Lets not ‘Trumpet’ good performance. let’s steady the tempo…
We made some positive decisions in the summer of last year to be better exposed to US equities, and retained an enthusiastic belief that equity markets were still the place to be on a long term (Strategic) and a Short Term (Tactical) basis. We continue to hold a strongly lower allocation to ‘Bonds’ (Government/Corporate Debt) than the consensus and instead have more funds within the ‘Alternative’ investment arena. ‘Alternative’ is a much abused term- in a medium risk portfolio we hold 20% of a clients portfolio. The investments themselves are purposefully disparate covering Private Equity, Infrastructure, Floating Rate Note Credit and Funds that invest in a number of long/short derivative strategies (they have negative and positive views on Energy Assets, US Smaller Companies, etc and invest to make a profit [Who doesn’t?]). We review those assets on how they move together or not- we call that ‘Correlation’- We consider the alternative assets mutual correlation and their individual correlation to equity markets- to build a block of assets that give us a diversity of return (Income and Capital), but an overall positive return. We have recently completed a review of the ‘Alternative’ scheme and we continue to be comfortable it’s delivering a risk adjusted return- typically it has been doing so well we have checked it’s doing so in a way that is reasonable, not running too much risk.
Certainty is not what it once was…
We’re all aware of the sections of the market to which we are most keenly committed have done well, the month of January has been rewarding. We still see opportunity, but it’s no surprise that the ‘deal making’ environment has changed on the geo-political stage, and certainty is reducing. So we have seen portfolios increase in value and the exposure to risk assets climb, as a team we have elected to take some of that profit from the equity market, use that profit to rebalance further from the UK and into the US, but also pick up new assets that will allow us to take account of our concerns over ‘surprise inflation’. We see there being ongoing pressure on central banks to cut rates, one strategy to counteract ‘tariffs’ is to weaken your currency, and if you’re wanting to strengthen the effect of tariffs then you might put pressure on the FED to cut rates (weakening the USD). If you are going to keep taxation low, not effectively curtail spending, put pressure on central banks to cut rates and use tariffs on foreign trade the likelihood of persistent and perhaps eventually rising inflation isn’t unexpected. So we are adding to fixed income stock selection some short dated index linked government bonds- if we do see inflation creep up this will give us some return. We are also looking to get more specific in our health care and emerging market selection- we have been positive on India for some time, it’s likely we will take a decision to increase that conviction- particularly on any weakness in that market- we have some healthcare targets, but I’ll leave that for next month’s correspondent upon which to wax lyrical.
Not oversteering or slamming on the breaks, just lifting the foot off the gas a little…
We remain positive on markets, particularly where we’re investing client funds, but we have taken some profit, reduced the risk asset exposure tactically and placed some positions that will do well when inflation rises- although in the short term rates will fall it could be 12 months before the world economy starts to run too hot.
Important Information
This article is for information only and does not constitute advice or recommendation and you should not make any investment decisions based on it. The views and opinions of this article are those of Casterbridge at the time of writing and may change without notice. Any opinions should not be viewed as indicating any guarantee of return from investments managed by Casterbridge nor as advice of any nature. It is important to remember that past performance and the value of an investment, and any income from it, may go down as well as up and the investor may not get back the original amount invested.
