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Please refer to the glossary at the end of the document.
In brief
November: The Santa rally takes off in the US, whilst questions remain elsewhere
The month of November is unlike many we would usually experience at this time of year. It’s quite usual for positivity to feed market prices across many asset classes and there not to be a significant amount of divergence at all, yet this month was far from normal.
The US election result triggered the S&P 500 Index to push to new highs and left it up +7.04% over the month, with the technology heavy Nasdaq up a similar amount. The biggest and most surprising move was the Russell 2000 Index (a US smaller companies index), which rallied over +12.21%. This proved to be a standout performer in the US as well as the global stage. Optimism that Trump will lower taxes and provide further economic stimulus was well received by markets. However, we are a little more cautious on this narrative which is just a bit too optimistic in our eyes when considering the difficult trade and tariff discussions that lie ahead.
Trump has already opened his salvo here by focusing on a level of tariffs for the Emerging Markets, Canada and South America. This of course brings worries from our perspective. Anything being taxed on its way into the US will inflate prices. It is quite clear that analysts are finding it difficult to judge what impact this may have, although one thing has been clear, inventory build is high. Companies are importing goods and raw materials ahead of any imposition of tariffs to keep cost pressures down. Meanwhile, the Federal Reserve will make an interest rate announcement in the middle of December, it is unlikely this rate cut will surprise, but eyes will be firmly on the forward guidance they offer on the pace of future reductions.
In the UK, heavy reliance on US consumption benefitted returns, as the FTSE 100 Index rallied +2.61% during the month, with the FTSE 250 Index not far behind, up +2.10%. The UK economic data during the month showed slowing manufacturing but a resilient services sector, although it should be noted that. the UK economy is heavily focused on services.
Europe took the brunt of the market underperformance during November, with the Eurostoxx Index 50 down -2.72%. Worries around US tariffs, uncertainty of Trumps support for Russia/Ukraine followed by the announcement of German elections in February next year, were topped off with French debt worries. The French government has tried to push through tax rises and spending cuts and are yet to see this approved by parliament at the time of writing. European bond yields (the level of interest paid by a bond), had been on there way down across the continent, yet it was unsurprising that French yields bucked this trend. It did amuse us to read that Greek debt was now yielding less than that of France. While this is true, it is more a matter of a positive Greek economic backdrop than a terrible situation for France (so far). We remain pleased to have a smaller holding in European companies than the portfolios’ benchmarks, ahead of this which has been reaffirmed on the back of the recent uncertainty.
Japan remains a region that has lost some momentum following the summer months, however the TOPIX Index bounced in the month (+2.06%) as the Yen weakened against the dollar, a positive feedthrough to companies selling goods overseas. However, comments on the last weekend of the month from the Bank of Japan Governor Kazuo Ueda dented the market sentiment, focusing on the need for rate hikes in 2025. Wage negotiations across unions alongside higher prices in general are causing some steady inflation issues the central bank wishes to address.
The MSCI Emerging Markets Index also suffered in the month down -2.49% on the back of tariff worries. Interestingly it was the FTSE Emerging Europe ex UK Index on the other side of the coin that benefitted, returning +4.51%. The European periphery appear largely unaffected by the Trump effect and benefit from resilient domestic demand as European rates are lowered.
Whilst company share prices (equities) rallied, so did Fixed Income in this environment. The UK and US 10-year government bond yields closed the month at 4.24 and 4.17% respectively. Investors haven’t yet run for safe haven assets (for example, gold), but with interest rate cuts likely in the UK and Europe, its unsurprising to see investors locking in the higher yields experienced in the earlier part of the month.
We have of course saved the best for last, Bitcoin! Not an investable asset class from a portfolio context but more of an indicator of investor sentiment. This asset rallied to just under $100,000 a coin during the month, a gain of over +30%. Deregulation and US optimism are partly to blame, as well as positive sentiment that US growth will feed the rest of the world.
