The Nutmeg Smart Alpha Portfolios, powered by J.P. Morgan Asset Management, are a combination of elements of both active and passive investing. Here we give an overview of some of the underlying investments that have impacted performance this year, as well as an outlook for the rest of 2023.
How have the Smart Alpha portfolios performed so far in 2023?
Alongside passive ETFs, the Smart Alpha portfolios differ from the other Nutmeg investment styles in that they include innovative active ETFs managed by J.P. Morgan Asset Management.
Year-to-date to mid-June, the Smart Alpha portfolios have delivered positive returns across all risk levels. In the first months of the year, performance was helped by factors such as signs of cooling wage growth in some economies and hopes of an end to the central bank tightening cycle (the raising of interest rates to combat inflation) which led to more positive market sentiment, though this is yet to come to fruition.
However, 2023 has also seen market turbulence, notably in February amid concerns about the health of the banking sector in the US and Europe, and more recently amid signs of stubborn core inflation in some parts of the global economy, including the UK.
Looking specifically at the latest material we have for the first quarter of this year, the J.P. Morgan Asset Management team’s global equity allocation contributed to the positive performance. Also instrumental in performance has been stock selection within the research enhanced equity and fixed income ETFs, the funds that are the building blocks for the Smart Alpha portfolios.
Which sectors and stocks have contributed to performance?
Within equities, a key relative contributor has been the J.P. Morgan Asset Management team’s stock selection within the banking and insurance sectors.
An overweight position in American Express positively contributed to relative returns in both the US and Global Research Enhanced Equity Index ETFs, held within the portfolios at all risk levels. American Express announced a 15% increase in its quarterly dividend, helped by higher customer engagement and card fees. This all came despite a selloff in the banking sector across the US and Europe earlier this year as Silicon Valley Bank and Credit Suisse both hit the headlines for the wrong reasons.
Not holding stocks can also impact performance – for example, the Europe Research Enhanced Index ETF has not held German pharmaceutical and biotechnology giant Bayer, which was a drag on performance on a relative basis in the first quarter of the year.
The stock rose following the statement from the company that its experimental drug against dangerous blood clots could exceed €5bn in peak annual sales.
Within fixed income, relative performance within the team’s corporate bond research enhanced ETFs contributed positively to performance. This was in part due to underweight positioning in both the financial sector and real estate investment trusts, the latter being specialist companies which invest directly in property.
What’s the team’s outlook for the rest of 2023?
Looking ahead, while markets have been relatively resilient over the year so far, the team at J.P. Morgan Asset Management believe the trend of global growth is to continue slowing.
With credit conditions continuing to tighten, and with an ongoing risk of global recession, the team remains cautiously positioned. However, the belief is that the impact of central bank tightening has not been fully felt yet by developed economies.
In common with Nutmeg’s investment team, the J.P. Morgan Asset Management team remains confident that China’s growth recovery still has room to run with the country only recently reopening fully following the strict Covid lockdowns. The Chinese government has shown commitment to pro-growth policies supported by improvements in consumption and services activities. However, this is caveated by more recent data showing a slowdown in manufacturing activity.
In Europe, lower energy prices and government expenditure are suggesting some resilience, while in the UK, there are worries about a loss of economic dynamism – particularly with stubborn inflation remaining. However, it’s worth acknowledging that the majority of the FTSE 100’s earnings come from abroad.
Growth risks may be highest in the US and despite strong data releases in the first quarter of the year, the US still appears to be heading towards a slowdown over the coming year.
Why invest in Nutmeg Smart Alpha portfolios?
The Nutmeg Smart Alpha portfolios combine Nutmeg's core investment principles, ETF and fractional investment expertise with the in-house, multi-asset knowledge and experience of one of the world's leading investment houses.
Earlier this year, the portfolios saw a change in the way they access the UK equity market with the J.P. Morgan UK Equity Core UCITS ETF, which you can read more about in our recent blog.