All of the Courtiers Funds delivered positive returns for the third quarter of 2024.

The Cautious Risk, Balanced Risk and Growth Funds returned +2.83%, +3.35% and +4.04% respectively, bringing their total returns for the year-to-date to +5.55%, +7.73% and +10.04% respectively.  Meanwhile the UK Equity Income Fund grew +5.65% during the quarter, the Global (ex UK) Equity Income Fund rose +4.36%, and the Ethical Value Equity Fund returned +6.97%. The Investment Grade Bond Fund gained +0.88% on the quarter.

The headline figures suggest a smooth quarter, but the reality was far different. July began with an election in the UK that saw the Labour party secure its largest majority since 1997. The outcome was in line with forecasts, boosting market sentiment. However, global markets were soon shaken by rising US unemployment and growing concerns that interest rates had been held too high for too long. This culminated in a sharp decline on August 5th, when the MSCI World Index dropped by -3.08%, marking its largest single-day fall in nearly two years.

Despite the initial turmoil, markets rebounded, recovering all their losses, and interest rates declined globally. Yield curves in both the UK and US un-inverted after a period when short-term rates were higher than long-term rates. An inverted yield curve typically indicates significant near-term uncertainty, so this reversal is a positive signal, suggesting a return to a more stable interest rate environment.

Apart from a slight increase in unemployment, other indicators suggest a strong consumer base and a robust economy. In the UK, mortgage approvals have reached their highest level in two years, mortgage rates are at their lowest in two years, and house prices are rising at the fastest pace since 2022, driven by wage growth and falling interest rates. The Bank of England cut interest rates by 0.25 percentage points to 5%—its first rate cut in a year. The FTSE 100 gained +1.6%, but it was the domestically focused mid- and small-cap companies, as measured by the FTSE 250 ex-IT and FTSE Small-Cap ex-IT, that saw the biggest gains, climbing +6.01% and +6.21% respectively over the quarter.

The European Central Bank also reduced interest rates during the quarter. European stocks, as represented by the Eurostoxx 50 index of the largest companies in mainland Europe, rose by +2.45%. Similarly, smaller European companies, tracked by the Eurostoxx Small Index, gained +3.66%. In Germany, concerns persist over China’s increasing presence in the car market. Nonetheless, the DAX climbed +5.97%, indicating that what truly drives market performance is what’s already priced in rather than the actual events. Meanwhile, France successfully hosted the Olympics and resolved its political gridlock by selecting a new government after July’s hung parliament.

The Federal Reserve in the US took the most aggressive approach to rate cuts during the quarter. The Federal Open Market Committee lowered rates by 0.5 percentage points and is expected to continue cutting more aggressively than other central banks over the next year. As a result, US interest rates dropped below those in the UK for the first time in a year, causing the dollar to depreciate by -5.64% against the pound as capital moved out of the US in search of higher returns elsewhere. The British pound also gained +1.86% against the euro

The S&P 500 rose by +5.89% over the quarter. Our more diversified US exposure performed even better, as our holdings in the S&P 500 Equal Weighted Index (a recent addition), the S&P Small Cap 600 Index, and the Russell 1000 Value Index each gained over +9%.

Japan experienced the sharpest decline, dropping -12.23% on Monday, August 5th—the largest single-day fall in 37 years. Although the Topix rebounded by +9.3% the following day and continued to recover throughout the quarter, it wasn’t enough to end on a positive note, finishing the quarter down -5.83%. Japan remains the only developed economy currently raising interest rates as it attempts to normalize its monetary policy, which has been in place to stimulate growth since 2007 amid the challenges of a rapidly aging population.

China was the standout performer this quarter, with the MSCI China surging 22.2%, lifting overall emerging markets. This rally was fuelled by a major monetary stimulus in response to poor economic data suggesting that China could face stagnant growth or even a recession in the coming year. Despite the rally, we remain cautious and have no exposure to China, as ongoing issues in the property sector and weak domestic demand make it unlikely for the country to return to the growth levels seen over the past two decades. Instead, we have added two new positions in South Korea and an Indian healthcare company this quarter. The MSCI Emerging Markets Index rose +6.77% for the period.

In further positive news, oil prices are on the decline. Coupled with a strong pound, petrol prices have reached a three-year low. This decline in oil prices is one of the reasons the Courtiers Ethical Fund was the top performer this quarter, as it has no exposure to oil-related industries. Brent Crude oil dropped by -15.65%, while agricultural commodities like wheat and corn saw an increase of +2.32%, reversing a two-year trend of falling prices.

China is also influencing the gold market, with gold prices increasing by +12.93% during the quarter, reaching another record high. China has been a significant buyer of gold as it seeks to reduce its dollar holdings. Additionally, silver gained over the quarter, rising by +6.31%, while copper increased by +2.37%.

Falling interest rates led to increases across all the bond indices we monitor. UK government bonds, as represented by the FTSE Gilts All Stocks index, climbed by +2.32%, while long-dated gilts (those with over 15 years to maturity) rose by +2.62%. Sterling-denominated corporate bonds, tracked by the Markit iBoxx Sterling Corporates index, posted a return of +2.27%. In the high-yield market, the ICE Bank of America Sterling High Yield index increased by +4.09%.