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Global equities enjoyed another exceptionally strong year of returns in 2024. US stocks were the standout performers due to higher economic growth rates and a greater weighting to the best performing sectors of the past 12 months, in particular technology. Although major central banks began cutting interest rates, the size of the reductions was smaller than many had anticipated at the start of the year, causing bonds to underperform.
The MSCI North America Index posted a 2024 return of 26.2%, outperforming the 19.6% for the MSCI AC World Index (in Sterling terms). This marked the second year running that US equities returned over 20%. The MSCI UK returned a respectable 9.5% in 2024, underperforming the US but outperforming continental peers, as the MSCI Europe ex UK returned 1.9%. Softer export demand due to China’s slowdown and political instability in Germany and France — the Eurozone’s two largest economies — weighed on performance. The pound ended the year 1.7% lower at US$1.26, towards the lower end of its 12-month range after the US dollar strengthened significantly following the US election.
Strategy Returns
Strong equity markets and weak bonds translated to the best returns being reflected across our highest-risk strategies, with the most significant equity weightings returning around 17.5% at the top end, medium risk portfolios returned just under 10%, and low risk portfolios fell into the mid-to-low single digit range.
Please refer to the factsheets for full details per strategy. Pleasingly all strategies generated a positive return for the year despite those losses in the gilt market – strong returns from our credit managers and a lower duration profile within our lower-risk strategies' bond allocations helped protect from the worst of those moves in gilts.
Trading Activity
In 2024 we didn't significantly change the strategies' asset allocations. We started the year overweight equities and bonds with an underweight to alternatives, and that is how we remain positioned.
Whilst our asset allocations remained relatively consistent in 2024, we made regular changes within the Building Block funds throughout the year. Full details are available in our quarterly review document, but in summary:
- In the UK we exited DS Smith to increase Segro; rotated Rio Tinto into Anglo American; trimmed Diageo to increase our holdings in AstraZeneca and BAE Systems.
- In Europe we added to Partners Group and Kerry Group; trimming ASML whilst maintaining our overweight to the stock.
- In the US we kept our in-line NVIDIA position throughout the year, rotating some of our position in Apple and TSMC into the stock.
Outlook
2025 feels like a big year for investors – a key question for us as equity investors is whether US exceptionalism will continue or whether the rest of the world can catch up; and linked to that, whether US technology and the ‘Magnificent Seven’ can continue their outperformance versus all other sectors. We don’t see any significant threat to the earnings growth the Magnificent Seven can deliver, but it seems reasonable that the difference in PE multiples with the rest of the US market can narrow, particularly if the bullish view on Trump’s policies does deliver better and broader growth across the US economy.
In the UK, there are only two rate cuts priced into 2025 – despite rates being higher here than the US, while the US economy is growing at twice the rate of the UK. Whilst the resilience of the UK and European economy was a welcome surprise in 2024, GDP growth has been flat, and the per capita figures are negative. So, we think the market is under-pricing the likelihood of rate cuts from the Bank of England this year.
Predicting policy is a difficult game - particularly when Donald Trump is in office – but we believe a global economic growth outlook of 3% real GDP for 2025 is reasonable and supports risk assets – equities have had two very strong years, but earnings growth remains strong, and we believe interest rates cuts can support both equities and bonds in 2025.
Authors
Antony Webb
Head of MPS Investment Funds