolio of half UK government bonds and half UK equities would have seen a loss of around 3.5%, Nutmeg’s lower and medium risk portfolios lost between 1% and 2% during the month of February, and higher risk portfolios lost around 2.5% during the month.

Changes to fully managed portfolios

In February, we made some changes to our US equity holdings: in our medium risk portfolios we moved our holdings in to a broad US equity fund with a currency ‘hedge’, removing the US dollar currency risk. In our higher risk portfolios, we increased the exposures to financial and technology stocks, which is where we believe we’re going to see the most growth in the US equity market.

Customer question

Our customer question comes from Neil via Facebook, and he’s asked “What’s the optimal portfolio for generating returns?”

This is a really great question – but one that’s difficult to answer concisely. You will often see in the press news of someone creating a new optimisation technique using a ‘Nobel-prize winning’ strategy. This often involves using a large amount of historical data to determine what would have been the best portfolio to hold in the past. But what is more important is what the future will look like.

So, while we use historical data to provide insight, when we build our managed portfolios we consider where we will see gains coming from in the future, what are the potential risks and, particularly, how would this portfolio perform during different parts of the economic cycle – like a recession – or big market events such as another financial crisis. We use all this data to build our portfolios. It’s not an exact science: we use a lot of quantitative techniques, but it also involves a lot of investing experience and pragmatism.

About this update:

This update was filmed on 1st March 2018 and covers figures for the full month of February 2018 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.

Other posts by