At Casterbridge, we don’t believe in rebalancing portfolios for the sake of it. While some MPS providers adjust portfolios like clockwork – monthly or quarterly, regardless of market conditions – we take a more pragmatic approach. Right now, market volatility is high, and our portfolios are well-positioned. Rather than making changes on an arbitrary schedule, Julian Menges and the team are keeping a close watch on conditions to ensure that when we adjust allocations within our Managed Portfolios, it’s at the right time and for the right reasons. In the commentary below, Julian explains our current stance and why flexibility is key to navigating today’s markets.
We have been highlighting over the last year or so that we were concerned that US equities, and the Technology sector in particular, were showing signs of exuberance which may not live up to the high expectations being priced in. The Tech rally was becoming more and more focused into just a handful of stocks, and excitement about their future growth so widespread that investors appeared “all in”. We have explained that we have been tilted more towards much cheaper “Value” sectors (which has been painful and seen periods of underperformance at times), but we are now well placed during this period of turbulence where we are seeing US and Tech markets underperforming sharply.
The end of 2024 and early 2025 saw the “Trump rally”, with US equities driven to their peak driven by excitement around policies to drive the economy forward – they seemed to become priced for perfection. A couple of factors then appear to have come together to trigger this sudden underperformance of US equities and in particular the Tech sector. In late January, news from Chinese AI company DeepSeek triggered concern about significant competition for US AI companies (see our previous communication). Then, on February 18th, the US Fed announced it would not be cutting interest rates, defying market expectations.
Since then we have seen a sharp rotation from US equities into many other major regions, such as the UK and EU with their much cheaper valuations. Large Cap Value has been best performing style and Small-Mid Cap the worst.
We regularly review when is the most appropriate time to rebalance portfolios. We have decided not to rebalance for now as this underperformance by US equities could have further to run – the falls could be compounded by auto-sells in passive funds and a further rotation from overweight US / Tech positions by retail investors and many active portfolio managers. Looking further ahead, there is uncertainty of the effect of Trump’s tariff policies and global economic slowdown. Therefore, we are keeping portfolios well diversified by asset class, region and style as the most prudent approach, while waiting for the opportunity to add to US equities and Technology once some of the froth has been blown off their high valuations.
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.
