February 2025 - Beckett Asset Management

24.02.2025 – Back To The Deutsche Discotheque

Philip.James@beckettinvest.com24 February 2025

Back to the Deutsche Discotheque

To put it mildly, there’s not been too many positive things to say about Europe recently as war, inflation and political upheaval have weighed on investor sentiment. To quote a US hedge fund manager by the name Dan Loeb, “Markets are like a bad party. When things get too euphoric, it’s time to go home. When everyone is throwing up in the bushes, it’s time to come back.” In September last year we rejoined the party, moving to an overweight Europe allocation in the Overseas Equity fund and just this week, taking a new position in the Fixed Income fund via a European Government Bond ETF.

Spain, Greece and Malta continue to cut shapes on the dancefloor, all posting reasonable GDP growth figures in 2024 but Germany and France, the two largest economies in Europe, still have their heads firmly in the bushes. So, what do we see that makes Europe interesting now?

Sometimes bad news is good news, and good news is bad news.

Eurozone GDP growth has been non-existent for some time, Italy and Germany’s industrial output has been falling and the French are still arguing amongst themselves as to who’s even in charge. Clearly each constituent nation of Europe has their problems. Europe’s silver lining is that they are one of the first developed regions that can say with a degree of confidence that they have inflation largely under control now. What this means is that the European Central Bank has a greater opportunity to cut interest rates than other regions and should we see further ‘bad’ economic news, so long as inflation remains under control, this would be a positive for asset prices as it would further fuel the expectation for interest rate cuts to support growth. For fixed income assets, falling interest rates means falling bond yields, which in turn causes capital values to rise. As a direct consequence of these views, we’ve recently taken a position in a European Government Bond ETF with substantial duration, meaning that the ETF will have a high degree of sensitivity to changes in interest rates. Falling interest rates are also a positive for equities as it means the cost of borrowing falls and lower discount rates are used for valuing future cash flows – a benefit to many alternative and property assets too.

The potential positives for a European revival are if anything more relevant for the ethical portfolios than the core models as they have an inherent bias towards the region, due to the level of ESG related development and attitudes. You may have noticed since the turn of the year, the performance of the two ethical portfolios has significantly improved – European allocations have certainly played a part in this and we are optimistic that this trend will continue.

With a little supportive fiscal antidote, we may well see Germany and France dragging the rest of Europe back up on that dancefloor once again and the BAM portfolios are positioned to benefit from such a scenario.

RISK DISCLOSURE: AS IS THE VERY NATURE OF INVESTING, THERE ARE INHERENT RISKS AND THE VALUE OF YOUR INVESTMENT WILL BOTH RISE AND FALL OVER TIME. PLEASE DO NOT ASSUME THAT PAST PERFORMANCE WILL REPEAT ITSELF AND YOU MUST BE COMFORTABLE IN THE KNOWLEDGE THAT YOU MAY RECEIVE LESS THAN YOU ORIGINALLY INVESTED. CHANGES IN RATES OF EXCHANGE MAY HAVE AN ADVERSE EFFECT ON THE VALUE, PRICE OR INCOME OF AN INVESTMENT. THE OPINIONS STATED ARE THOSE OF BECKETT ASSET MANAGEMENT LTD, WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

10.02.2025 – Donald Trump’s In Office, Your Exports Are Tariffied

Philip.James@beckettinvest.com10 February 2025

Donald Trump has returned to office and has already put pen to paper on over 20 executive orders, more than any previous president signed on their inauguration day. From the protectionist policies we expected to see such as “Protecting The American People Against Invasion” to the slightly bizarre “Putting People Over Fish”. Trump is making his mark but so far, the imposition of widespread tariffs seems to have been avoided – it seems someone has tapped him on the shoulder and reminded him that he can’t have lower inflation and widespread tariffs.

25% tariffs were briefly imposed upon Colombia’s imports and 10% tariffs on Chinese goods are likely to be longer lasting but elsewhere Trump is throwing America’s economic weight around to get his way. We have already seen this with Canada and Mexico where the threat of tariffs very swiftly brought government officials to the negotiating table, leading to the imposition of the tariffs being delayed. I suspect that this may initially be how tariffs are utilised and that at times Trump’s bark may well be more intimidating than his bite. However, as with what we’ve already seen, it’s not to say he won’t use them to get his way.

It’s clear Trump sees China as the nation’s main international trade competitor. Elon Musk becoming his new best friend and a plethora of tech CEOs lining the front row of his inauguration appears to be a clear sign that he believes technology companies have a key part to play in future growth, a view reinforced by the subsequent signing of an executive order titled “Removing Barriers To American Leadership In Artificial Intelligence”. Unfortunately for him, as at the time of writing, at the top of the Apple App Store charts is a Chinese AI app called DeepSeek which has caused Nvidia to DeepSink, falling in value by $589bn, the largest ever single day fall. The reason not necessarily being that the technology is superior in performance, all AI software remains far from polished, but the reported massive difference in development cost, power requirements and number of chips needed to function, brings into question the future level of demand for Nvidia chips.

Accusations of intellectual property theft are now flying around and I doubt this will be the last we hear on the matter. Any competition is positive and the real winner will be the end user. All BAM portfolios have exposure to a number of companies involved in AI, but this is likely to be less than our peers due to the big players in the sector being US tech giants that we feel are currently overpriced. As for Donald and the wider US, we remain underweight, primarily on valuation grounds but we must also consider the unwanted potential for political surprises.