Monthly Investment Briefing: Difficult to know what to say

Difficult to Know what to say…

As we always feel at times like these the least important thing about war is what it does to asset prices, but it is still our responsibility to manage clients’ funds and communicate with you about them. It is clear that the actions of the US government and its military are significant and part of a long term strategy.

Portfolio actions based on pricing, long term themes, with an eye on sentiment…

We took advantage of the ‘liberation day’ volatility in April of last year to add to our technology weight by purchasing the Polar Cap Technology investment trust, at sharply depressed prices, we have sold that position as the price is too high, the negative sentiment against software companies and the all-time highs in large tech shares. We sold above £5, the holding has fallen since; we may add it back in if we see a further precipitous fall in value, because we know over the long term it’s a good way to access technology, outside of our direct holdings.

We did top up our direct holdings in US technology, in the teeth of the very negative sentiment, in the short term that has been a positive, but we accept that if the military action in the middle east is prolonged we may well see some weakness in fixed income and then equity markets.

We have elected to return to an ‘alternative’ holding that gives clients exposure to the energy commodity market via Trium ESG Emissions Improvers within the ‘Founders’ unit class, we are closely watching the price, it has fallen a little and we will look to add at a price that is cheaper than it was, as you would expect.

The numbers on the global economy and from companies are a mixed bag, which drives us to think that interest rates, inflation and global growth will be gently falling but not swiftly enough to make a strong call on assets, geography, currency or sector exposure- we're happy that we're correctly positioned

Strategic geographical and thematic investments…

We continue with our project to add to our US equity holdings, in Pharma (Danaher), Infrastructure (Union Pacific Railway) and we have targets in ‘Shovel Technology and Industrials’; it is this type of holding that has served clients well in the recent traumatic geo-political environment.  The performance of the likes of National Grid, Scottish and Southern Electric, Coca-Cola, T-Mobile, Bristol Myers-Squibb, Mitsubishi Gas Chemical, Legal and General and Beazley have supported the positive return clients have seen over the short term.

The above has led to us being circa 58% equity for a medium risk client, versus the median of 63%, we hold the 5% difference in money market funds, short dated fixed income and some cash. We’re holding these funds to give us liquidity if we do see a sharp fall in equity markets over the coming weeks. The market is relatively expensive, particularly in the US Mega Caps, and we don’t precisely reflect market cap weights in client portfolios because we believe holding 5% in a single stock for a client is too much stock specific risk- no matter how large that company might be. We hold Alphabet and Microsoft, but at weights we feel give clients an opportunity to make a reasonable profit, without pushing other holdings out, because the market cap/benchmark has made them 10% of a client’s portfolio. We remember when in 2000 NOKIA was 70% of the Norwegian stock exchange, Norwegians didn’t hold 70% of their savings in that company.

Market sentiment currently subdued…

We have seen the US 10yr Treasury yield fall in the face of concerns, but it is still in the middle of its twelve month trading range at  4.2% versus a twelve high of 4.6% (above 5% is a popular warning signal) and a low of 3.8% (below 3.5% is a different type of flashing amber light). The global tech giants have had a difficult time since the start of the year, but Alphabet is still up 72% over 12 months and even Microsoft is up a little over the same period. We will add to these holdings if the market sentiment pushes these share prices down, but there’s a long way to go. To be clear, all of the holdings that have performed so strongly this year have had profits taken to bring them back into the correct exposure for your risk profile, particularly the Defence (Rheinmetall, Babcock),  Technology (Alphabet, ASML and PCT), Financials (HSBC, Lloyds) and some Emerging Markets fund (RWC OEIC).

The numbers on the global economy and from companies are a mixed bag, which drives us to think that interest rates, inflation and global growth will be gently falling but not swiftly enough to make a strong call on assets, geography, currency or sector exposure- we’re happy that we’re correctly positioned. If we do see some volatility, we have the targets in place to take advantage of any over correction. As always, please let us know if you have any questions,

Keith Edwards CEO & CIO