Hang on a minute! Brexit – and the rest

Speedy inquisitiveness leads this latest CIO Talk, with a lot of ground covered in just over 10 minutes. As we drift through change, our message stands firmly: investing successfully in real life requires diversification, discipline and a balanced, long-term perspective.

Learn about: Brexit a decade on, another UK PM, market response, disciplined investing, diversification, emerging markets and long-term value

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Transcript

SPEAKER_00 0:06

I'm with Chief Investment Officer Gary Reynolds to talk through what's been a fast-paced few weeks in markets and around the world. And Gary, to keep on that note, we want to be fast paced here. I'm looking for a minute, a minute, a minute. We'll start with your favourite subject, politics. Oh wow. And you've got a minute. Oh wow. Okay, ten years since Brexit, how did the UK government mark the decade?

SPEAKER_01 0:29

Well, Brexit kicked off with a Prime Minister resigning, and ten years later it kicked off with another Prime Minister resigning, so Starmer stood down.

SPEAKER_00 0:36

Talk to us about the cyclical nature of political instability.

SPEAKER_01 0:40

It is cyclical, and and you've had six prime ministers in ten years after Brexit. You know, start starting with Theresa May, who replaces Cameron because he resigns the day after Brexit. Six in ten years post-Brexit, six in 40 years pre-Brexit, starting from Callahan, Thatcher, Major, Blair, Brown, Cameron. So there's your answer. The average tenure of a of a of a of a Prime Minister has shrunk by 75%. So no one really knew what they were doing.

SPEAKER_00 1:14

What do you think Burnham will bring?

SPEAKER_01 1:17

I'm not sure. Um yeah, I think I think actually Burnham's a a more credible leader. I think he's he's more in touch with people. Starmer really tried struggled to communicate. I think Burnham will do that. I think you've since he Starmer resigned, the pound dropped. So the markets don't like Burnham from a pound point of from reflecting the price of sterling.

SPEAKER_00 1:44

Well, this goes to my next question. Market response.

SPEAKER_01 1:48

Markets didn't respond too much with guilt, but the pound weakened. So that tells you something. Parts of the market were not happy, parts of the market were less concerned. I think what's interesting is who's he going to put in number 10? Oh, we are assuming it's going to be Burnham, of course, but it it looks like it is, bearing in mind that Streeting has thrown his weight behind Burnham's campaign to become PM.

SPEAKER_00 2:11

And sticking to market performance, courteous funds, how have they been doing?

SPEAKER_01 2:15

They've been doing really good. You know, I don't want to jinx it, but I think if we get to the end of this quarter, which is at the end of June, um, with positives, it'll be six positive quarters for the multi-asset funds, and I think that's a record, but Jake and James will talk about that a bit more when you put them on camera.

SPEAKER_00 2:36

Stocks. SpaceX. Clients won't have heard much from us because we didn't hold stocks in it, we didn't buy into it. What are your views on that?

SPEAKER_01 2:44

I can't buy it. I mean you can we are paid to make investments, not speculate. You know, we're not speculating, we're not gamblers with people's money.

SPEAKER_00 2:54

Have you watched it since it floated and well, yeah, it's gone up and come back down again.

SPEAKER_01 2:58

Bit like a bit like a rocket. Like musk rockets, it goes up, comes down. But all stocks do that. But you've got to get your head around the fact that this is a company that doesn't make any money and is trading not at multiples of its profits, it's trading at multiples of its turnover. So it's like opening a sweet shop which turns over uh um 10,000 pounds and makes no money at all, and you're gonna buy it for a million. It's it's almost as crazy as that. So is SpaceX our tulip moment when we get this market says, you know, this is the craziest it can be. But the whole thing with with SpaceX and Tesla, it's utter faith in Musk, in his ability to see the future and capture it.

SPEAKER_00 3:48

Stocks cheap versus expensive. What's the landscape look like?

