Funds Congress Highlights

Ignoring political noise: DonaldTrump’s return to the White House adds a layer of policy uncertainty on top of tectonic changes to the global investment landscape brought about by geopolitical tensions and the proliferation of new technologies. Forget searching for meaning in the maelstrom of lurid headlines and focus, instead, on building portfolios resilient enough to withstand inflation and recession. Portfolio investments should align with long-term strategies, after all, and not be swayed by inflammatory rhetoric or political short-termism.

This is not 2016: In contrast to his first administration, President Trump’s ability to effect significant change in his second term is likely to be hampered by budget constraints: broad-based tax cuts, for instance, are more difficult to achieve when budget deficits are pushing seven percent. Similarly, the inflationary effects of the President’s much-vaunted stance on tariffs may dampen enthusiasm in the long run. Don’t forget, though, that the political noise generated by such rhetoric can itself create significant market volatility, even in the absence of real policy change. 

Significance of tech: The U.S. tech sector remains an unresolved question, with stellar performance figures driven by a handful of high-performing companies that has fuelled severe price distortions for more than a year now. Investors should continue to exercise caution: the sustainability of current trends hinges entirely on whether this coterie of companies can continue to meet what are now exceedingly high expectations. Diversification, both within the US market, and the rest of the world is key.

Underlying economic changes: Long-term trends that merit more consideration includethe persistence of inflationary pressures across many jurisdictions, driven by decoupling of traditional trade links which, together, are reshaping the global economic fabric. Such structural transformations spark new risks and pose new questions of investors. Due consideration will be needed in the construction of portfolios that are resilient against both growth and inflation shocks. 

Alternative assets: Rarely has the diversification of investments been so important. With the realisation that a reliance on stocks and bonds may provide insufficient resistance to inflation, some are looking at timber, transport, infrastructure and other alternative assets that perform well in inflationary times and – despite the liquidity and transparency challenges – are fast becoming a necessary part of an adequately resilient portfolio.

Avoiding the cash trap: Valuations remain key in long-term decisions about portfolio construction, of course. Wise investors continue to exercise caution towards heavy exposures to pricey U.S. markets, instead considering opportunities elsewhere in the world, especially in regions with low expectations yet a potential upside. And while the easy comfort of holding cash may sound tempting, history shows that a balanced portfolio generally outperforms cash, even in times of tumultuous political uncertainty.