Active investing in volatile markets
If you’ d been living under a rock year-to-date and had just checked in on markets, you could be forgiven for thinking not much had gone on. The reality couldn’ t be more different! We’ ve seen significant swings in valuations triggered first by worries over US dominance in the AI space following the release of China’ s DeepSeek large language model, and then further volatility and a sharp sell-off in equities – especially in the US – following President Trump’ s‘ Liberation Day’ announcements. Since then, we have seen strong performance from European shares and a recovery in US equities after a pause in the implementation of tariffs and a de-escalation of trade tensions between the US and China. Moves have been rapid, and we have worked to best position portfolios, including through adjustments to our fixed income exposures. For example, we swiftly reversed an underweight to government bonds following a rise in US Treasury yields. At the other end of the credit spectrum, we had been neutral on high yield but have taken the opportunity to add to positions given the widening in credit spreads that we saw during the market volatility in April felt unjustified against solid fundamentals.
Considered positions anchored around conviction
Many market moves this year have been in response to policy announcements from the US Administration. But other geopolitical factors have played a big role, such as Europe moving to step-up spending in areas like defence and infrastructure, a shift enabled in Germany by an easing of the debt brake. In such news flow-driven markets it could be tempting to rapidly reposition portfolios to reflect such announcements. Given the sharp policy reversals we have seen in recent months, however, such an approach could quickly lead to being on the wrong side of trades. In our view it is better to take a more considered approach – positioning portfolios to tap into themes and shifts where the longer-term outlook remains more certain and our conviction higher.
Tactical adjustments can add value
The right blend of assets can be a powerful tool in delivering investment outcomes aligned with long-term objectives. This strategic approach to asset allocation can be enhanced through an actively managed tactical approach designed to take advantage of shorter-term themes and opportunities, as well as taking steps to better preserve capital in more challenging periods. During sharp downward corrections in US equities earlier this year, for example, we took the opportunity to increase weightings at what looked to be attractive valuations. Closer to home we have added to our European exposure on the view that fiscal easing bolsters the region’ s growth prospects – we’ ve since locked-in gains and brought our European weightings back to neutral.
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