We held our first webinar of the year on Monday this week with around 60 of our clients watching and listening online for an hour – I’m pleased to say most stayed till the end!
For those who did not attend, we thought we would give a quick summary; and for those who did, we show here in figures and charts some of what was discussed.
2-Year Returns
We started with a quick look back at 2024 and 2023 to see the progress of portfolios, which we can see below with comparisons to our peers using the Investment Association average fund return in each sector.
I have had a look today at other wealth managers’ portfolios and the picture is very similar.
Our returns in equities are getting better, our returns in bonds have been fantastic, and pulled together in our multi asset portfolios the combination has been very competitive. The bulk of our clients’ money sits in these multi asset portfolios, and the outperformance of our investments compared to most of our competitors has more than covered our fees.
Our outlook for 2025
Equities
The elephant in the room is the continued dominance of US equities. US companies generally, the top mega cap tech stocks in particular and the strength of the US Dollar. This has given sterling investors huge returns in the last 24 months. Will it continue? Should we capitulate like many others and put all our equity money into US indices?
With capital preservation in mind, we think not, but nor are we ignoring the phenomenal returns coming from US markets. Nick Gait runs through the data on this in the section below, with some very nice charts which highlight what’s been going on and why we won’t follow the herd.
Trump’s inauguration started the year in the same vein, but subsequent events give us food for thought. First, Nvidia’s one-day record loss on the back of evidence that US companies don’t have a monopoly on AI – who would have thought? Then, the ‘Tariff Wobble’ which had financial forecasters around the world tearing up their forecasts for US corporate earnings and US inflation. Following Trump is going to be like watching a cliffhanger TV series with each episode ending with that OMG moment – did he really say that?!
Fortunately, we have our man in Hong Kong, Stephen O’ Sullivan, giving us some balance and insight. This week he covers the Tariff story, what happened, what the issues are, and what might happen next.
Fixed Income
With the potential risk of heightened inflation, we are largely sticking to our current positioning of holding bonds maturing in the next 4-5 years. We know some of our managers have been opportunistically adding duration – we like this but want to be reasonably cautious.
It feels too soon after the seismic correction in 2022 to say that’s it for yield rises, and the relative premium offered from longer dated bonds does not seem to us to outweigh the risks that comes with longer duration bonds if yields go up. In the meantime, higher yields have to an extent outweighed the capital gains made in 2024, as fixed income investors became less risk averse as the threat of recessions diminished. So, we can again look forward to high single-digit returns in 2025 with some degree of confidence.
Financial Planning Issues and Tideway’s Progress
Well, it is true we do pay out significant amounts each month, and with pensions coming into IHT we expect substantially higher withdrawals from pension accounts going forwards, so it is not a silly question. However, we hope to continue to increase our assets under management from new clients and to receive new investment from existing clients. At the start of 2024 we managed £406m of client money – today it stands at £480m and we have a decent pipeline of new funds we are working on.
We are, of course, delighted when our clients make referrals, and we hope it is getting easier for you to do this when you consider our investment performance, quality of advice, and service standards including our portal.
IHT generally is likely to be a hot topic in 2025 and we are ready to help. We recently published a paper on Annuities, so if anyone you know is thinking of buying one it would certainly be worth a chat. We will shortly be writing on higher pension withdrawals and their wider implications; I think this is going to apply to lots of families where pensions were seen as great assets to pass on and now will be better consumed in your lifetime. We hope these ‘deep dive’ documents can be passed on to your colleagues to introduce them to Tideway and our services.
It is certainly true that the more we can grow our assets under management the easier it will be for us to lower costs to all our clients through lower fund management fees, lower costs with our platform provider AJ Bell, and indeed Tideway’s fees. We are already introducing tiered fees for larger accounts and family accounts to encourage families to collaborate and work with us. It is worth also noting that we are one of only a few wealth managers who don’t charge initial fees for taking on new clients and new money, whereas most of our competitors are charging 1-2% upfront on new funds and clients.
Equity Performance: Very Concentrated
- Despite strong headline figures, returns were notably narrow.
- Mega-cap stocks once again dominated in 2024, with a few large US names driving most of the gains.
- The top 10 positions in the MSCI ACWI, accounting for 21.5% of the index weight, contributed over 50% of the index return.
- Notably, Nvidia alone accounted for about 16.5% of the total return in 2024.
- Furthermore, only 28.3% of stocks outperformed the index in 2024, making it tough for stock pickers.
- With such a concentrated performance, it’s difficult for active managers to outperform, as they would need to be as concentrated as the benchmark to capture similar gains (various charts below illustrating market concentration).
- Passives, benefitting from high exposure to the best-performing stocks, performed exceptionally well.
- We’ll explore the implications of weight of passive money in the coming weeks – keep your eyes out for a piece on this.
- Healthy absolute performance at around 11.5% for the year—broadly in line with our peer group and outperforming equal-weighted indices.
Importantly, we believe we’ve taken less risk to achieve this.
Market Concentration
The graph illustrates how market returns have become increasingly concentrated over the past four years, with the top companies contributing disproportionately to overall returns.
The green bar chart shows total returns on an annual calendar basis, measured against the left-hand vertical axis. The blue line tracks the percentage of returns generated by the top ten stocks relative to the entire market, measured against the right-hand vertical axis.
In 2024, 45% of total returns were driven by the top ten companies in the investment universe.
The graph above further highlights the concentrated nature of market returns in 2024. The MSCI All Countries World Index (ACWI) delivered a return of just over 20% per year. The index is weighted by company size, meaning larger companies have a bigger influence on returns.
However, when adjusted to remove the size bias, the MSCI ACWI Equal Weighted Index returned just over 8%, showing a difference of approximately 12%.
S&P: Valuations versus history
Price-to-earnings valuations of the US markets are at some of their highest levels in history. The green line represents the long-term average starting from 1954.
Valuations were higher during the Dot-com bubble in the early 2000s, and again post-COVID stimulus in 2021. We all know how the Dot-com bubble ended. Post-COVID stimulus in 2021 drove equity prices higher, followed by a significant drawdown in 2022 as the world adjusted to higher interest rates.
We are not suggesting the current situation mirrors either of these periods, but it’s clear that valuations are exceptionally stretched compared to historical norms.
Global Valuations versus history
This chart further illustrates that US valuations are exceptionally high compared to historical levels, this time over the past 20 years, excluding the elevated period of the Dot-com bubble.
As the US represents a significant portion of the global market, its high valuations have contributed to making global stocks expensive on a historical basis.
In contrast, there appears to be much better value in other parts of the world, with all other countries trading below their median valuation.
Largest single-day market cap falls (no repeats)
Not much analysis needed for this chart! China AI competition caused the market to recalibrate some of its previous assumptions.
Close to $600 billion was wiped off the market cap of Nvidia (-17%), almost double the previous highest one day fall from another stock.
