In a year when expanding corporate profits and pivoting central banks reshaped the investment landscape, diversified portfolios have delivered exceptional returns. Our strategy of positioning for a profit cycle recovery, while maintaining broad market exposure, has helped portfolios outperform their benchmarks in 2024. This outperformance reflects the benefits of looking beyond last year’s narrow market leadership, to capturing opportunities across the investment spectrum as earnings growth broadened and monetary policy turned supportive.
"What began as a year of careful optimisation has blossomed into one of significant value creation for patient investors."
The first half of 2024 witnessed a remarkable surge in equity markets across the board, with technology and large-cap stocks leading the charge. Global equities advanced nearly 25% year-to-date, while US markets set the pace with an impressive gain of almost 30%. During this period, fixed income markets faced headwinds as inflation concerns lingered and central banks only slowly moderated their hawkish stance.
As summer approached, the market narrative began to shift. Signs of economic weakness emerged, prompting central banks to pivot toward monetary easing. The Federal Reserve’s decision to cut rates substantially in the third quarter marked a turning point, particularly for fixed income assets. Global high-yield debt, which has returned over 10% year-to-date, proved especially rewarding for our portfolios that had reduced exposure to investment-grade corporate bonds in favour of higher-yielding debt earlier in the year.
The latter half of 2024 has brought increased volatility but also fresh opportunities. Smaller companies, which had lagged during the first six months, found their footing as rate cuts took hold and Donald Trump’s presidential victory became apparent. The performance of US small caps has been particularly noteworthy in recent months, surging nearly 16% in the last quarter alone as markets wagered on the benefits of anticipated policies under the president-elect.
Throughout the year, the decision to maintain significant exposure to Asian equity markets has proved beneficial. Chinese stocks rallied on monetary stimulus announcements from the People’s Bank of China, including a substantial cut to the reserve requirement ratio that freed up approximately one trillion yuan for lending. Asian equities have rewarded investors with almost a 14% return year-to-date, providing valuable diversification as European markets struggled to gain traction.
Despite the year’s political changes, including Labour’s victory in the UK’s summer election and Trump’s return to the White House, markets have demonstrated remarkable resilience. In the developed world, unemployment has remained low and consumer spending has grown despite cost-of-living pressures.
Looking ahead to 2025, the environment for risk assets remains constructive. Corporate profits continue to expand, while the decline in inflation across the developed world has given central banks room to maintain accommodative policies. Manufacturing and housing sectors, which have faced challenges, appear poised to benefit as interest rates ease further.
The combination of loose monetary policy, strong consumer spending, and ongoing fiscal stimulus provides a supportive backdrop for markets. While sharp moves in recent months underscore the importance of diversification, the environment for long-term investors remains favourable. As portfolios enter the new year, their positioning reflects both the opportunities and risks in this evolving landscape, maintaining a balance between growth potential and prudent risk management.
Source: FactSet, data to 29/11/2024