Monthly Investment Briefing: The Three Wise Monkeys

The three wise monkeys…

Momentum (Hear No Evil), Sentiment (Speak No Evil) and Consensus (See No Evil) are all strong support for the current all time highs in market indices. At Casterbridge we’re pleased that clients are seeing the benefit of asset values rising. Our job is always to add a word of caution to the heady brew of market froth. 

However, there’s been some subjective analysis of the ‘Eeyore’ effect. I have religiously read the FT for a number of years, and respect the journalists there, but even they accept that if you followed their negative guidance, you would have missed a number of market highs over the last few decades. It is fair to say that negative news sells better than cheerful stories about puppies.

This is not the same as the 1999 market bubble where 'last minute dot com' was launched on the market on a valuation metric of 500 times sales (that isn't just expensive, it's silly).

Company results are solid…

The fundamentals from the top 7 global companies have been broadly solid, they are making money. This is not the same as the 1999 market bubble where ‘last minute dot com’ was launched on the market on a valuation metric of 500 times sales (that isn’t just expensive, it’s silly).

The market is sensible enough that if your results are disappointing you will be punished, META (Instagram/Facebook/etc) hit a bump in the road, Microsoft has had better weeks but Alphabet (Google) and Nvidia (AI Chips) are continuing their strong results. So, we remain invested and as opportunity comes, we will add to our US holdings.

Currency back in the picture…

The cable FX rate (GBP/USD) is becoming a weight in our thoughts-we were pleased to benefit from the weakness in the US dollar in the first half of this year to $1:38, the fall of US dominance (a little early to make that call, we think). The GBP/USD foreign exchange rate low was $1.22 in mid-January if the UK budget numbers aren’t right, we could easily revisit January’s low and beyond. A proportion of the recent profits taken have been placed in short dated USD treasuries yielding 4%, to give us some protection.

Keeping things on an even keel…

We are taking profits, particularly in the UK and adding to our long-term exposure to emerging and US equity markets, when the ‘Price is Right’. Our themes of Technology and Healthcare still hold; we do have an overweight to defence and commodities including some exposure to hard commodities. We are reviewing our alternative allocation and after selling one of our holdings earlier this summer we are looking to adding some physical commodity beyond the Black Rock World Mining we bought in April. We’ll also add to our mining equity exposure, but again in the US.

We accept the ‘muddling through’ narrative you’ll see in the press, but we have taken some profit although we do remain invested for any ‘Santa Rally’ focused on the economic themes, geographies and sectors we support. As always, any questions or queries please let us know.

Keith Edwards CEO & CIO