Indicators for potential profits in the year ahead are positive
Technology stocks have been performing strongest
Healthcare stocks have had a slowdown
Healthy returns posted across portfolios
OVERVIEW
I am pleased to share some thoughts and numbers with you so that you can see how we evaluate what we have done in the last year and how we are thinking about the year ahead. I hope that we all will have a good year, personally and financially, to look forward to.
At this moment in time, I feel that the financial indicators for potential profits in the year ahead are positive and many fund managers share this view. We will see (of course) but we are also mindful of a host of new risks but also new opportunities.
In terms of the returns from equities as an asset class, whilst Technology stocks have once again been one of the strongest performers, it is actually Financials that have led the pack. This has been driven by a multitude of factors such as the incoming administration in the US which promises deregulation, Financials have enjoyed a day in the sun. On the flipside, whilst no major sectors find themselves in the red, Healthcare names (with the exception of weight-loss drug beneficiaries) have seen a slowdown from their COVID peaks, and Energy names have struggled as a result of falling Oil and Natural Gas prices – which is somewhat surprising given the backdrop.
As we look forward to 2025, whilst there are always reasons to keep an eye on what can and might go wrong, we see many reasons to be positive. Portfolios across the board have benefited from the vast majority of asset classes achieving posting healthy returns, and, whilst sovereign bonds are yet to really come to the party, forward looking returns are actually exciting (dare we even say that?).
The end of the year saw a modest scaling back of the returns achieved during the year but portfolios and markets ended up by a decent amount on the start of the year.
PERFORMANCE REVIEW
The portfolios have continued to perform strongly, particularly at the higher risk end of the spectrum (a higher mix of shares in the portfolio). The fixed income or debt parts of portfolios have undoubtedly been hampered by stronger economic fundamentals than expected (so fewer rate cuts) and the returns that we would have expected have not materialised. That same factor has led to very strong performance for equity markets.
We know that rate cuts have been slower as a result of these stronger underlying conditions but the markets are still expecting the rates to come down over time and now right through to 2026. This environment of falling rates should deliver an upward moment in Equity and Bond markets but the spectre of inflation hasn’t gone away completely.
IMPLIED OVERNIGHT RATE & NUMBER OF HIKES/CUTS
MARKET OVERVIEW
Looking back at what happened in 2024, virtually all asset classes (in local currency terms) have produced strong returns, with the only exception of note being certain government bond markets.
2024 was a year where geopolitical risks were expected to be heightened, being dubbed ‘the year of elections’ as there was 71 different elections, accounting for 80% of the world’s GDP and 40% of the global population. This was in addition to geopolitical risks associated with the Russia-Ukraine War and the Israeli-Hamas conflict, which escalated to include direct attacks between major powers, Iran and Israel. Despite concerns that the US election would be a messy affair, Donald Trump defied predictions to win a landslide victory, winning all the Swing States, and the Republicans achieved the ‘clean sweep’ of a majority in the Senate and the House.
Whilst a lot has happened politically, the concept that political/election-based risks are ‘noise’ within the context of greater macroeconomic trends has rung true. As it stands the global macroeconomic backdrop, led by the US, looks quite robust. We are faced with the unusual combination of falling interest rates, strong earnings growth, and a continued economic expansion (circa 2.5-3% real US GDP growth). This combination increases the likelihood of the soft-landing economic scenario playing out, as inflation has fallen without incurring sizeable economic disruption.
NBL PORTFOLIO RISK ADJUSTED RETURNS
The Portfolios have maintained an appropriate level of volatility / return linked with the chosen exposure to investment risk. The graph above shows increasing levels of volatility as the portfolio has more exposure to shares and a commensurate level of reward.
Additionally, it’s encouraging to see the changes made at the last IC, namely increasing equity weight and improving portfolio structure, have had a positive impact, particularly with regards to the linear progression of risk through the range.
Many thanks for your continued confidence in the care of your capital, we strive to deliver excellent results combined with quality competent financial advice that is appropriate to your ever-changing need. Please contact NBL if you need to speak to us at any time.
