WealthSelect Managed Portfolios quarterly report - September 2024 (Q3 2024)

Our market summary

It was a disappointing month for equities and bonds across the board. In local currency terms, Japanese  equities were the only positive developed market returning 2.3%. Uncertainty around future growth is still the main concern for investors, whilst the US election added further uncertainty about potential policy shifts affecting taxation, inflation, and interest rates. However, it was not all gloom for sterling-based investors as the relative weakness of the pound against the US dollar over the month saw US and global equities deliver positive returns of 3.6% and 2.0%, respectively.

US

The uncertainty ahead of the US Presidential election and ongoing doubts about the future path of interest rates saw US equities end the month down by 0.7% (before the impact of currency movements). Weaker than expected earnings updates from some of the largest US companies also weighed on investor sentiment. At a sector level, healthcare, materials, and real estate saw the most significant declines whilst financials and communications performed well.

Europe

European ex UK equities fell by 1.9% in October due to concerns around growth and weakening economic momentum, particularly in the manufacturing sector. The real estate, information technology, and consumer staples sectors were the weakest sectors with industrials and communication services the only sectors to register a positive return. In line with expectations, the European Central Bank (ECB0 announced a third 0.25% rate cut of the year.

UK

UK equities were down 1.7% in October amid concerns that the recently announced budget has worsened the longer-term economic and interest rate outlook for the UK. The market sell-off at the end of the month was particularly felt by UK small-cap companies as the index ended the month down by 3.5%. This change in market sentiment occurred despite positive news that headline inflation was back below the Bank of England’s 2.0% target.

Emerging markets

Emerging markets equities fell by 2.7% in local currency terms over the month with notable headwinds including rising US bond yields and the stronger US dollar. Chinese equities were also down 5.6% in local currency terms due to doubts about the effectiveness of the stimulus measures announced in September. Elsewhere, India, Korea, and Brazil underperformed whilst Taiwan was the only emerging market to deliver positive returns in October.

Fixed income

October was a challenging month for fixed income as the resilience of the US economy and uncertainty about potential post-election policy changes prompted a re-pricing of future US Federal Reserve (Fed) rate cuts. Global bonds were down 1.4% overall with UK gilts and US Treasuries down 2.8% and 2.6%, respectively.

UK equity

Solid progress for UK equities

Early in the quarter, the landslide win by Labour in the general election led to hopes of a sustained recovery in the domestic economy although this was somewhat offset by concerns around potential tax increases and spending cuts in a ’painful autumn budget’. Despite this, UK equities made solid progress over the period.

Back in favour

At a sector level, financials, utilities. and consumer discretionary sectors were the top performers. This was a favourable backdrop for the Quilter Investors UK Equity Income Fund (managed by Jupiter), with the rally in previous out of favour names such as St. James’s Place and Drax helping to boost relative returns.

Short-term weakness

The Quilter UK Equity Opportunities Fund (Artemis) was the weakest UK holding over the quarter, lagging its benchmark by 0.5%. This was primarily driven by some weakness within the industrial names during the period, with order books lighter than had been expected earlier in the year. However, the year-to-date performance of the fund remains comfortably ahead of the broader UK market.

Fixed interest

Rate cuts boost bonds

Following the first ECB rate cut in June, the BoE and the Fed also started cutting rates this quarter. Ahead of this, bond markets had reassessed the likelihood of not only these rate cuts but a significant number more over the next 18 months. This did not tie in with our base case assumptions for the direction of the economy and as a result we took the opportunity to reduce our traditional fixed interest exposure at the beginning of September. We saw strong performance across the board, but the funds more sensitive to interest rates did the best.