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Global equity markets continued their strong start to the year, with all major equity markets making gains in March. US and Japanese markets are leading the way in 2024, with both indices up over 10% in sterling terms for the first quarter. UK equities had a strong March, returning 4.7% and pulling back into positive territory for 2024 after a weak start to the year. Small and mid-cap indices in the UK, US and Europe all had a strong month, indicating improved sentiment for these more economically sensitive companies.
Against this bullish backdrop for equities, global bond markets have been generally weak, particularly in the US, as any hopes for imminent rate cuts were extinguished by the Federal Reserve, ECB, and Bank of England in March. Similar messages were relayed from each bank chair – expect some rate cuts in 2024, but not many and not yet. Market consensus is now pricing in two rate cuts from the Fed in 2024 with only a 50% chance of any further cuts before the end of the year.
Strategy Returns
- March had a narrow but positive range of returns, with all strategies returning between 2-3% for the month.
- US technology companies have been the primary driver of global equity market returns so far this year – our US Equity Building Block has captured this rally well and was up over 10% in Q1 - our best performing portfolio component.
- Whereas our fixed interest funds fell slightly over the quarter, pulling back a little from the big gains we saw at the end of 2023.
Overall, it has been a good quarter to take risk, with better returns moving up the risk spectrum as portfolio exposure to that tech rally increased. Weaker bond markets in 2024 have diluted returns further down the risk spectrum, but all strategies are still in positive territory for 2024 as a whole.
Please click here to view the performance data for each strategy in our month-end factsheets.
Trading Activity
March saw our first strategy rebalance of 2024. After a strong start to the year, we:
- Trimmed back our US equity position and recycled the profits into our UK and Asian & Emerging Market Equity Building Block funds.
- We also trimmed our Diversified Returns Building Block – reducing exposure to hedge and absolute return for our medium and lower risk strategies.
- Cash positions remained unchanged for most strategies.
Within the Building Block funds we have continued to actively review our preferred positions. In Europe we increased our exposure to Danish Pharmaceuticals company Novo Nordisk who have shown continued strength of sales from their weight-loss drugs. We funded this by recycling flows from our small ETF holding within the fund.
In the US we topped up positions in NVIDIA and META and initiated a new position in Artemis US Smaller Companies, allowing greater exposure to small and mid-caps if the 2024 equity rally continues to broaden out beyond the mega-cap tech stocks. We reduced our holdings in Apple and Mondelez to fund these changes – with both stocks staying in the fund but at a lower weight.
In the UK, we trimmed our positions in Unilever and Rio Tinto to fund a top up in Diageo, the premium drinks and spirits manufacturer, and Compass, the food distribution company that operates Costa Coffee. We also exited our position in NatWest and purchased Barclays. We believe NatWest will face selling pressure as the government winds down its 30% holding in the company, whilst the cheaper valuation of Barclays relative to tangible book value gives the stock a more attractive upside potential.
Authors
Antony Webb
Head of MPS Investment Funds