Monthly Investment Briefing: Anyone for a game of risk?

Anyone For a Game of Risk?

Did anyone think 2026 was going to be a quiet year? I don’t think President Trump has the word ‘quiet’ in his vernacular. After the debacle with Tariffs last year, short but sharp volatility was followed by a ‘relative’ period of calm in the markets, supported by liquidity and a more dovish Fed, as rates looked to climb down from elevated levels.

However, Trump’s claim for Greenland, whilst not surprising for the man, brought fresh new geo-political concerns to the fore. The rhetoric was it would be an aid in Europe’s ambitions over protection from the Eastern bloc, but perhaps the heavy-handedness of it all got European leaders back’s up. The six key European nations were met with an immediate 10% tariff to increase to 25% in June, should they not back down to Trump’s desires.

Markets initially didn’t love this news and, much like last year, defence, miners and precious metals all surged on what could be another protracted year of conflict. Despite trying to smooth things over in Davos, in his own way Trump didn’t walk back any of his intentions and set out the stall for what stands to be a year of volatility. Japanese bond yields also gave markets another reason for concern as it is often seen as a pocket of liquidity for global markets through the carry trade. We saw some volatility with this previously and is enough of a concern that possible US intervention may be necessary to calm the horses in the global FX market.

With the fast moving changes to geopolitics and the ever-increasing pace of AI developments, we are constantly having to analyse the direction in which the world is heading.

European markets reacted positively despite Trump’s challenge, with Germany announcing a huge shift towards an expansionary policy in infrastructure and defence spending. Even over here, despite inflation looking stubborn and challenges for the sitting government, the FTSE climbed to all-time highs thanks to the overweight to Energy, Financials and Defence.

As the month went on, investors poured into precious metals as the historical inflation hedge but also a hedge against any potential government debt crisis given rising bond yields and increasing share of global reserves amongst central banks. The global market cap of gold and silver has seen a triple increase since 2020, highlighting investors’ concern over inflation and geopolitics.

The gold and silver rally were tempered at the end of the month as new Fed Chair, Kevin Warsh was announced, and who the markets saw as a slightly hawkish appointment. Warsh has been a vocal opponent against a growing balance sheet, and his main goal is to contract it to bring down shorter term rates. He’s cited that he believes Trump’s policies will be ‘disinflationary’ and has supported to bring interest rates down. Longer-term yields spiked over the prospect of fiscal contraction, and precious metals fell on potential flows back into the US dollar over the ‘safe pair of hands’ at the helm.

Portfolio Activity

We have been building a small amount of liquidity coming into 2026 as we took profits quite heavily in equites in Q4. This excess cash was split three ways equally as we purchased a Sterling Money Market fund yielding c.4.5%, a short-term US Treasury of 1-3 years and hold liquid GBP on accounts to benefit from volatility and to buy some of our targets at better prices. This allows us to keep our clients capital working in the markets and ahead of the drag of inflation.

We have put the process into action recently with the purchases of Sony and NextEra Energy. Sony bolsters our global media and gaming allocation after a recent sell-off, which was funded by the sale of the Lazard Japan fund, and which has reduced the ongoing cost of the portfolios, allowing us to be more specific with our Japanese allocations. NextEra is a US utility and energy infrastructure company which gives us some exposure to Trump’s expansionary policies supporting US industry.

Outlook

We remain vigilant of the prevailing macro conditions and the subsequent volatility it is bringing to global markets. Indices are all hovering around all-time high territories in the face of uncertainty which gives us reason to pause on making bold moves. With the fast-moving changes to geopolitics and the ever-increasing pace of AI developments, we are constantly having to analyse the direction in which the world is heading.

We are looking to move more in-line with our Strategic Asset Allocation, being neutral across the three asset classes as we continue to assess the ongoing risks. We believe we can do our best work in periods of uncertainty, and we have many good ideas researched and ready to go into portfolios should our price targets be met.

James O’Hara – Senior Investment Manager