- As legendary investor Warren Buffet put it, “only when the tide goes out do you discover who's been swimming naked.”
- We have been in an inflationary environment since Covid and, to bring inflation under control, central banks have hiked interest rate rapidly to bring down demand. This backdrop has recreated pockets of weakness in economies (property, durable goods) and has created recessionary fears. In this environment, one wants to mostly invest in companies that are 1) either self-sufficient with plenty of cash in the balance sheet to steer their business through challenging times and/or 2) that have a business model less exposed to exogenous shocks.
Here’s how we’re positioned in our flagship portfolios:
- We have previously spoken about the quality-growth bias of our strategy. Since the summer of 2022, we have increased the quality of the investments in the portfolios further whilst reducing the growthier element, for example technology.
- Last week’s events affecting the US banking system related above are a reminder of why quality matters. The first market reaction has been positive for US Treasuries (we are overweight US Treasuries) and negative for the US dollar (we expect the USD to fall over the course of 2023). Equity markets are currently sitting on a seesaw - downside risks vs policy support – which underscores our underweight equity positioning, with a focus on quality.
- Additionally in our portfolios, more meaningfully in our cautious risk-profiles, we hold gold as a defensive asset which, alongside high-quality bonds, has also performed positively in this risk-off market.
- Finally, we believe China’s continued re-opening (supported by Xi Jinping’s re-election) could benefit our overweight position in Asia-Pacific equities.
Past performance is not a reliable indicator of future returns.