“Is This Another Cunning Plan, Baldrick?
Yes… no… well… I thought it was, but now I’m not so sure.”
Trump’s cunning plan to cut the US’ trade deficits looks to have backfired as bond investors appeared to lose faith in the government’s financial strategy. Following ‘Liberation Day’ 10-year Treasury yields initially dropped due to concerns around slowing growth but very quickly yields rose from 3.9% to 4.4% in just two days. Either investors were raising cash following losses on the equity market, or because they were losing faith in the sustainability of US debt, both are far from ideal.
The President now claims, “countries are kissing my ass wanting to make trade deals”. Whilst this is quite peculiar language for a politician to use, it feels as though most countries will likely now make trade deals with the US. What those deals look like is very up in the air, but it’s reasonable to expect Trump to be seeking deals that are at least optically good for America and can be spun to the American public as great deals, deals better than the world has never seen, unbelievable deals.
Whilst the 90-day pause on the more punitive tariffs is a positive, huge tariffs remain against China and we shouldn’t gloss over the fact that 10% on the rest of the world is still a tax increase on American imports. The outlook remains uncertain, and our view on the outlook for the US specifically remains negative. We have further reduced our allocation to the US within the Blenheim Overseas Equity fund, taking advantage of the short-term but significant near 10% bounce the US market had following the 90-day pause announcement.
The Midas Touch
A lot of assets have turned to gold in recent weeks. Treasuries, the Dollar and stocks have all seen selling pressure with investors turning to non-US orientated safe havens.
Arguably gold remains the ultimate safe haven asset and investors are channelling their inner magpie, flocking to the shiny metal. At the time of writing the price has risen over 25% year to date and over 40% in the previous 12 months, monumental moves for what can sometimes seem quite a dull asset but it’s times like these where its diversification properties can make a significant difference in portfolios.
We can’t claim to have foreseen the recent politically charged market dynamics at the time but from October last year we began building a gold position in the Alternatives fund. This was initially a small holding but by the turn of the year the weighting reached the approximately 7% position that it is today. Without a doubt, gold has played a leading role in the Alternatives fund’s 3% year to date return and more importantly, helped to minimise the drawdown of the portfolios.
As far as possible we’ll always seek to replicate asset allocation choices within the Ethical portfolios, but commodities and mining often comes with their fair share of ethical issues. Our chosen method of gold investment is through the Royal Mint Responsibly Sourced Physical Gold exchange-traded commodity (ETC) which is backed by physical gold and held at The Royal Mint in Cardiff. Part of their process is to source as much gold as possible from recycling, including from old mobile phones, which is ultimately much less carbon intensive and more ethical than taking gold out of the ground, meaning that we are able to hold this particular gold investment in the Ethical portfolios.
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.