Q1 2024: Discretionary Investment Management Service Update

As we continue further into 2024, it is imperative for us as a business to reflect upon our investment performance and the ongoing strategic decision-making process of our team. In this article, Investment Manager, Myles Renouf, looks back at Oakglen Wealth’s discretionary investment management service performance for the first quarter of 2024.

Equity markets were buoyed by stronger than expected US economic data, excitement around Artificial Intelligence (AI) stocks, and, in general, a good environment for risk assets. This resulted in the best first quarter for equities in 5 years. Interestingly, despite the large exposure to AI stocks the S&P 500 “only” returned +10.1% for the quarter, underperforming both the Euro Stoxx 50 (+12.4%) and the Nikkei 225 (20.6%).

In contrast, bond markets had a mixed quarter, not helped by the uncertain outlook around interest rate cuts by central banks, with the Bloomberg aggregate indices seeing negative returns for the UK (-2%), US (-0.8%), and Eurozone (-0.3%) over the quarter. This was purely a result of markets responding to the prospect of fewer rates cuts this year, re-adjusting from what appears to have been overly optimistic expectations of falling interest rates.

Turning to commodities, oil (+12.9%) had an exceptional quarter given the various geopolitical concerns around the Middle East and Russia, whilst tight supply also provided support for prices. Gold (+8.1%) benefitted from the fragile geopolitical state in the Middle East, as well as the stubborn inflationary environment.

So, what did all that mean for our portfolio performance?

Well, I am pleased to say that our Diversify (medium risk) and Grow (high risk) strategies had a strong first quarter.

Diversify returned +3.72% vs. +3.01% for the ARC (Asset Risk Consultants) Sterling Balanced Asset PCI, whilst our Grow strategy returned +6.23% vs +4.96% for the ARC Sterling Equity Risk PCI. This maintains our strong outperformance versus peers since inception, which now stands at +13.7% and +21.75% respectively.

While we remain cautiously optimistic about the long-term prospects for equities, we also recognise the importance of risk management and downside protection. Accordingly, we continue to have a bias towards high quality companies with robust balance sheets and high barriers to entry, as well as an underweighting to the more “growth” areas of the equity markets, in particular the “Magnificent Seven”. We therefore expect a relatively resilient performance going ahead, in the event corporate earnings disappoint in some of the richer value “growth stocks”.

Given the normalisation in interest rates, fixed income assets now play a crucial role in providing stability and income generation amidst market turbulence. High-quality government bonds serve as a reliable anchor in our portfolios, offering capital preservation and liquidity during periods of market stress. Our Chief Investment Officer, Jeff Brummette, has had a long-term view that interest rates would be higher for longer. This stance has resulted in us not taking an aggressive approach to duration in our portfolios, which has worked well given that markets have reassessed the outlook for central bank rate cuts.

By way of an example, we held a position in the Ruffer Total Return International Fund within our “other” investment category. The purpose of this was to have exposure to a manager that focused on capital preservation, aiming to avoid capital losses within a 12-month rolling period. However, due to its cautious stance and the costs associated with buying protection, the fund did not meet the desired risk/return we initially sought. Consequently, we liquidated the holding and reallocated the proceeds predominantly into our fixed income positions, which offer an attractive return profile and serve as a hedge against potential equity volatility.

As we move into second quarter, we believe there are several risks factors to consider. While corporate earnings have been positive year-to-date, earnings expectations have increased although the pace of the rise in equity market valuations has significantly outpaced them. Considering this, a temporary pause would not be unexpected.

The lack of central bank rate cuts could also derail equity markets, so too could an escalation in the Israel/Iran conflict.

Looking ahead, we remain cautiously optimistic about the prospects for our discretionary investment portfolios, albeit mindful of the lingering uncertainties and risks in the market. As we navigate the remainder of the fiscal year, we will continue to adhere to our disciplined investment process, rooted in fundamental research, rigorous risk management, and dynamic asset allocation. By staying agile and adaptive in our approach, we aim to capitalise on emerging opportunities while preserving capital and managing downside risk for our investors.

To find out more about our discretionary investment management services, please contact the below:

Jersey

Email	Jersey@oakglenwealth.com
Tel	+44 (0) 1534 789 942

Email	UK@oakglenwealth.com
Tel	+44 (0) 20 4583 1118

Capital may be at risk.

Myles Renouf

Investment Manager

+44 (0) 1534 854 503

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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.

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