We talked last month about increasing expectations of easing measures from global central banks in response to tepid global growth and increasing uncertainty. The whole of July thus saw the market debating if central bankers would act and, if so, how aggressive they would turn out to be. The answers to those questions turned out to be “yes” and “not really”, leaving investors somewhat disappointed. Technically, the European Central Bank hasn’t acted yet, but its outgoing President laid out quite clearly the path of further easing to be deployed later in the year. On the last day of the month, the US central bank cut interest rates for the first time since 2008, by 0.25%. This was expected but the accompanying guidance was less aggressive than many were hoping for. The reality is that, all else considered, a rate cut in the US isn’t required at this stage: growth is average but remains, by far, the strongest in the developed world while unemployment is at a record low. The only reason for a rate cut at this stage -assuming that the Federal Reserve is indeed impervious to the constant attacks from a President Trump keen to avoid falling asset prices prior to the 2020 elections…- is to protect the US from weaker conditions elsewhere. The case for easing is much stronger in Europe which is struggling with high unemployment, a lack of growth and inflation. If the European Central Bank fails to act over the next few weeks, the disappointment from the market is likely to be much more severe than in the case of the US. In the meantime, the debate will continue to linger during August.
Another unavoidable issue, which has built up strongly in July, is Brexit. The UK’s new Prime Minister, Boris Johnson, campaigned on the promise of a Brexit, “do or die”, on 31st October and has stuck to this message in the week since his appointment. It remains unclear how much of this approach is driven by negotiating tactics and how much is driven by domestic political calculations but, for now, the probability of a no-deal Brexit and/or of another general election has increased, leading to a more than 4% drop in the pound versus the US dollar, to a 2-year low. Such a move in the currency helped boost British exporters (traditionally the larger companies in the index), as well as international investments for British investors. This provided some relief for the latter because there were no signs of the distortions in the UK market between the cheap value companies and expensive growth ones abating.

The TB Wise Multi-Asset Growth fund was up 1.9% in July, slightly behind the CBOE UK All Companies index, up 2% and lagging its peer group, up 3.1%. Compared with our benchmark of UK equities, our underperformance can be explained mainly by the weakness in the pound above and the benefits it brought to the larger companies, pulling the whole index higher. Relative to our peers, our underweight in US equities, on valuation grounds, is an explanatory factor. We note, however, that the fund is up close to 10% so far this year with an average of about 20% allocated to defensive strategies and cash. We believe that this remains the right approach in these uncertain and fast-changing markets.
This defensive allocation in the fund continued to be our strongest contributor to performance this month with our two precious metals funds, Blackrock Gold & General and Merian Gold & Silver, up 12% and 16% respectively. The latter benefitted from its exposure to silver which is traditionally a geared play on gold but is doubly so at present as it is historically undervalued relative to gold. On the negative front, the Woodford Patient Capital trust was, once again, our largest detractor.

Finally, in terms of portfolio changes, we reduced our allocation to cash and spread it across some of our most undervalued and strongest conviction holdings. We also took some profit in the Miton Global Infrastructure Income fund after a very strong run and trimmed our allocation to the Odyssean Investment trust and the Woodford Patient Capital trust.

Vincent Ropers 31 Jul 2019
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