May 2021: IG Smart Portfolios outperform as inflation concerns mount
Global equities fell by -1.1% in May as worries over rising inflation constrained returns, specifically in the US equity market. IG Smart Portfolios extended their outperformance since launch, stretching to +8.4% in our multi-asset profiles.
What happened in the financial markets in May?
In the US, manufacturing and services purchasing managers index (PMI) reached their highest levels on record. US corporate earnings for S&P 500 companies grew 47% year-on-year (YoY) versus an expectation of 20%. In spite of the positive earnings, in May the S&P 500 declined by -1.9%, in GBP terms, due to a weaker performing technology sector. Non-farm payrolls in the US rose by 559,000 in May, coming in worse than the market expectation of 650,000, whilst the unemployment rate declined to 5.8% from 6.1%.
In the UK, the easing of Covid-19 restrictions has continued, with indoor hospitality reopening and a continued focus on the vaccination campaign which is on track with government forecasts. The further easing of all restrictions is scheduled for the 21 June, although this is being monitored and could be delayed due to the spread of the Indian variant. UK businesses are experiencing significant price pressures, PMI data reached its highest level since 1997 with many businesses struggling to keep up with the surge in demand post-lockdown. The sentiment of British consumers increased last month to its highest level since April 2016, boosted by expectations of greater job security and rising house prices.
Is inflation here to stay?
Inflation has been at the forefront of investors’ minds over recent months. Recent data readings coming from the US, specifically the consumer price index (CPI), spooked investors as it leaped to its highest level since 2008. Mounting inflation levels could lead the Federal Reserve (Fed) to tighten monetary policy and consider tapering down its bond-purchasing programme. Talks of tapering down the over $100 billion of bond buying startled investors, but Fed officials quickly provided reassurance that plenty of warning would be given ahead of any potential scaling back of the bond-buying scheme.
The Fed regards the pickup in inflation as a momentary effect of the unlocking of the economy post-lockdown, with the US Treasury Secretary Janet Yellen also saying it would be 'a plus' if fiscal stimulus led to higher interest rates and inflation. Investors will need to keep watching this space and monitoring the central bankers response to the inflationary pressures.
IG Smart Portfolio performance
Strong performance in May across the IG Smart Portfolio suite, with four out of five portfolios yielding a positive return last month and our conservative profile ending the month flat.
In terms of attribution to portfolio returns in May, within fixed income we saw index-linked gilts outperform other assets due to an increased demand for inflation-protected assets. Additionally, shorter-dated bonds performed better than longer-dated debt overall.
Gold had an exceptional month and topped the charts among all our portfolios on a total return basis, this is mainly driven by investors sheltering cash from rising inflation. May was a slower month across US equities, whereas European and UK holdings performed strongly with our GBP hedged holdings also doing well as a result of the pound rising against other major pairs.
All our portfolios outperformed the respective benchmarks in May except the conservative profile, which ended the month with a slight underperformance of -0.05%. Overall, average outperformance stood at 0.4% across all portfolios in May. Looking at performance since launching the portfolios in February 2017, our multi-asset profiles stretched their outperformance to 8.4%, on average, or 1.6% on an annualised basis. You can find a full breakdown of our IG Smart Portfolio performance here.
As a reminder, our moderate to aggressive profiles aim to beat the ARC GBP Private Client Indices. These use data from hundreds of portfolios managed by the likes of Schroders, Rathbones and Coutts for private wealth clients.
Publication date :