Investment Update – May 2024

What happened in markets?

April was a volatile month for global equities with the S&P 500 falling 5% at one point during the month. Tech was the main drag, whereas commodity related stocks outperformed. The UK was the best major performing market given its relatively high levels of exposure to the better performing sectors. Inflation concerns have crept back into financial markets with central banks expected to hold rates higher for longer.

Bond markets struggled as the prospect of near-term interest rate cuts began to fade. US treasuries and UK gilts under performed the rest of the world, with short, medium, and long-dated bond yields moving higher. The economic divergence between the US and the rest of the world saw the US dollar rise by 1.6%.

There were big moves in commodity markets, with gold rising 4% and industrial metals jumping by 13%, although oil prices finished 1.5% lower as Middle East tensions began to subside. Listed real estate suffered as bond yields rose, falling by more than 5% over the month, whereas listed infrastructure fell less than 1%.

What did we do in the funds?

After rallying 30% since the end of October, we trimmed Sanlam Global Artificial Intelligence in VT Esprit Tactical Growth. We also took this opportunity to reduce the L&G US Index Trust and added the proceeds to the Wisdomtree US Quality Dividend Growth ETF, which has greater exposure to growth and quality stocks than the S&P 500 and moderates our exposure to economically
sensitive companies.

In VT Esprit Tactical Alpha Plus we reduced our exposure to UK mid and small cap equities and added the proceeds to US equities, as part of a strategic decision to gradually increase our US equity exposure over time. With rate cuts being priced further out, the prospect of near-term out performance from smaller companies is waning. That said, UK assets continue to offer value relative to global peers and we introduced the RM Alternative Income fund which is now held across the VT Esprit fund range. This vehicle invests in real assets such as specialist real estate and infrastructure. The fund obtains this exposure through investment in a portfolio of investment trusts, many of which trade at a double-digit discount to net asset value and offer dividend yields in the high-single digits.

We made wholesale changes to VT Esprit Sustainable Growth in order to align the fund with our updated strategic asset allocation framework and the newly launched Responsible Model Portfolio Service. Broadly speaking we introduced high yield bonds, regional equity exposure and a thematic water fund. The full list of changes is available on request.

What is the outlook?

Markets now expect just two cuts from the Fed this year, opening up the prospect of the Bank of England and European Central Bank beginning their rate cutting cycles before the US central bank. Recent currency movements have begun to reflect this. US economic growth continues to diverge from the rest of the world, and inflation looks to be somewhat stickier. It’s possible that the Fed will not cut at all this year, especially with an election in November.

Corporate earnings momentum remains relatively strong, particularly in the US which is dominated by the tech sector. The UK and some areas of Europe appear to be recovering from short-lived technical recessions, with real incomes now rising as energy and food disinflation continues apace. However, until we start to see looser monetary policy, growth is likely to be tepid.

While progress on inflation has stalled, at least in the US, we’re more positive on other developed markets where disinflation trends remain on track (the UK and Europe), or where inflation isn’t an issue (Japan). Keep in mind that if we do see an economic slowdown in the US, perhaps later this year or in 2025, central banks have scope to cut rates aggressively if required.

Download our full Investment Update to access more details of changes in the funds and asset allocation.

Learn more about our funds and how we invest here.

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We are always happy to help.

Written by:
Charlie Lloyd
Head of Investment, Skerritts

Important information:

This document is issued by Skerritts, which is a trading style of Skerritt Consultants Limited. Skerritts makes no warranties or representations regarding the accuracy or completeness of the information contained herein.  We have prepared the following document based on our view of the current market. Nothing in this document shall be deemed to constitute financial or investment advice in any way. We recommend you speak to your adviser before making any decisions.  This document shall not constitute an invitation or inducement to any person to engage in investment activity. Past performance is not a guide to future returns and the value of capital invested and any income generated from may fluctuate in value.  Skerritts is a trading name of Skerritt Consultants Limited who are authorised and regulated by the Financial Conduct Authority. FCA Number 163291. Skerritt Consultants Limited is registered in England and Wales, registered number 04129116. Registered Office: Skerritt House, 23 Coleridge Street, Hove, BN3 5AB. VAT Registration: GB 161 0039 56