Nutmeg investor update: May 2018

Shaun Port

read 3 min

April saw a big move in the UK markets relative to others, and despite some ups-and-downs during the month, we saw positive returns on our portfolios.

April was quite a rollercoaster month for global bond and equity markets. If you look at the first three months of the year, the UK equities were one of the worst performers of the 46 markets that we track. However, in April they performed really well, providing a return of more than 6%. In the context of global equity markets, which registered a 1% gain, with US and emerging markets going down, UK equities compare very favourably. In fact, it’s the best relative performance we’ve seen from UK stocks in the past ten years.

Bonds were losing money through most of April. At one point, UK government bonds were down by almost 2.5%, but they ended the month down by around 1%. The pound also had a rollercoaster month, very strong in the first part of the month (up 2%), but then lost 4%.

The month was characterised by some wild swings, particularly in UK assets.

So why was there such a big move in UK markets last month?

There are three key factors which we believe drove the high return from UK equities last month. The first is that UK equity markets have been unloved by international investors for some time now, partly because of their defensive nature, but also because of Brexit fears. There were some signs that foreign investors were coming back and buying in the UK market.

Secondly, the UK market is more exposed to commodities. When oil and metal prices are rising, that helps with earnings in the UK market, and means the UK tends to outperform others.

Thirdly, there was a big shift in what people expect to happen with interest rates this year. In early April, market prices suggested there was a 90% probability that rates would go up in May, but following comments from the Governor of the Bank of England, this was no longer expected. No interest rate hikes are anticipated anytime soon, which is positive for UK stocks.

This also helped offset some of the losses we had in bond markets during the month.

Meanwhile, the pound fell dramatically as it materialised that interest rates were not about to increase.

How did Nutmeg portfolios perform in April?

We saw returns that were positive across all portfolios, even though bond prices went down during the month. Returns ranged from just over 1% in the more cautious portfolios, to over 3% in the higher risk portfolios.

We’re pleased to see positive returns despite a rollercoaster month.

Have you made any changes to the fully managed portfolios?

We haven’t made any changes this month. We continue to analyse the latest economic data and monitor price movements across different markets, but we’re happy with the way the portfolios are positioned at the moment.

Global growth has softened a bit in the early part of the year but we still expect growth to be strong in 2018 as a whole.  Company earnings are doing particularly well. Looking at the US earning season that’s taking place right now, 300 of the top 500 companies have reported so far, and 75% of those companies have beaten analyst expectations. Earnings have grown by more than 24% compared with a year ago. It’s encouraging to see very strong results from this fundamental driver of growth in equity markets, with the US leading the way.

Customer question

This month our customer question comes from Mat, who contacted us through Twitter. He asked: “What’s your position on the impending trade war?”

We don’t think there’s going to be a full-blown trade war. There is certainly trade tension between the US and China in particular, but that’s about renegotiating trade deals that have been in place for some time. The US is trying to strike a better deal for US consumers.

The really interesting aspect is what’s been happening with the North American Free Trade Agreement (NAFTA), between the US, Canada, and Mexico. After seven rounds of negotiation, there is some progress taking place, away from the strong rhetoric put forward by President Trump. We think this progress is generally positive for the markets.

About this update

This update was filmed on 2nd May 2018 and covers figures for the full month of April 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.

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.

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