Blog - Beckett Asset Management

07.04.2025 – Politicians Chatter as Debt Limits Shatter

Philip.James@beckettinvest.com8 April 2025

Politicians Chatter as Debt Limits Shatter

As previously promised, Rachel Reeves’ Spring Budget was a bit of a non-event as far as markets were concerned with asset prices barely blinking in response. I suspect the autumn update is likely to be much juicier but the Chancellor is yet to spill the beans on what it might entail. Speaking of spilt beans, the US political circus continues but I’m sure Vice President JD Vance and Secretary of Defence Pete Hegseth will be delighted to hear that in ‘pathetic freeloading Europe’, Germany appears to have found a money tree.

Now set to loosen its fiscal policy, reports out of Germany are suggesting a spending increase of between €500 billion and €1 trillion over the next 12 years. The consensus view is that the additional spending will be split roughly 50:50 between defence and infrastructure. This news has been very well received by the stock market and more importantly, the bond market appears quite content to stomach the additional bond issuance too – see Kwarteng/Truss for what happens when the bond market won’t stomach new debt issuance.

So what’s the investment play in response to the increased spending? Buy defence stocks seems an obvious answer but it’s not quite that straightforward. Yes, defence companies will make a LOT of money in the short term but can we, or anyone have a strong view on the level of defence spending on an ongoing basis or which companies will win the government contracts? Probably not. Buying something for its short-term supernormal earnings with an unclear long-term outlook feels like more of a punt than an investment to me.

Where we can get excited relates to the secondary effects of greater defence spending. There are many, many components that will go into the production processes within defence companies as well as the prospect of greater employment and salaries may well rise too. Hopefully you can see that this is a growth story that has the potential to bleed into many industries beyond defence and so rather than taking what could be called a punt on inflated short term earnings, we have preferred to increase our allocation to Europe as a whole. Although the defence element is what grabs headlines, it’s important to acknowledge that the German government are also targeting greater spending on energy security with a keen focus on renewables as well as digital infrastructure and transport.

Trump has now imposed the extensive tariffs we’ve been waiting for with very few countries left untouched. Interestingly, some tariffs have been imposed specifically on regions that aren’t countries in their own right which is a little strange and includes the Heard and McDonald Islands which has a whopping population of… zero people and a few thousand penguins.

Since the end of November 2024, the portfolios have been more defensively positioned with a significant underweight to the US as we favour Europe and Asia. Our view is that if the tariffs are quite punitive, this will significantly impact US growth and inflation. Tariff induced inflation is likely to be transitory and we may well find ourselves in a few months talking about how growth concerns in the US are driving markets.

Recessionary fears may well ultimately force central banks to cut rates more aggressively and interestingly bond markets have seemingly started to anticipate this.

Although it’s hard to feel anything particularly positive about the US right now, we must remember that Trump campaigned on a mandate to cut regulation and taxes. Should these ‘promises’ come to fruition then we may end up talking about a very different outlook but can we or anyone say when that might happen, absolutely not. Consequently, we have conviction in our decision to be materially underweight to the US but with the counterbalance that it’s possible for market dynamics in the US to change incredibly quickly. With this in mind we continue to monitor developments diligently and we are prepared to change our mindset from capital preservation to one of capital appreciation as and when we feel conditions are right to do so.

The BAM portfolios continue to maintain an overweight to Europe and an underweight to the US.

We acknowledge that we are now in an uncomfortable period of time for investors where levels of apprehension will be elevated. However, history has shown that keeping a calm head and maintaining a considered approach to investing often leads to the best possible outcomes.

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.

24.03.2025 – ‘Trump Put’

Philip.James@beckettinvest.com24 March 2025

Is the ‘Trump Put’ a Golden Ace for Markets Amid Constitutional Chaos?

Since Trump first took office there has been the theory of the ‘Trump put’, a belief that no matter what happens, Trump cares too much about the stock market to maintain policies that result in significant market falls. This was largely true in his first term and would provide a level of comfort and protection to investors.

Does the theory remain valid? It’s hard to tell?

If you take the president’s word literally, however hard that may be, then you’d conclude that the theory has gone up in flames. When recently questioned about market moves, Trump stated that he’s “not even looking at the stock market”. I’d argue it’s bonkers to believe a money motivated US president and businessman doesn’t care about the value of US businesses. That’s not to say that it’s a priority, but I don’t think this statement was very ‘Truth Social’ of him.

