The investment Committee that runs our Core portfolios met today.
Equity markets have risen strongly in recent months, as investor enthusiasm over the AI story has driven technology shares, particularly those of the mega cap companies, to ever higher levels. However, in the run up the meeting, concerns about the ability of these companies to generate adequate profits from the large amounts that they are spending on AI caused volatility in markets, with these same shares selling off. With geopolitics remaining highly unpredictable, and debt levels across many governments a concern, the risks to investors remain clear, and are in plain sight.
The committee debated all such issues, and agreed that, whilst much has happened, the picture is no clearer around key issues such as the path of inflation, the potential for interest rates cuts from the US Federal Reserve, and to what degree capital expenditure on AI may prove to be less rewarding than the technology companies hope. Add in the ever-unpredictable nature of the US administration, and it is clear that, whilst the questions that investors need to ask remain clear, the answers are far from obvious, not helped by a lack of data arising from the recent record US government shutdown.
The committee felt that acting without a clearer picture would be unwise, akin to guessing. Furthermore, it felt that the current positioning of the portfolios remained suitable based on what is known, namely a neutral position in equities, an underweight to Fixed Interest over concerns about current levels of government debt and a lack of value in bond markets, and overweight positions in Absolute Return and Volatility, the last to protect against the uncertainty mentioned already.
However, the committee decided to make some fund changes:
- Buy Artemis SmartGARP European Equity to add more cyclical exposure within a region that should see significant stimulus in the coming years, the money coming from a reduction in our European index holding.
- Sell both of our Japan equity holdings and buy a single fund, Nomura Japan Strategic Value, as doing so will provide a better balance for the middle and lower risk portfolios.
- Sell Schroder Emerging Market Value after the fund management team left, buying Ashoka Whiteoak Emerging Market Equity.
- As a direct result of the Emerging Market change, sell Goldman Sachs (GS) India Equity. The team that runs the Ashoka Whiteoak fund are mainly ex-GS people, and have a very similar investment style to the GS India team. Therefore, in order to maintain diversification and prevent stock overlap, it was decided to switch of our Indian exposure into Jupiter India, a more valuation-aware strategy.
- Away from equities, it was decided to sell one of our Absolute Return (AR) holdings, Winton Trend UCITS, and allocate the proceeds across our other AR funds. In a highly unpredictable world, the committee had concerns about the ability of a trend-following strategy like the Winton fund to perform, and preferred to hold funds that are seen as less unpredictable.
