Nutmeg investor update: September 2018

Brad Holland

read 3 min

August brought some volatility, particularly in currency markets, and political pressures began to build at home and abroad. Strong performance in the US equity market helped to restore some balance.

What’s been going on in the markets?

August can be a difficult month, since the summer holidays typically mean there’s a bit of a lull. This effect reduces liquidity and can exaggerate market volatility.

August did bring along some volatility, and a notably disparate performance across different equity markets. The US equity market recorded all-time highs, while China experienced new lows for the year.

The UK equity market had a very bad month, having performed well between April and July. This was largely due to the underperformance of different banks, not just in the UK but across Europe too, while tobacco stocks also had some poor trading news.

On the currency front, the US dollar had a great month, while emerging market currencies suffered deep declines. Turkey, Brazil, Argentina and Russia were among the worst hit.

How has politics been playing into all this?

The pressure of political calendars certainly came to bear during August. The new Mexican government is due to be sworn in on 1st December. This has focussed minds in Mexico and the US on striking a new trade deal. Canada is looking to piggyback on the negotiations too, and while the new deal looks unlikely to be called NAFTA (North American Free Trade Agreement), it looks increasingly likely that a deal will be done.

Meanwhile, the clock is ticking on Brexit negotiations too. During August, there was some better news that the EU is going to offer more flexibility on the deal. This led to some selling off in the bond markets. There’s a lot of politics still to be done before Brexit is finalised, and customers looking to keep up to date with the latest should keep an eye on our blog.

Against this backdrop, how did Nutmeg portfolios perform in August?

Despite the volatility, portfolio performance was relatively flat, ranging from -0.2% to +0.3%.

Our lower risk portfolios have a lot of UK government bonds. Performance of these portfolios was limited by UK bonds being sold off on the news that the EU is willing to be flexible to get a Brexit deal done.

Overall, our portfolios are overweight in US equities, and the strong performance there helped to offset weaker performance elsewhere.

With this in mind, have you made any changes to the fully managed portfolios?

We made some small changes at the beginning of the month, largely in recognition of the volatility we saw in the currency markets. We reduced our exposure to emerging market currencies and put that into UK equities.

We also took the opportunity to move some exposure from mid-cap UK companies into large-cap UK companies, as we feel larger UK companies with global operations are better equipped to deal with currency fluctuations.

Customer question

This month, our customer question comes from ‘PerfectlyFrank’ via Twitter.

“What are the pros and cons of splitting investments across various risk groups and pots?”

One reason to split money across different pots might be to match up with different investment objectives and time horizons. It might also be the case that an investor is simply looking to carve out separate pots so they can better organise their finances to suit their personal needs.

At Nutmeg, we don’t charge customers to hold different pots, so that they have the flexibility to organise their investments to suit them.

One important thing to remember, though, is that we wouldn’t recommend customers have different risk levels assigned to different pots if they are ultimately pursuing one common objective. This is because the investment team already manages the risks associated with assets within the different pots, so there’s no need to split money in this way.

About this update

This update was filmed on 4th September 2018 and covers figures for the full month of August 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.

Brad Holland
Brad is Nutmeg’s director of investment strategy. A veteran – 28 years at last count – in financial markets, he started his career as a professional economist at the Australian Reserve Bank. He now specialises in economic and financial market strategy within investment management. Brad studied post-graduate quantitative economics at the University of Queensland, Australia. Despite living in London for 20 years now as a naturalised British citizen, he’s still not quite ready to support England-v-Wallabies.

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