WealthSelect Managed Portfolios quarterly report - December 2024 (Q4 2024)

Our market summary

Global equities were up 1.4% in US dollar terms in the fourth quarter of 2024. However, the currency weakness of sterling saw returns boosted to 6.1% for sterling-based investors. At a regional equity level, the US and Japan were the only developed markets that saw positive returns over the quarter. The US stock market advanced following Donald’s Trump’s victory in the Presidential election, but other regional markets came under pressure amid worries over the impact of tariffs.

Fixed income markets were highly volatile in the last quarter of 2024 due to geopolitical tensions, the decisions of central banks, and persistent inflation.

US

US equities rose by 2.8% in US dollar terms, translating to a 10.1% return for sterling investors due to the strong dollar. Markets were buoyed by Trump's clean sweep of the presidency, Senate, and House, with expectations of lower taxes and reduced regulation. The best-performing sectors were consumer discretionary, communication services, and tech, while materials was the weakest.

Europe

European equities end the final quarter of the year with a decline of 4.2%, driven by concerns over a potential recession in the eurozone. Political instability was also prevalent during Q4, notably marked by the collapse of the German coalition government in November and the resignation of the French Prime Minister in December following a vote of no confidence. The weakest performing sectors for the quarter were materials, real estate, and consumer staples.

UK equities

UK equities ended the quarter 0.6% lower as several domestically-focused sectors declined due to an increase in long-term bond yields and concerns about the outlook for the UK economy. Additionally, there were indications that cost increases mentioned in the Budget could be affecting the jobs market. Industry hiring data for November indicated weak demand for UK staff leading up to the Christmas period.

Emerging markets

Overall, emerging markets were down 1.3% for sterling-based investors (down 4.2% in US dollars). Chinese equities saw a 7.0% loss in local currency, but the renminbi’s strength against the pound saw this soften to a 1.1% decline. Trump’s victory acted as a headwind for emerging markets with concerns about the impact of tariffs weighing heavy on China. Only four emerging markets recorded positive returns over the quarter – Czech Republic, Kuwait, Taiwan, and the UAE.

Fixed income

Robust US economic data and higher inflation caused considerable volatility in fixed-income markets, pushing up yields and strengthening the US dollar. The quarter was also marked by notable selloffs in government bond markets. UK gilts were down 3.6%, US Treasuries down 3.5%, and global bonds overall were down 1.0%. In corporate bonds, high-yield bonds outperformed investment-grade bonds, driven by expectations of a pro-business Trump administration.

UK equity

UK equities decline

UK equities posted a decline in the fourth quarter. A weakening economy, a tax-raising budget from the new government, and a pick-up in inflation were just some of the things investors needed to navigate over the period. Interest-rate sensitive sectors such as utilities and real estate were particularly weak following increased expectations for UK interest rates to remain higher for longer.

UK exposure trimmed

We have previously looked at the relative valuation of the UK market as an interesting opportunity but with the lack of short-term growth drivers presented in the Budget, we trimmed the exposure in the December rebalance. The performance of the underlying holdings in the portfolio was mixed but they beat their benchmarks overall.

Artemis performs

The Quilter Investors UK Equity Large-Cap Income Fund was the standout performer in Q4 capping off a strong year for the team at Artemis. Performance was driven by a combination of holdings alongside good sector positioning particularly their underweight to materials and an overweight to consumer discretionary names.

Fixed interest

Inflation still a concern

US Treasury yields marched higher during the fourth quarter amid still strong US growth and inflation. Meanwhile, Trump’s proposed policies of import tariffs and immigration restrictions present upside risks to inflation making investors question whether interest rates would be cut as far as expected. This led to losses from traditional fixed income, with gilts faring particularly poorly following the Budget. Elsewhere, our shorter duration strategic bond managers were the best performers, taking advantage of the volatility to enhance returns.