Investment Update – November 2024

What happened in markets?

Global equities enjoyed a strong November as US equities hit new all-time highs. The S&P 500 returned 7% but this was surpassed by US small caps, with the S&P SmallCap 600 rising by 12%. In contrast, the MSCI Europe ex UK and MSCI Emerging Markets indices fell 1.5% and 2.5% respectively. UK equites bucked the trend, with the FTSE 100 returning 2.6%.

Bond markets generated positive returns, with gilts and sterling corporate bonds outperforming, and the dollar rose nearly 2% against a basket of developed market currencies. Oil had a volatile month, with a ceasefire in Lebanon easing supply concerns in the Middle East, and gold fell nearly 2% as election hedges unwound.

The positive reaction to Trump’s victory, at least for US equities, stems from hopes that he’ll push through corporate tax cuts and deregulation in sectors such as financial services. However, his ‘America First’ policy means that tariffs on Chinese and European goods are highly likely, complicating the outlook for growth and inflation in the world’s largest economy. Europe’s problems have been further compounded by political paralysis in Germany and France.

Meanwhile, both the Fed and the Bank of England reduced interest rates by 0.25%, moves which had been largely priced in by markets. However, they sounded a note of caution on the pace and extent of future rate cuts, an understandable reaction to the US election result and Labour’s plan to ramp up public spending.

What did we do in the funds?

Following US dollar strength in the aftermath of the election, we sold an unhedged US treasury bond position in Esprit Careful Growth, allocating the proceeds to hedged US treasuries and gilts. We also modestly reduced a global strategic bond fund in favour of global corporate and high yield bonds in both Esprit Careful Growth and Esprit Tactical Balanced.

In the latter, we also added a new position in the Artemis Short-Duration Strategic Bond Fund after reducing another global strategic bond fund. The advantage of the Artemis approach is that they take very little duration risk, by only investing in short-dated bonds across various fixed income sub-asset classes.

In both Esprit Tactical Growth and Tactical Alpha Plus we reduced the overweight to UK sterling corporate bonds and increased global high yield bonds. In Growth, we also reduced L&G UK Mid Cap to increase the Invesco S&P SmallCap 600 ETF given the relatively better economic outlook for the US economy.

*All returns in Sterling. Source: Morningstar direct

What is the outlook?

The extent and speed to which the Trump agenda will be enacted is the big unknown, but he inherits an economy in good shape. We remain constructive on equities given ongoing economic growth, falling inflation and lower interest rates. Bonds also offer good value at present and should provide appropriate diversification benefits if we experience some sort of growth shock in the coming quarters.

We don’t think tariffs are a logical tool for reducing trade deficits, but there are stabilisers which could offset their impact, to some extent, such as exchange rates. For example, a fixed tariff level on Chinese exports to the US would result in some depreciation of the Chinese yuan against the US dollar, whilst Chinese companies could also cut their prices in response.

China also has problems domestically, and recent efforts to stimulate their economy are unlikely to be sufficient to deal with the problems in its property market and boost consumer demand. A trade war would almost certainly initiate a response from Beijing, but the timing of any further stimulus announcements is unclear. How these opposing shocks interact will be a defining feature of 2025.

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Written by:
Charlie Lloyd
Head of Investment, Shackleton

Important information:

This document is issued by Shackleton, which is a trading style of Shackleton Advisers Limited. Shackleton 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.