The Investment Committee in charge of our Gaia portfolios met today to review recent market events.
February saw investors’ expectations move ever closer to central bank rhetoric regarding the likely timing and pace of interest rate cuts. As a result, most types of Fixed Interest fell, but longer-duration assets and sovereigns in particular. Fortunately, with no data to suggest seriously that inflation will not come under control at some point in the near future, equities performed well. That is not to say that this process will be easy, or that inflation will come down in a straight line. Indeed, we discussed the possibility that inflation will rise slightly in the short-term. However, even if that were to happen, we do not believe at this stage that it would be much more than a blip in the general downward trend. As a result, our core case remains that a soft-landing can be achieved in the U.S.. Of course, any outcome is still possible, and neither a recession or even no landing (with inflation taking off again) can be dismissed. However, we felt no need to change our positioning at this stage, feeling that our overweight position in short-duration bonds provides the correct balance at this stage.
We discussed the large number of elections ahead in 2024, and the U.S. in particular, as about half of the holdings in our portfolios are listed there (even if they generate revenues from many different regions). Whilst the prospect of a second Donald Trump Presidency would likely come with a lot of railing against sustainability, and probably volatility in the short-term, we do not believe that any such outcome poses a major risk to the portfolios. President Biden’s Inflation Reduction Act has funded a lot of projects in Republican states, so it is hard to see why Trump would want to end such investment. Therefore, whilst we would expect a lot of noise around the issue, we do not think that the possibility of him getting elected changes the business case for the investments in the portfolios. That said, we will be watching for any clear policy statements during the campaign that may cause us to question that position.
Taking everything into account, we decided to make a small move, taking a little of our cash and adding a small amount to equities and the rest to US Treasuries. We are not yet ready to make a larger move into equities. However, it was discussed, and there may come a time in the near future where we want to do so. For now, we would prefer to see a little more U.S. economic data before doing so, just to make sure that any slight upswing in inflation is temporary.
