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I was reminded of the market saying while I was writing our latest quarterly overview this week. (And if you want a copy of this longer review of the first half and our latest thinking, please do get in touch). I was writing a list of worries – including tariffs, war in the Middle East and government deficits – that the market had ultimately chosen to shrug its shoulders at and ignore in the first half of the year. This week I can add a couple more to that list.
Here in the UK, our government has not looked entirely competent this week and yet the 10-year UK government yield (a decent barometer of investor sentiment) sits at 4.5% – exactly where it was 5 days ago. And in the US (which ultimately matters much more for our portfolio returns) we saw another strong set of jobs numbers yesterday. In April there was plenty of talk that companies were delaying investment and hiring decisions until there was a clearer view on where the tariffs would end up. Try as hard as I can, I can’t see this in the US jobs data.
And just to reinforce that it is the US and not the UK that matters here, here is the equivalent chart for the UK. If the US data looked like this my guess is that equity markets would be around 20% (or more) below where they are today.
So the US economy continues to hold in there even with tax rises (a tariff is a tax) and relatively high interest rates. And before we get too bearish about the UK this should ultimately help us a little, as will the new €500bn German investment programme. There is always plenty to worry about in this business, but it is worth remembering that things do sometimes go right.
I am going to finish with something more for the investment nerds (i.e. me). Here is the change in Harvard’s endowment’s asset allocation over the last 10 years.
That’s quite a shift! Private markets have grown enormously in the past 10 years and here you can see a major reason why. I have a sneaky suspicion, however, that some buyer’s regret is sneaking in for some of these large private equity investors. The S&P 500 has returned 13.5% per annum over the last 10 years. And you have earned this with good liquidity and effectively zero fees. Contrast this with Private equity with its 2% and 20% base fee structure and which is having a much harder time making money and returning investors’ capital in a world of higher interest rates. With today’s hindsight I know where I would rather have been over the last 10 years. I have a feeling the dial will shift back to more liquid, public style investments over the next decade.
Chris Brown, CIO
cbrown@ipscap.com
The value of investments may fall as well as rise and you may not get back all capital invested. Past Performance is not a guide to future performance and should not be relied upon. Nothing in this market commentary should be read as or constitutes investment advice.
