06.02.24

February 2024 Investment Summary

February’s 2024 Investment Summary revisits January’s market performance and highlights key trends and opportunities for the month ahead. The more cautious of investors can often expect to be filled with optimism at the start of the year due to the ‘January effect’, which usually determines sentiment for the entire year based on how well (or poorly) financial markets perform. But are they feeling the love so far?

After the excitement of the fourth quarter of 2023, January started off rather cautiously. That said, as we moved through the month we witnessed reasonable returns, with the exception of the UK and China. Notably, Japan stood out as an outlier, experiencing a very strong month.

 

Source: Bloomberg Finance L.P.

 

In fixed income, we saw very modest movement in rates after the considerable rally of last quarter. The US GDP print of 3.3% surprised to the upside, resulting in a slight uptick in yields. We believe that markets are being far too optimistic regarding rate cuts, and we look for yields to drift in the short-term. Please refer to our recent piece on this – click here.

 

Two-Year UK Gilts

Source: Bloomberg Finance L.P.

 

Two-Year US Treasury Bonds Yields

Source: Bloomberg Finance L.P.

 

The Bank of England (BoE), European Central Bank (ECB), and the Federal Reserve Bank (Fed) have all pushed back on the prospects of very near-term rate cuts. However, all three at their latest meetings, acknowledged that rate cuts were likely if inflation continues to behave.

In our view, the current environment is positive for risk assets. Central banks will become less of a headwind for markets, having extended the pause of their tightening policy and potentially considering a shift towards easing. Economic growth has withstood the significant interest rate hikes of the past two years, with unemployment rates in the UK, US, and Eurozone at multi-decade lows. While the Eurozone and the UK have experienced only marginal growth (in contrast to the robust 3% growth in the US in 2023), there are promising signs of improvement. Strong labour markets have contributed to the stability of household incomes. If inflation stays subdued and central banks opt for even a slight reduction in rates, the outlook suggests a potential enhancement in growth.

Given all this we are increasing our exposure to both stocks and bonds and reducing cash. In fixed income we are increasing our holdings of intermediate (2yr – 10yr maturity) bonds. Additionally, in equities, we have added to our technology holdings.

Last year, simply buying the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) proved to be highly successful. This year we have seen wide dispersion in the performance of these seven stocks. Scrutiny of company specific features such as earnings and revenue growth are driving performance, rather than simply chasing momentum. This shift reflects a more nuanced approach that prioritises individual company features over broad market trends.

 

Source: Bloomberg Finance L.P.

 

So far, the favourable conditions for risk assets have not extended to the Chinese equity market. Following a challenging 2023, Chinese equities are continuing their downward trend. The Chinese government is intensifying its efforts to stimulate activity and halt the share price decline, with rumours of government sponsored purchases of equities abound. However, we remain sceptical about the success of these measures.

 

Source: Bloomberg Finance L.P.

 

Recent US economic data is affirming the Federal Reserve’s decision to abstain on near term interest rate cuts.  January witnessed a very strong gain in jobs and higher wages. This needs to be watched closely. If subsequent US data indicates an acceleration in economic activity, the possibility of interest rate cuts may diminish. Meanwhile, there has been modest improvement in the European and UK economic indicators, maintaining the current favourable environment characterised by decreasing inflation and positive growth, supporting the performance of risk assets.

However, there are looming risks on the horizon. The situation in the Middle East is escalating, with US air and missile strikes targeting the Houthis and various Iranian backed militias in Iraq and Syria, heightening the potential for a broader conflict. Additionally, the upcoming US presidential campaign, with President Biden and former President Trump expected to be confirmed as candidates, introduces uncertainties. Trump’s protectionist rhetoric is already raising concern among US allies and trading partners.

In navigating these uncertainties, a robust and vigilant risk management approach will be crucial.

 

Discover other interesting investment insights from our Chief Investment Officer Jeff Brummette on our News & Insights page, such as the recent Central Bank Update: Where are the rate cuts? or his take on the Houthis, the Red Sea, and inflation. Sign up below to receive similar content directly into your inbox.

Want to become an Oakglen client? Get in touch with one of our wealth team via the Contact Us page to hear more about our products and services, and how suitable they are for you and your personal circumstances.

Jeff Brummette
Chief Investment Officer

Disclaimer

This document is distributed by Oakglen Wealth Limited and / or Oakglen Wealth (Jersey) Limited (hereafter “Oakglen”) to you for your information and discussion only. Unless otherwise stated nothing in this document constitutes investment, legal, accounting, real estate, conveyancing, surveying or tax advice, or a representation that any investment is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. It is not a solicitation or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarised and is expressed as of the date of writing. The information may change without notice and Oakglen is under no obligation to ensure that such updates are brought to your attention. The price and value of investments and any income that might accrue could fall or rise or fluctuate. The price of shares and income from them may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment. A change in the economic environment, possible changes in the law and other events may cause future performance to deviate from that expressed or implied in this document. Please note that past performance, simulations and forecasts are not a reliable guide to future returns. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. Investing in Packaged Retail and Insurance-based Investment Products (PRIIPs) carries a high level of risk and may not be suitable for all investors.

