Hello and welcome to your September Investor
Update. I’m Alex Matchett, investment writer
here at Nutmeg. As we’re continuing to work
remotely, I’m joined via Zoom today by
Brad Holland, our director of investment strategy.
Hi Brad.
Hi Alex.
Financial markets seem to be continuing to
recover from the series of crises at the start
of the year.  Did we see more of that in
August?
Pretty much. Yes. World equities rose
over 6% in August and are now back in positive
territory year to date. It was actually the best August
return in 30 years. It’s worth mentioning too
that the overall US market reached new
highs in August. Actually, the US Nasdaq
technology stocks reached new highs
way back in June.  And so too Chinese and Taiwanese
stock markets – each of which are heavily weighted in technology companies – they broke new highs in July.
So, some major milestones are being achieved
after that very rough patch in February-March.
It sounds like it’s still a bit uneven. There
are a lot of countries you didn’t mention there.
Yes, apart from the US, China and Taiwan, other
markets are still under their high water marks.
And that’s really because the economic recovery
has not significantly strengthened around the world.
The clear global winners this year have been
the technology companies that have helped
us all to stay connected.
But concerns around Covid and likely further
localised shutdowns is a major drag on confidence,
consumption and investment. The macro-economic
picture is starting to clear. But there’s
a long way to go. Government policy everywhere
is doing whatever it takes to support growth,
but it will take time for labour markets to
bounce back.
Speaking of long waits, why are UK assets
trailing behind so much? And when can we expect
the UK to be back in favour with global investors?
Well the UK economy has a large services and
energy sector – and both have been among
the hardest hit by Covid. But the UK is
also heavily involved with global trade, and
and that was slow well before Covid took hold. So,
the UK has been hit on two fronts this year,
which partly explains why UK stocks remain
down around 18% on the year, while overall
developed equities are up almost 6%. So,
the UK market will need more evidence of economic
rebound before its market recovery matches the likes of China and the US.
It’s worth pointing out that European markets
are also still down over 10% year to date
and Japan down around 5%.
But the UK is the real laggard.  And no doubt uncertainties over Brexit are still important here.
On Brexit, we are heading into a crunch time. The autumn session where, if a deal is to be done
we should start to see the shape of it forming very soon. September 7th kicks
off the next round of negotiations, and the
EU Summit on October 15th is the key milestone. The
European Parliament needs a fully formed agreement
by the beginning of November if it is to be
scrutinised and ratified by the end of the year.
Thanks Brad, so you’ve talked about Covid, lockdown measures and Brexit, and how they've taken
their toll on markets, and we also remember
the oil price crisis back in February-March. Is
there anything else we should be looking out
for?
It might seem a technicality, but during August,
the US Federal Reserve announced a major change
in the way they fight inflation. That has
implications for interest rates, bond yields,
currencies, gold prices - frankly every financial
asset price.
The nature of the change is that the Fed will
now be more responsive to historical inflation,
rather than using pre-emptive policy based on official inflation forecasts.
Under the new system, they will wait a lot
longer after inflation rises before starting
to raise short-term interest rates. For the
time being, it means policy will remain easy
for longer, and that is a good thing for risky assets.
Elsewhere, Japan’s Prime Minister, Shinzo
Abe, has announced his retirement. He is renowned
for his transformative economic policies since 2012, so-called 'Abenomics',
and some investors may be looking to see what happens
next in Japan. However, the retirement does
not currently look like a financial market event,
as the unusually speedy succession process looks designed to ensure continuity of Abe's policies.
So, there’s certainly a lot going on
in the markets. Against this backdrop how
did the Nutmeg fully managed portfolios perform
during the month?
Higher risk portfolios rose by a bit over
5%, mid-risk portfolios rose around 2.5%, and
lower risk portfolios were basically flat.
Given everything that’s happened lately, have you made any changes to Nutmeg's fully-managed portfolios?
Yes, we slightly increased our equity allocation
through UK small to middle-sized companies,
although we do remain slightly underweight UK
equities. We also moved a small amount of
UK gilts into US mortgage backed securities. Traditional
government bond markets continue to represent
poor value, and we look to add yield to portfolios
where we can. We maintain a very small Pound Sterling
underweight vs the US dollar on the risk
of no deal with the EU in coming months.
Thanks Brad. This month’s customer question
comes via our customer support team. We’ve
been asked: ‘I'm not far away from drawing
down my pension and I’m wondering if it’s
a good time to consolidate my pension pots
in one place?’
Well I think any time is a good time to consolidate
pension pots. Quite apart from the ease of
access and transparency of your financial
position, there could also be cost benefits
if you consolidate into a low fee fund.
A key consideration is how you plan to start
drawing down. Will you be taking an annuity?
Or will you be taking a tax-free element and
staying invested with the rest? Many people
need to keep the value of their assets growing
during retirement so stay invested for quite
a while. In this case, one central investment
plan is a better idea than having smaller
pots with potentially conflicting investments.
Good asset diversification is easier to achieve
with the one pot.
Thanks Brad.
Thanks Alex.
And thank you for joining us. If you have any
questions for Brad or the investment team,
or something you’d like answered in the next
month’s investor update, you can contact
us via social media, email, or in the comments section below. We look forward to seeing you next month.
