WealthSelect Managed Portfolios quarterly report - June 2024 (Q2 2024)

Our market summary

Global equities gained 0.7% in the second quarter of 2024. China was the top performing market with a return of 7.1%. This boosted Asian and emerging markets, which outperformed developed markets. Despite the European Central Bank (ECB) becoming the first major central bank to cut interest rates in June, European equities were flat over the quarter. Meanwhile, UK gilts were down again while US Treasuries were mostly flat, and sterling corporate bonds suffered slight losses.

US

Although stubborn inflation continued to push back the expected date of a first US interest-rate cut, US equities gained 4% over the quarter. The relentless enthusiasm for companies exposed to the artificial intelligence (AI) market narrative saw information technology and communication services stocks outperforming amid a flurry of robust earnings numbers and a more bullish tone in corporate messaging. Meanwhile, materials and industrial sector stocks trailed.

Europe

Despite Europe being the top performing regional market in May, as investors speculated on the subsequent June interest-rate cut, losses in April and June left European equities up just 0.1%. European equities struggled in June with snap parliamentary elections in France and dwindling expectations of greater interest-rate cuts. As elsewhere, technology-related stocks prospered while Europe’s prominent automotive and luxury goods stocks trailed.

UK

UK equities delivered 3.5%. This brought returns for the first half of 2024 to 7.3%, almost exactly in line with returns from both European and Japanese equities at the half-way point. Encouraging progress on UK inflation (CPI), which fell back to the 2% target in May, was sufficient cause for Prime Minister Rishi Sunak to call a July general election, but not sufficient for the Bank of England to cut UK interest rates at its June meeting.

Emerging markets

Emerging markets delivered a gain of 5.1% thanks mostly to a strong bounce in China on the back of policy support for its beleaguered housing sector. Turkey was the top performer, closely followed by Taiwan, due to its profusion of major tech companies. South Africa also performed well following its general elections, as did India. Brazil and Mexico suffered the biggest losses. Korea also trailed, as did energy-related emerging markets as oil prices fell.

Fixed income

UK gilts trailed other government bonds as they declined 1.1%. US Treasuries were essentially flat after a less hawkish tone from US Federal Reserve (Fed) chairman, Jerome Powell, in June, helped to right losses from earlier in the period. The latest Fed dot-plot now shows just one rate cut in the rest of 2024, a decrease from three anticipated in March. Meanwhile, sterling corporate bonds declined by a modest 0.2%.

UK equity

UK election: no surprise for markets

With some improvement in UK economic data, the Prime Minister took the decision to call a general election. The result of that election was an overwhelming majority for the Labour Party at the expense of an incredible loss by the Conservatives. The very muted response in the stock, bond, and currency markets confirms that this was the expected outcome.

UK equities rally

The potential political stability offered by such a large political majority, alongside the appearance of a more business-friendly and fiscally sensible Labour party, allowed the UK market to post a decent return of 3.5%. This was matched by the aggregate returns from the UK equity funds held in your portfolio.

UK Opportunities leads the field

The Quilter Investors UK Opportunities Fund, which invests in companies that are out of favour and will benefit from a recovery in fortunes, had a tougher June, but was still the strongest performer among the UK holdings over the quarter. We feel this fund is well positioned to benefit from any renewed interest in the UK market from international investors. Consequently, we nudged up the allocation to this fund in the June rebalance.

Fixed interest

Fixed interest trails

The fixed-interest holdings struggled at the start of the quarter with the expectations for US interest-rate cuts being pushed further out. It was the same story in the UK. The ECB delivered a first rate cut but made it clear that there was no clear schedule of cuts planned with future moves coming in response to market developments. As inflation data softened towards the end of the quarter, the outlook for government bonds improved with some positive returns in June. Corporate bonds outperformed government bonds through the period, but their prices dipped in June.