Any information provided by a client and used to produce this document will have been checked by Oakglen for plausibility only and the client notified accordingly of any obvious anomalies. This document and any related recommendations or strategies may not be suitable for you; you should ensure that you fully understand the potential risks and rewards and independently determine that it is suitable for you given your objectives, experience, financial resources and any other relevant circumstances. You should consult with such adviser(s) as you consider necessary to assist you in making these determinations. The opportunities and risks associated with each investment product can be found in the relevant underlying securities prospectus and any other supplementary documents. All documents will be made available at any time upon request.

Oakglen does not advise on the tax consequences of investments, and you are advised to contact a tax adviser should you have any questions in this regard. The levels and basis of taxation are dependent on individual circumstances and are subject to change. This document may relate to investments or services of an entity/person outside the United Kingdom, or to other matters which are not regulated by the Financial Conduct Authority, or in respect of which the protections of the Financial Services Compensation Scheme. Further details as to where this may be the case are available on request in respect of this document. Additionally, this document may relate to investments or services of an entity/person outside Jersey, or to other matters which are not regulated by the Jersey Financial Services Commission, or in respect of which the protections of the Jersey Financial Services Commission for retail clients. Further details as to where this may be the case are available on request in respect of this document.

This document has been prepared from sources Oakglen believes to be reliable, but we do not guarantee its accuracy or completeness and do not accept liability for any loss arising from its use. Oakglen reserves the right to remedy any errors that may be present in this document. Oakglen, its affiliates and / or their employees may have a position or holding, or other material interest or effect transactions in any securities mentioned or options thereon, or other investments related thereto and from time to time may add to or dispose of such investments.

This document is intended only for the person to whom it is issued by Oakglen. It may not be reproduced either in whole, or in part, without our written permission. The distribution of this document and the offer and sale of the investment in certain jurisdictions may be forbidden or restricted by law or regulation. This communication does not constitute the solicitation of an offer to purchase or subscribe for any investment or service in any jurisdiction where, or from any person in respect of whom, such a solicitation of an offer is unlawful.

Investments may have no public market or only a restricted secondary market. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid. As such, for investments not listed or traded on any exchange, pricing information may be more difficult to obtain, and the liquidity of the investments may be adversely affected. A holder may be able to realise value prior to an investment’s maturity date only at a price in an available secondary market. The issuer of the investment may have entered into contracts with third parties to create the indicated returns and/or any applicable capital protection (in part or in full). The investment instrument's retention of value is dependent not only on the development of the value of the underlying asset, but also on the creditworthiness of the Issuer and / or Guarantor (as applicable), which may change over the term of the investment instrument. In the event of default by the issuer and/or Guarantor of the investment, and / or any third party the investment any income derived from such contracts is not guaranteed and you may get back none of, or less than, what was originally invested. Parties other than the Issuer or Guarantor (as appropriate) mentioned in this document (for instance the Lead Manager, Co-structurer, Calculation Agent or Paying Agent) do neither guarantee, repayment of the invested capital nor financial return on the investment product, if nothing is indicated to the contrary. Any capital protection given is usually an inherent part of the product; provided through the use of options, futures or other derivative products. You may have to accept smaller returns on an investment relative to a direct investment in the underlying index, basket, etc. because of the costs involved in providing the capital protection. Such capital protection normally only applies if the investment is held until maturity. The amount of initial capital to be repaid may be geared, which means that a fall in the underlying index or securities may result in a larger reduction in the amount repaid to investors. Alternative investments, derivatives or structured products are complex instruments that typically involve a high degree of risk and are intended for sale only to investors who are capable of understanding and assuming the risks involved. Structured products carry counterparty risk, in that in the event of default by the issuer you may lose some or all of your capital invested even when the product carries capital guarantees. Where this document relates to emerging markets, such investments should be made only by sophisticated investors or experienced professionals, who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments and have the financial resources necessary to bear the substantial risk of loss of investment in such investments.

The services described are provided by Oakglen or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Certain products and services may not be available in all locations or to all Oakglen clients.

Data Source: Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited, otherwise specified.

Oakglen is a registered business name of Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited.

Oakglen Wealth (Jersey) Limited is regulated in Jersey by the Jersey Financial Services Commission for the conduct of Investment Business and is a limited company with company number 121454, incorporated in Jersey on 7 June 2016. Its business address is 4th Floor, 1 IFC, St Helier, Jersey, JE2 3BX.

Oakglen Wealth Limited is authorised and regulated by the Financial Conduct Authority. The registered address of Oakglen Wealth Limited is 2 St James’s Market, 7th Floor, London, United Kingdom, SW1Y 4AH and is registered in England and Wales with number 13182724.