Three Ideas from the US Senate

Friday, January 15th, 2021

Energy, Healthcare and Communications in the spotlight

Elections don’t change things, except when they do. The combination of the Saudi oil cut and Democrat control of the Senate could usher in a period of materially higher oil prices. The Senate victory also means that social media companies may be threatened with more regulation and even a possible break-up. But does the new administration have the political capital to take on Big Pharma at the same time? The outlook for the Healthcare sector may be more hopeful than the Blue Wave doomsters suggested.

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Prices Move Before the News

Friday, September 4th, 2020

Investors need a process which highlights what they don’t know

One of the great virtues of our process is that it is sensitive enough to identify sudden changes in the relationship between risk and return, which have no apparent justification in real life – until the news story which prompted them finally breaks. We have just had a classic example of this with the resignation of Prime Minister Abe, which was announced in late August, eight weeks after our weighting in Japan was suddenly reduced. There is always an explanation, even if you don’t what it is, and this note highlights ten other recent moves at sector or country level, which we think are only partially explained.

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In Search of Fresh Inspiration

Friday, February 21st, 2020

Is the Boris trade close to its peak?

In Q3 2019 a group of housebuilders, utilities and dollar-sensitive industrials began to outperform the UK index on hopes that the Conservatives would win a general election. This created a powerful long momentum effect, but our analysis says that we are now close to maximum exposure. For the Boris trade to become more powerful, we need greater consensus on which stocks to underweight/short.

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The Meaning of Boris

Friday, January 10th, 2020

Three half-full glasses and an alternative

The result of the UK election has made the country more attractive to international equity investors, but not to domestic investors, except in the sense that equities everywhere have become more attractive relative to fixed income. We do have substantial overweight positions in cyclical sectors like Industrials, but these are funded by underweights in other cyclical sectors like Materials. We expect to upgrade Small Caps to overweight in the near future, but we have already done so in Japan and the Eurozone. It’s all a bit underwhelming. But our models are clear that if you think that the UK will prosper outside the EU, you should buy Ireland.

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The Calm Before the Storm

Thursday, March 7th, 2019

Concerns over US earnings, China slowdown, Euro banks

Before the ECB’s announcement today, nothing very important had happened in financial markets for several weeks. We get nervous when it’s this quiet, so we prepared a list of issues to worry about. They range from the benign, like a melt-up in risk assets caused by a sell-off in US Treasuries to the borderline catastrophic, like a Eurozone banking crisis. Our main point is that the current directionless environment is likely to end in the near future. Whether investors believe in any, or all, of the scenarios listed below is up to them.

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Peak Euphoria

Thursday, May 18th, 2017

Macron trade already stronger than Trump trade

Our portfolio has had Eurozone Equities as its #1 position since the middle of March. We now see evidence of indiscriminate buying, with investors scrambling for exposure to the benchmark and not caring about sector or country tilts. Our exposure is now at a level which has only been matched three times by any equity region since the onset of QE.

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Forecast Blindness

Thursday, December 15th, 2016

Retracement is a natural market mechanism

Our charts suggest that US Treasuries are oversold and that equity sectors like US Financials are overbought. Even if forecasts of the new Trumpflation era are correct, investors still need to price the risk of non-delivery. Where better than in those assets which reacted strongest when the new era dawned?

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Safe, Deep Water

Wednesday, July 6th, 2016

We recommend US fixed income and EM equities

Don’t waste time worrying about all the things which could go wrong after Brexit. It’s better to focus on areas where there is potential for positive returns. We maintain our exposure to a broad spread of US fixed income and are adding to Emerging Markets in equity and fixed income. Find the safe, deep water; stay away from the rocks.

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