Unclear government policy is very unhelpful for US businesses and is the primary reason we’re seeing significant volatility in markets, particularly for US equities. Someone may argue Trump is using tariffs as a bargaining tool, a view I don’t disagree with, but the key point is that he’s now shown that he’s prepared to impose tariffs seemingly anywhere with little to no prior notice, not just use them in isolation as a bargaining tool. Suppose you’re a manager at a US business budgeting for the future. Tariffs mean that the cost of the goods you import have risen by 25%. You’re going to be incredibly conservative with your future spending compared pre-tariff plans including expenditure on employment, investment in equipment, research and development etc, which doesn’t sound like a plan for growth to me. In addition to this, Donald has poured a little more gas on the fire by delaying but not removing, some but not all of the tariffs – uncertainty on top of uncertainty! Trumpcertainty?

A recent Oxford Economics business survey backs this view up where the majority of respondents stated they’ve become much more pessimistic about the near-term outlook for the economy with the consensus view being that the chance of a global recession has doubled since January.

How do we digest all of this as investors?

The ‘Trump Put’ isn’t something we can rely on and the reality is that a president in their second term has much less to lose compared to their first term, they’re not getting voted in again regardless of their popularity. Trump has seemingly confirmed that this time around he’s prepared to implement policies regardless of economic consequences and how markets react. This sets a downbeat tone for the US market outlook and the ongoing political uncertainty which is one of the primary reasons that the BAM portfolios are maintaining their underweight positioning to the US. Despite this, you don’t need me to tell you that Trump is very capable of changing his mind overnight and therefore, a portfolio that is well diversified across multiple asset classes and regions will help to weather the storm in the US, whilst also capturing the plethora of opportunities that we see elsewhere.

10.03.2025 – Tariff Tiffs and Economic Shifts

Philip.James@beckettinvest.com24 March 2025

Tariff Tiffs and Economic Shifts

Brash and inflammatory speeches from Tariff Man have meant that China has spent a period of time under the radar and out of the headlines. Despite this, the investment opportunity in China appears to be evolving even if the world’s second largest economy is slowing down.

The key talking point here is sentiment. Fundamentally, nothing has materially changed yet, if anything conditions have deteriorated as some forecasters now believe GDP growth may fall below 3%. But if there’s any country that has a record of finding a way of making things click again it’s the Chinese. As you’d expect, “they’ll make it work” isn’t a strong investment thesis but the words and actions of Xi Jinping and those around him are starting to look more supportive of the economy.

Xi Jinping has been meeting with the country’s most important business leaders. Most notable is that Jack Ma, founder of Alibaba, has been prominent in Chinese state media’s reporting. A monumental change given he went ‘missing’ in 2020 following a speech in which he publicly criticised the financial sector. The Chinese securities regulator is also rumoured to be exploring targeted deregulation to make China a more appealing nation in which to invest, as well as improving the appeal of listing in China. Only last month CATL, the world largest electric vehicle battery manufacturer has filed to list in Hong Kong in what would be the region’s largest stock offering in 4 years.

The rather unimaginatively named “Two Sessions” (week-long annual formal government meetings), are taking place in China this week. The topics for discussion are unknown but it’s very interesting that the “Made In China 2025” project along with the government’s rolling 5 year economic plan both come to their conclusion this year. We have no crystal ball, but supportive policy is very much on the table. For this reason, we have taken our allocation to China from a marginal underweight, to an overweight.

Of course, we need to acknowledge that China isn’t without its own issues. Political risk has long caused headaches for investors in China, with the government being so dynamic and arguably inexperienced, that at times it can be unpredictable.

Unpredictability, recklessness and confusion is high in US politics – one of the best pieces of evidence I can provide you with is a quote by Trump in a recent speech – “Who the hell made these deals [with Canada and Mexico], they’re so bad!”. The last trade deal between the three nations was made in 2018, I’ll leave you to recall who the president was. We have seen a shadow cast over just about anything where there is US influence, whether that be relating to economies, security, immigration, … the list is very long. What’s upset markets the most relates to tariffs. Tariffs are a tax paid by the importer, despite Trump’s persistence that they’ll make other nations pay. Therefore, the tariffs imposed upon Canada and Mexico will increase costs upon US businesses, likely be passed on to the consumer and so ultimately, it’s the everyday person that pays for nonsensical decision making from the very top of government. We believe that Trump is throwing his weight around to get businesses to move their manufacturing to the US, but this is not something that any business can do overnight.

The BAM portfolios have been underweight since before the US election, primarily as we felt valuations were quite punchy. In addition to this, we decided to further reduce our US allocation in February due to the increasing political risk and to fund the above mentioned China purchase where we feel there is a stronger case for improving economic conditions. Despite this, it is important to remain cognisant that just as quickly as we can receive bad news, it’s very possible that Trump may announce a reversal to any of his policies which could spark a market rally.

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.