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Keeping it Simple…
We maintain an unrestricted approach, we are not obliged to have a weighting in anything that we don’t like. Real Estate aside, we prioritise liquidity and high levels of price discovery above all else.
Hence, on any given day, we simply strive to rank asset classes, sectors and geographic regions in some makeshift order, from most to least attractive and apply that thinking to differing portfolio risk tolerances.
This was the basis for the recent demotion of Precious Metals to zero, a view which investors could have expressed by avoiding them (conservative) or selling them short (for the more aggressive and risk tolerant). Either approach would have made you happy.
Going forward, Precious Metals still seem (even after falling further in value) to be low on the pecking order of attractive assets. Unless the alpha factor or the hedging factor re-assert themselves, we suspect there will still be outflows into more lucrative assets. For example, 3-5 Year USD and GBP Investment Grade debt will pick up ~6% per annum. Gold would have to appreciate to ~5,200 just to keep up with that, let alone provide some added danger money to compensate you for the increased risk. There might be an entry level - but it’s not here in our view (despite both Gold and Silver being even lower now than at the time of our 7th October Newsletter - Goodbye My Precious)
Within Equities - Simple, Stable, Sensible
There is a lot of AI stuff to sift through, some of it fanciful, over-priced with seemingly finite short lifetimes - characteristics akin to call options rather than unleveraged stocks. A preference for strong Order Book visibility, manageable leverage and sensible valuations has kept us out of the market during the recent tech unwind (and those who follow our tactical trading will know we have frequently been short S&P, Short Nasdaq and oftentimes Long VIX Futures) still leaves us very tactical and discerning, at current prices. Despite being a candidate for megatrend for the future, we’re not tempted to buy it all, here - preferring to build incremental positions in a few names, over time for the moment.
The sweet spot from both a long term trend perspective and a relative valuation one, seems to be Healthcare - here we have full conviction across many areas from Medical Devices to BioPharma. There is a lot here to like.
And for ballast, Insurance. We continue to accumulate opportunistically.
We consider all 3 of these sectors to have the pricing power and structural credentials to both handle an inflationary environment and also to generate returns that exceed it.
Within our other favoured sectors - Utilities, Communications, Technology and Materials - we are proceeding on a name-by-name basis, rather than pan-sector. Telecoms, Electrification and Batteries being 3 preferred areas.
Near-Term Drivers
The see-saw action between sectors of both the S&P 500 and the Nasdaq 100 ultimately doesn’t cause as much harm as the headlines might indicate. The key signal to be vigilant for is a roll-over in the real world, which would be reflected in the Dow and more so the Equal Weight S&P. If they start to roll over or test key levels (if you would like more detail on this, please reach out to your usual contact), then some form of defensive playbook would be worthwhile, such as increasing cash and/or reducing equity beta exposure for the conservative; and using options, hedging or short positions for those more adventurous.
See the Section below for Tactical Outlook & Shorter Term Trades :
Gold, Silver, Palladium
EUR/GBP
EUR/USD
DXY
USD/ZAR
November VIX Futures
December Nasdaq Futures
December S&P 500 Futures
UK FTSE 100
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