Nutmeg's Quarterly Market Update Q1 2024

The quarter in review

The first quarter of 2024 was broadly positive for investors. While some observers had been predicting recession, the global economy ended the first quarter of 2024 with increasing growth momentum.

Supportive economic data - such as employment numbers in the US - and resilient company earnings have helped boost equity markets, with global stocks (the MSCI ACWI index) rising 7.4%.

The all-important US economy has once again led the way, with growth for the final quarter of 2023 revised in a second estimate and we see GDP growth on track for 2% to 2.5% in 2024.

Economic momentum appears to be gaining across major economies, and the return of inflation in Japan has breathed new life into an economy that has struggled for dynamism over the previous decades.

While China remains a laggard, economic green shoots have also been evidenced across other emerging markets, raising the prospect of a more resilient global growth picture for 2024.

We've seen inflation start to become lower in the UK and the eurozone, and stronger economic growth, such as in the US, will keep central banks and investors alike wary.

However, we are unlikely to see a smooth path downwards in inflation - in the US price rises are still trending upwards - and so we believe inflation will run higher for longer. Given this, we expect central banks to be cautious in their approach to reducing interest rates in 2024.

James McManus, Chief Investment Officer, Nutmeg

Equities in Q1 

• US stocks rose to fresh all-time highs, powered by optimism about the outlook for growth companies and the wider economy following strong earnings for the final quarter of 2023. 
• Japanese equities were the top regional performer in the first quarter, continuing to benefit from a weaker currency as a result of relatively lower interest rates. The return of inflation and continued focus on corporate governance has renewed investor interest in Japan.
• European shares experienced moderate growth, while the UK stock markets trailed their peers, suffering from a lack of exposure to technology and growth-focused companies.
• Emerging market equities underperformed their developed peers in the first three months of the year, but economic momentum is robust in critical economies across Latin America and South East Asia.

Japan in the spotlight: 

"The best performing market of the quarter was once again Japan. The Topix ended up 18.1% in the first three months of the year, despite the Bank of Japan beginning normalisation of its monetary policy in March. The central bank announced an end to its negative interest rate policy, yield curve control, and its purchases of equity exchange traded funds and real estate investment trusts."

Vincent Juvyns, Global Market Strategist, Market Insights team at J.P. Morgan Asset Management

Read more: 

"Recent winners in US equity markets – namely technology and companies with exposure to AI – are only part of the story behind US exceptionalism”.

In our recent update, Nutmeg investment strategist Scott Gardner explores what’s behind the US economy’s standout performance.

Bonds in Q1

• Stronger economic growth has presented a more challenging backdrop for fixed income assets. Government bond yields have been rising, which can create short-term capital losses for current bond-holders. Major government bond markets delivered muted losses in the first quarter, with bond yields and price being inversely related.
• Corporate bonds - debt issued by a company, rather than a government - offered investors positive returns, though significantly below that of global equity markets. 

The importance of staying diversified:

"Markets are, as always, threatened by a multitude of economic, environmental, political and geopolitical risks which could lead to volatility ahead. In this context, maintaining a well-diversified portfolio is more important than ever. The good news is that investors now have ample choice to diversify and increase the resilience of their portfolios.

"Fixed income markets are more fairly priced today than at the end of 2023 and appear well positioned to help cushion portfolio performance in the case of an adverse growth shock." 

Vincent Juvyns, Global Market Strategist, Market Insights team at J.P. Morgan Asset Management

How we are positioning your portfolios

• We retain our positive view on equity markets, specifically in the the US and Japan, and in emerging markets outside of China.
• In January, we further increased our exposure to US equities in higher-risk fully managed portfolios by reducing European smaller companies in favour of their equivalents in the US. We also added to Japan and reduced our exposure to the UK. 
• We are taking a balanced view on the risk in bond markets. Central banks have signalled they are ready to cut interest rates in 2024, but stronger economic growth, signs of fresh inflationary pressure, and the reversal of expectations on the extent of interest rate cuts in 2024 warrant some caution. 
• Similarly, yields in many corporate bond markets remain high relative to recent history, but the level of compensation paid to investors above that of government bonds for the additional risk is the lowest it has been since the financial crisis. As such, we also take a balanced view on the risks in corporate bonds, preferring equity exposure.
• In late March, we rebalanced our equity and bond exposure across portfolios after a period of strong returns for equities. We remain overweight equities, but have rebalanced when required. 

Thematic investing portfolio update

In 2023, Nutmeg launched Thematic investing portfolios, giving those investors with a suitable risk profile the opportunity to invest in the trends shaping our future. Here we outline a portfolio update for one of these key themes:

• The Resource transformation portfolio, which is available for investors with a risk level of 5 and above, now invests in uranium via a new exchange traded fund we have added to the portfolio. 
• Our Resource transformation theme was designed to include exposure to nuclear energy as an alternative power source. The new fund above invests in a basket of companies involved in mining uranium and producing nuclear components.
• Alternative energy sources are experiencing a revival of interest and investment given carbon-free energy targets. Over the coming decades, demand for alternative energy is expected to continue growing, making it an exciting opportunity for long-term investors with a higher appetite for risk.
• Thematic investing is a long-term strategy that invests in the growing trends shaping our future, and may be suitable for you if you are a medium-to-higher-risk investor with a long time horizon. To find out more, click here.

Find out more

The performance of your portfolio will also be influenced by your chosen investment style, any tax wrapper, and how long you've been invested. You can see the performance of your individual portfolio in the app, and to learn more about returns, click here.

For regular analysis of markets, the economy, and the outlook for investors, visit Nutmegonomics or our Youtube channel.

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. 

These figures refer to past performance, which is not a reliable indicator of future performance.

Thematic investing carries specific risks and is not for everyone. There is no guarantee that development of the trend will contribute to positive investment outcome. All Nutmeg themes, including Resource transformation, should not be considered as incorporating ESG considerations. The Resource transformation theme will likely have exposure to a variety of renewable and non-renewable materials and energy sources.