Market Commentary
Q1 2024
Our market review and commentary on The Markets and the IP model portfolios
In the Eurozone, equities also appreciated with the main driver being a positive outlook for the IT sector due to the embedding of AI technology.
In the UK, equities delivered absolute returns, however, they lagged the US and European equity markets due to the underweight of technology companies in the main indices. There was also a small increase in GDP which brought the UK market out of recession but growth was still low and this continued to impact any degree of positivity towards the UK economy
The Equity markets in the first quarter of 2024 performed robustly with several key highlights.
Global Equity markets registered strong gains due to a resilient US economy and investor confidence driven by positive expectations and enthusiasm around artificial intelligence. There was also more of a focus on earnings rather than interest rate expectations, and major US tech companies exceeded earnings forecasts, which meant positive revaluations in equity valuations and the S&P 500 reached record highs. Expectation of up to six US interest rate cuts in 2024 was still the market consensus at the beginning of the quarter, however, this diminished by the end, where strong US wage growth and a surprising increase in employment made this less likely.
The Japanese market was the best performing market in the quarter with the Nikkei appreciating by 20.6%. This was due to a structural change in monetary policy and a change in corporate governance which led investors to believe that companies will be more transparent in the future and dividend paying.
Emerging markets were dominated by the performance of China which still had difficulties due to poor economic data and concerns over the weakness in its property market. The outlook for India was more positive with the economic reforms started in 2017 delivering their aims of wealth appreciation and diversity. This combined with further infrastructure build and multi nationals looking to reduce their reliance on the Chinese economy led to further growth in the Indian market.
In fixed interest, after a strong Q4 2023, when the anticipation of US interest rate cuts drove yields down, this quarter bond markets unexpectedly struggled. The shift in views causing this was not too dramatic – most economic commentators still believed that interest rates would be cut by the summer. Investors are now more aligned with the language of central banks which have toned down the lofty expectations of late 2023.
This was reinforced at the March Fed meeting when the target range for the Fed Funds rate was kept unchanged at 5.25% to 5.5% and the median rate projection was maintained, indicating 75 basis points (bps) of cuts through 2024. There were also upward revisions to the 2025 and 2026 rate projections and a 10bps increase in the long-run rate estimate to 2.6%.
The Bank of England kept rates at 5.25% but there was a shift in the votes, with two moving from favouring a hike to no change. Governor Bailey indicated that a rate cut was on the cards… but not imminently. The majority of the MPC felt that both wage growth and service price inflation were too high to justify an immediate move but a cut before the end of June would be a distinct possibility.
IP Model Portfolios – Performance commentary and fund changes
At the Investment Committee meeting in Q1 2024, a small number of fund changes were made which continued to reduce ‘home bias’ in the accumulation and passive ranges, and reduced the asset allocation to some of our defensive managers.
In the accumulation range, we took a greater exposure in the Royal London Global Equity Diversified fund which had superior performance to the Fundsmith Global Equity funds and Lindsell Train UK funds at a significantly lower cost. We also trimmed our exposure to the defensive managers such as Ruffer and Cohen and Steers. This had a positive effect on the portfolios.
In the passive range, we gained further exposure to global equity through a reduction in our fixed income funds and a redistribution to global equity trackers.
The income ranges continued to deliver a healthy yield across all portfolios and no changes were made to the fund composition this quarter.
Martin Nelmes
Investment Director and Chairman of the Network Investment Committee
The IP MPS performance was positive across all portfolios in the quarter and this was due to the increase in equity exposure that was enacted at the January investment committee. All portfolios had an uptick in risk rating due but are still well within their appropriate bands.
All IP MPS ranges outperformed their benchmarks with performance appreciating as the risk increased. The best performance was from the passive and accumulation ranges with the bias towards global equities paying off.
This document is aimed at Investment Professionals only and should not be relied upon by Private Investors. Our comments and opinion are intended as general information only and do not constitute advice or recommendation. Information is sourced directly from fund managers and websites. Therefore, this information is as current as is available at the time of production.
On-Line Partnership Group Limited (reg. no. 03936920) and its subsidiaries, The On-Line Partnership Limited (reg. no. 03926063) and the Whitechurch Network Limited (reg. no. 03663042) trade collectively as In Partnership. All three companies are registered in England and Wales. The On-Line Partnership Limited and the Whitechurch Network Limited are authorised and regulated by the Financial Conduct Authority. Registered Office: 50-56 North Street, Horsham, West Sussex, RH12 1RD.