Whilst the month signalled positivity for global growth and the economic backdrop, there are some initial signs of an increase in returns across equities and fixed income. It’s very early to say whether Trump will enact the changes that commentators have been busy writing column inches about, but he is of course going to drive the hardest bargain at the start of negotiations, something we suspect we are currently seeing. For now, consumers are spending, the festive cheer is upon us and with low unemployment and wage inflation evident, it’s hard to envisage anything but markets grinding higher into December.
Key positioning
Glossary
Assets
Different groups of investments such as company shares, bonds, commodities or property.
Bonds (or fixed income)
Types of investments that allow investors to loan money to governments and companies, usually in return for a regular fixed level of interest until the bond’s maturity date, plus the return of the original value of the bond at the maturity date. The price of bonds will vary, and the investment terms of bonds will also vary.
Bond yield
This is calculated by taking the level of interest paid by the bond, divided by the price of the bond, expressed as a percentage. As the price rises, the yield falls and vice versa.
Emerging markets
Countries with less developed financial markets and which are generally considered riskier than investing in developed markets.
Government bonds
A type of bond, issued by a government. They pay out a regular fixed amount of interest until the bond’s maturity date, when the issue value of the bond should also be repaid. In the UK they are called gilts and in the US they are referred to as treasuries.
Yield (also see bond yield)
The dividend per share divided by the stock's or fund’s price per share and expressed as a percentage. The historic yield is the dividend income distributed during the past year and expressed as a percentage of the share price on a particular day.
Risks
Typically, there is less risk of losing money over the long-term (which we define as over 5 years) from an investment that is considered low risk, although potential returns may also be lower. Investments considered higher risk typically offer greater opportunities for better long-term returns, though the risk of losing money is also likely to be higher.
The performance information presented in this document relates to the past. Past performance is not a reliable indicator of future returns.
Forecasts are not reliable indicators of future returns.
Some of the main specific risks that apply to the funds that these portfolios invest in are summarised here. If the funds that are held in the portfolios change, the types of investment risk that the portfolios are exposed to will also change.
Fixed income investments, such as bonds, can be higher risk or lower risk depending on the financial strength of the issuer of the bond, where the bond ranks in the issuer’s structure or the length of time until the bond matures. It is possible that the income due or the repayment value will not be met. They can be particularly affected by changes in central bank interest rates and by inflation.
Equities (company shares) can experience high levels of price fluctuation. Smaller company shares can be riskier than the largest companies, companies in less developed countries (emerging markets) can be risker than those in developed countries and funds focused on a particular country or region can be riskier than funds that are more geographically diverse. These risks can result in bigger movements in the value of the fund. Equities can be affected by changes in central bank interest rates and by inflation.
Derivatives may be used within funds for different reasons, usually to reduce risk, which can be called “hedging”. This can limit gains in certain circumstances as well. Derivatives can also be used to generate income or to increase the risk being taken, , which can have positive or negative outcomes. The derivatives used can be options or futures which are types of contracts that are dealt on an exchange or negotiated with a third party. More complex derivatives may also be used. Derivatives can also introduce leverage to a fund, which is similar to borrowing money to invest.
Funds may have holdings in investments such as commodities (raw materials), infrastructure and property as well as other areas such as specialist lending and renewable energy. These investments will be indirect, which means accessing these assets by investing in companies, other funds or similar investment vehicles. These investments can also increase risk and experience sharp price movements. Funds focused on specific sectors or industries, such as property or infrastructure, may carry a higher level of risk and can experience bigger movements in value. Certain investments can be impacted by decisions made by third parties, such as governments or regulators.
There are many other factors that can influence the value of a fund. These include currency movements, changes in the law, regulations or tax, operational systems or third-party failures, or financial market conditions that make it difficult to buy or sell investments for the fund.
Funds that are managed to maintain a specific risk profile, or that invest in other funds that themselves are managed to maintain a specific risk profile, may have their potential growth or income constrained as a result.
Important information
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Reference to any investment should not be considered advice or an investment recommendation.
All data is sourced to Premier Miton unless otherwise stated.
Source for performance data: FE Analytics.
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