William Dinning

Our asset allocation is marginally overweight equities currently given a global macro backdrop which is relatively supportive in that interest rates are expected to be cut in the US and the UK in the next 12 months, as inflation gradually comes under control, while earnings growth is expected to remain positive across regions. There are pockets of global equity markets which look “expensive”, such as AI related stocks trading on high multiples, but that does not mean equities in general (nor all US equities) are unattractive. In fact, we are able to find many good ideas around the world. Being an active equity manager, W1M can choose to exclude stocks which our analysis suggests are too highly rated (in P/E terms, for example) and to hold stocks which we consider more attractive or underappreciated by the market.

Fixed income: We remain underweight in general, viewing bonds as a diversifier and noting yields these days are not unattractive. However, inflation has been more stubborn than many expected (UK inflation is still closer to 4% than its 2% target) and western governments are still borrowing to fund spending and pay what are already huge interest bills on outstanding bonds. In addition to this, the reversal of globalisation with new and high tariffs being imposed by President Trump and getting some retaliation is ultimately inflationary as prices will inevitably reflect those tariffs. With a somewhat uncertain inflation trajectory, we are comfortable being slightly underweight bonds but preferring UK gilts to relatively expensive “credit” or bonds issued by companies which normally tend to have to pay a premium over government bonds given greater risk of a company going bust than a government not paying its interest on debt held in bonds. Currently, credit is relatively expensive and we think the UK government’s woes may have led to an overreaction in UK bond yields; if interest rates can fall more than expected in the UK, there could be a decent return on UK gilts and we believe that is possible.

Alternatives: We remain positive about metals including gold (holding gold miners as well as having exposure to the metal) and also uranium for greater interest in nuclear energy around the world. We are also taking more “protected equity” exposure in terms of using hedging techniques which can give our portfolios some protection should markets sell-off.  We see uncertainty regarding inflation given the impact of tariffs, and how they will impact consumers and companies in different sectors, as a potential risk for markets.

If tariffs lead to companies passing on significant price increases and consumers reacting badly, that could be a negative for both bond and equity markets (as interest rates may not fall as quickly as markets currently hope or may even have to rise giving sentiment a shock). But for now, bond markets are pricing in several US interest rate cuts in the next year and positive GDP and earnings growth numbers; we remain cautiously optimistically positioned.

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