This update was filmed on Thursday 13th October and figures cover the entire month of September unless otherwise stated.
This month the markets have been driven primarily by the political landscape here in the UK and in the US. We’ve seen all-time lows for the pound as well as all-time highs for the FTSE 100.
As we saw after the Brexit vote, the pound fell very sharply again in reaction to Theresa May’s announcement that Article 50 could be triggered by the end of March 2017.
Although it might seem counterintuitive, a weak pound is actually good for the FTSE 100, because many of the companies that make up the top 100 are actually multinationals, even though they are listed here in the UK.
Because of this, the FTSE 100 actually generates around 70% of its profits outside of the UK, and so a weaker pound is actually a boost to profits and makes the FTSE 100 more attractive to international investors, particularly in the US.
The US election
While elections don’t tend to have too much of an effect on stock markets, in the event of a Trump victory we could see more global ramifications.
We’ve already seen a higher level of volatility in the Mexican peso following some of Trump’s comments and from the little information we can glean about his fiscal policy, a Trump presidency would mean increased spending, adding an extra $5.3 trillion to the US’s current debt of $19 trillion over the next ten years.
How have Nutmeg portfolios been performing?
September was a bit of a mixed story, with some of the low risk portfolios making a small loss, and higher risk portfolios gaining up to 1%.
For the more conservative portfolios which have higher exposure to bonds, performance has been held back by bond markets which have had a tough time recently.
In higher risk portfolios, however, more foreign currency exposure such as US dollar and yen has meant good returns because of the weaker pound.
Have you made any changes to portfolios?
We have made a few changes to portfolios recently to address the level of risk we currently hold in bonds.
Bonds performed very well after the Brexit vote and now we’ve taken the opportunity to take some of the profits we made on bonds and we’ve diversified our bond holdings by owning some more company bonds and also some government backed bonds in the US.
In terms of equities we’ve started to invest more into pacific stocks, notably Hong Kong and Australia, and also added a bit more US dollar exposure to higher risk portfolios, as we expected the pound to come under pressure.
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.
Data sources: Bloomberg and Macrobond. Figures cover the entire month of September 2016 unless otherwise stated.
Other blogs you might like:
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
