In the days after the referendum on the UK’s EU membership, a sense of disbelief emanated from many of Nutmeg’s new clients, not because markets had slumped but because its portfolios were all positive.
“This year has proved a valuable point for new investors,” says Shaun Port, Nutmeg’s chief investment officer. “It has shown you can go through big geopolitical events and that passive, multi-asset portfolios can deliver. On the Friday and Monday after the vote, there was a strong sense from many new clients that they just didn’t understand how it was possible.”
As a result of the performance during the Brexit vote and a lot of client communication in the lead-up to the US election, however, those same clients were much more sanguine about their portfolios. There were no worried calls from clients following Donald Trump’s election, just a level of calm that Port is keeping an eye on.
“It is interesting that markets seem to be becoming more immune to political risk at the same time as it is becoming more and more a feature of the landscape,” says Port.
“We have never focused too much on elections before; you wouldn’t necessarily think referenda were that significant. But we are starting to be conditioned to expect outsize results that end up not being cataclysmic.
“If we hadn’t gone through Brexit I think the Trump reaction might have been different, because investors have become acclimatised to these sorts of shocks.”
Political hot potato
That said, Port remains understandably cautious on the geopolitical outlook, especially with regards to Europe. There is a rolling series of national governments that are moving decisively away from globalisation, he says, all of which means the sanctity of the euro is again under question.
“Whereas before it was a zero risk in investors’ minds that the euro would break up, it is now no longer zero. That is not to say it is likely, but it is not zero.”
On top of that, he says, there is the worry that a Trump presidency will have more of an impact on the rest of the world than it will on the US.
