This is the seventh month of running our momentum portfolios and performance has been mixed again:

If we look at the aggregate performance, we see the dispersion is even more dramatic:

What are the factors driving the performance? Here are the individual portfolios:

US Stock Market Focus

If we look over the six months of the portfolios, the biggest factor driving the MSDW index has been the performance of US markets – the S&P5000 up 10% over 6 months and the dollar index rising 3%.

The US makes up 73% of the index. Diverging from this US allocation caused underperformance in most of the portfolios.  It highlights two key dilemmas for fund managers:

1.  do I believe in “US Exceptionalism”
2. Diverging from the main indices too much gives me a big chance of significant outperform but also underperform

UK Asset Woes

Portfolios with UK assets particularly property have suffered as a result of higher than expected inflation, and the Government’s poorly received budget.

The latter is already affecting growth and consumer spending and has caused Government bond yields to rise.  This has depressed valuations in the UK, particularly in dividend stocks like property.

December in Summary

Trump’s election result dominated US returns, the run up in US stocks in November’s “Trump trade” unwound and the S&P500 fell 2%. The Nasdaq made a small gain in December, up 0.5%.

Outside the US, the German DAX rose by 1.4%, and the French CAC 40 made 2.0%. There were larger gains in the Far East, where the Hong Kong Hang Seng increased by 3.3%, and the Japanese Nikkei 225 did even better, finishing the month up 4.4%.

Investors and CEOs in the US seem confident about 2025.

Momentum in December and a new eighth portfolio

So, has the overall momentum picture changed much? Here are the top sector rankings:

The US performance in the month dominates everything again. Technology and global funds both are highly US centric. China has begun to perform again following the Government stimulus package.

It is interesting that a lot of the performance of markets has in this recent period been driven by politics:

• Trump – good for US stocks
• China – stimulus good for stocks
• UK – Labour Government, high tax, high spend – bad for all assets!

It is interesting to think what would have happened to portfolio returns if, instead of a mechanistic approach, we had responded to unfolding events by changing portfolios. Buying US stocks and disinvesting in UK stocks would have led to big improvements in individual portfolio returns.

Nothing however would have saved any portfolio from being underweight in US assets.

A new emerging theme is financials, particularly US ones.  The environment seems very favourable for them, it is beginning to be reflected in momentum.

Our second portfolio matures. Have we beaten the MSCI world index (SWDA)?

Three funds gave positive returns Far East have made small positive returns, but the Asia growth funds cancelled these out. Only 25% of the fund has significant US exposure.

Portfolio Eight