My hope is that these quarterly updates will convey a clear message on where we believe the world is heading and provide a link to potential investment ideas.
There is always noise in the financial markets, but the uncertainty in the political system is higher than ever. We don’t usually have to pay too much attention to politicians – they have a history of coming and going.
The current problem is that aggressive US tariff moves have significant implications for exporters and the global economy in general.
More agile companies will find their way in the chaos. But as investors, we need to be mindful of the dampening effect of tariffs on growth, the risk of higher unemployment, and the related inflation risk amid cross-border supply chain issues more broadly. Overall, this means that we are less willing to take equity risk, our view on duration risk is neutral, and we prefer corporate over government bonds.
There are mixed signals in the currency market. On the one hand, these uncertainties are beneficial for the US dollar. On the other hand, the US faces significant political pressure to create a weaker currency to support exports. Furthermore, questions remain about the dollar's status as a reserve currency in the long term.
Our view is that allocations away from the US – hedged or not – to be healthy. In particular, I am encouraged to see the lower weighting of the big Magnificent Seven tech firms on the US equity indices. We have been warning about the risk of excessive concentration in a handful of companies.
There is never a dull moment in our industry, yet the current situation can be scary for investors. I advise adjusting risk level accordingly, ensuring proper diversification, and not getting distracted from those long-term investment goals.
In the Investment Outlook this quarter …
- Head of Global Equities Devan Kaloo encourages investors to lean into diversification as it may act as a shock absorber for portfolios amid market uncertainty.
Head of Fund Finance Shelley Morrison gives us a fascinating glimpse into a little-known corner of the fund financing world that promises investors higher returns for no additional credit risk.
For those of you who need a primer on private markets, read Investment Specialist Baldric Todeschini’s article, as he explains their value in times of greater volatility.
As always, we hope you enjoy these articles.
Important information
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
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