Cesar Perez Ruiz

In early October, we transitioned from an overweight to a neutral allocation in US Treasuries, due to uncertainties surrounding the US election and data indicating slower disinflation. We are maintaining a neutral position on US Treasuries as we await specific policy measures from the incoming president concerning trade tariffs and tax cuts. Instead, we prefer Euro government bonds from both the core and peripheral countries because of fiscal discipline and expectation for greater monetary policy easing in Europe.

Our expectations that the US dollar will remain strong and US Treasury yields high lead us to reduce our position on emerging market local-currency bonds from overweight to neutral. We have also moved from an overweight to a tactically neutral stance on UK gilts as market concerns have grown about a lasting rise in the cost of borrowing for the UK government after the autumn Budget.

In view of the reflationary implications of the US elections, together with the promise of corporate tax cuts and deregulation, we have moved from an underweight to a neutral stance on US equities. 

We expect the US dollar will remain strong given the US economy’s outperformance, and the rise in bond yields stemming from Trump’s promised trade tariffs and tax cuts. As a consequence, we have moved to tactically underweight positions on the Japanese yen and emerging market currencies and are now underweight currencies versus the US dollar overall.  But we have moved from an underweight to a neutral position on the Swiss franc versus the USD due to its defensive, safe-haven role.

We are overweight gold given the political uncertainty and have capitalised on potential volatility through option strategies and currency trades.

We also believe strongly in AI’s promise. 

Our contrarian call is maintaining a neutral stance on US small-cap stocks. Although President-elect Donald Trump's promises of deregulation and tariffs could benefit US small caps, the risks of prolonged high US yield due to uncertain disinflation and fiscal concerns have led us to avoid a positive outlook.

Book: The Psychology of Money, by Morgan Housel for all the emotional and psychological factors inherent to money. Negative emotions such as greed, envy or social comparisons make people less wealthy and unsatisfied.

TV show: Succession, written by Jesse Armstrong