Investment Update – June 2024

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Watch our Investment Update below with Head of Investments  Charlie Lloyd and Senior Investment Manager Wayne Nutland.

You can find a written summary below and a downloadable booklet for more details.

What happened in markets?

June was another positive month for investors with global equities returning 2% in June. Technology was again the leader of the pack with Nvidia briefly becoming the world’s most valuable company as its market capitalisation surpassed $3tn. To put this into context, this is the same as the entire French Cac 40 stocks index plus most of Germany’s Dax index. Nvidia’s shares have risen by nearly 150% in 2024 alone.

However, a good month for US equities masked a deterioration in breadth, as the Magnificent 7 technology stocks rose 9% vs just a 1% gain for the 493 other stocks making up the S&P 500 index. Industrials, energy and basic resources were the biggest drags on the market, reflecting weaker economic data.

European equities underperformed following President Macron’s decision to call a snap election in a gamble to see off the advance of the far-right in his country. French banks were particularly volatile as investors considered the possibility that they could be targeted for windfall taxes by far-right and far-left parties. After RN’s victory in the first round of voting markets now eagerly await the second round of elections, just a few days after the UK election.

Bonds were mildly positive over the month as inflation data supported central bank easing in the second half of the year, whilst oil prices jumped 6%. Industrial metals and agricultural prices both fell 5% and listed infrastructure declined 3%. In currency markets the Japanese yen fell to its lowest level against the US dollar since 1986, prompting speculation the Japanese central bank would be forced to step in to support its ailing currency once again.

What did we do in the funds?

Across the VT Esprit fund range, we switched out of Fidelity Index Japan into the Amundi Prime Japan ETF. Although the Amundi product tracks a different Japanese equity index, long term performance is almost identical and it offers a lower OCF. To further reduce underlying fund charges, we also carried out the same exercise for our exposure to UK government bonds, selling the iShares UK Gilts All Stock Index and buying the Amundi UK Government Bond ETF.

Having initiated positions in emerging market government bonds and high yield corporate bonds last month, we took this opportunity to increase the HSBC Global Emerging Market Government Bond fund to our desired weighting of 3.5% in each of the VT Esprit funds. We also increased high yield bond exposure to 3.5% across the range by introducing the BNY Mellon Efficient Global High Yield Beta fund to sit alongside the iShares Broad $ High Yield Corporate Bond ETF. The BNY vehicle tracks a well-established index of high yield corporate bonds but applies a screen to filter out overpriced bonds and low-quality issuers. This reduces the investment universe which helps to offset some of the inefficiencies of the market including poor liquidity and high trading costs.

We funded the above by reducing our overweight position in sterling corporate bonds, with UK assets having performed well in the run-up to the election.

What is the outlook?

With a Labour government in the UK confirmed, attention will quickly turn to potential policy actions. A renewed commitment to building new homes and planning reform should stimulate the UK housing market, which will receive a further boost from lower interest rates, and we also expect announcements on clean energy investment. Sterling and UK equities with high domestic revenues should see renewed interest, particularly from international investors who may see the UK as a safe haven from a political perspective.

We continue to expect the Bank of England to cut interest rates in August, with inflation continuing to moderate even if services inflation remains too high for comfort. However, wages pressures continue to ease and unemployment has hit its highest level since the pandemic at 4.4%. Recent communication from the bank also suggests that a majority will vote in favour of a reduction in interest rates next month.

With a period of political stability ahead, UK equities may benefit from a slow but steady improvement in the economic outlook with inflation back to target, interest rates set to fall and consumer confidence picking up. With political uncertainty increasing across Europe, the UK may look relatively more attractive to overseas investors, especially with valuations looking so compelling in an international context.

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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