SPEAKER_01 3:51

Well, UK's really quite cheap. US stocks um are trading around twice the level of earnings of UK stocks. So you have got this situation where parts of the market are very, very expensive by historic standards, and parts are very cheap by historic standards. So we lean towards the stuff that's cheap. What we're looking for is not to make the money in AI. When you look back at the big changes in history, take electricity, take railroads, this sort of thing. Generally, the money gets made by the companies implementing it, not necessarily the companies that demand it. It almost gets socialized away. The benefits of railways get dispersed within the communities, the benefit of electricity gets dispersed with the communities, used in all sorts of ways. But the companies that really do well are the companies that grab that invention. And a great analogy I've heard recently is you get some businesses when electricity came out, some factories used it to power lights, but others powered their machines. The ones that did really well were the ones that powered their machines. They beat the ones that just powered their lights but kept powering their machines with oil or coal or whatever else they've had. So it does, it makes a big um difference in the way you do it. And what you want to look for is the companies that are going to do really well using AI.

SPEAKER_00 5:13

Volatility. So we have various funds to meet different attitudes to risk and appetites for investing, yeah, loss return.

SPEAKER_01 5:21

Yeah.

SPEAKER_00 5:21

Talk about Court's fund volatility versus other fund volatility.

SPEAKER_01 5:25

The Court is, if you look at, say, our growth fund compared to, which is which has performed extremely well over the last year, roughly in line with the SP 500 index, but we've done it at lower volatility. And that's because you use this way of dispersing risk across a basket of assets. Diversification. Yeah, you're trying to get your investors to their objectives with the least possible stress. That's that's the goal. That's why volatility brings stress, try and keep the volatility down.

SPEAKER_00 5:57

Emerging markets. What do they look like?

SPEAKER_01 6:00

They look really quite exciting. They're very different. So if you look at Indian stocks, they're really expensive compared to Chinese stocks. You find some good bargains in places like Korea. But we've been leaning more towards Chinese stocks recently, and we think the way in which Xi Jinping has taken the Chinese economy, which is trying to get the consumer buying more, so they're moving away from an investment-driven economy where they're just putting up lots of buildings and new airports and new cities, to one where consumers drive the agenda. You know, it's it's the US and the UK are massive consumer-driven economies, you know, and that they're nearly sort of 70%. But in in China, the economy is driven by investment, which is sort of up 40-50%. So it's exciting what's going on in China at the moment.

SPEAKER_00 6:50

So, all this considered, are there any shifting trends in your current portfolio diversification?

SPEAKER_01 6:55

Shifting more towards emerging markets. I mean, emerging markets are a bit more volatile than uh main markets, so we can't put your shirt on emerging markets, you have to be careful. But we we've been increasing our weight judiciously on that, and and um that's that that I think has been the right way to go. And and we're looking for the the stocks in those emerging markets have got potential and are cheap.

SPEAKER_00 7:20

Thanks, Gary. You mentioned the Middle East and peace. The uh memorandum of understanding, as it was called, 60-day window, what to expect. So, what can we expect over the next 60 days? Is there still going to be volatility?

SPEAKER_01 7:34

I think the most surprising thing with the conflict is that the oil price didn't go higher than it actually did. You you go back to the summer of 2008 and oil hits around $140 a barrel. So here we are, 18 years later, the Strait of Hormuz shut, and we're all getting jumped because it's above 110. But it's not going up to 200 or 250, which I think was quite remarkable. And think price can tell you a lot that you don't necessarily get in the news. It told you the expectation probably was that the strait would open up. It probably tells you that a lot of countries were stockpiling a lot more, particularly China, than perhaps the market had anticipated. But I think it also reflected the fact that Iran and the US both needed the Gulf opened, notwithstanding that the US is a net exporter of oil these days, but there was incentives all round, and as all traditional economists uh will tell you, incentives work. So if you've got two parties incentivised to get something done, they'll get it done.

SPEAKER_00 8:50

So do you think it's fair to say then that while ever markets are ticking, there's always something to worry about?

SPEAKER_01 8:58

There's always something to worry about, because the thing that spook you next is probably nothing that's on your radar at the moment. So there are the classic Rumsfeld, there are there are things we know we we we don't know, and the things we don't know we don't know, and and there that that is the case when you're working with asset management. You know something is going to come round the corner because it always does. So a long conversation with the guys on the CO talk yesterday, and one of the questions came up being asked one of our younger advisors, why is the world such a worrying place at the moment? And I said, It's always been a worrying place. But when you're young, you think it's more worrying then. So you track back to the high inflation times of of the 70s, you know, oil price spiking, inflation in this country going above 20%, you know, get to about 25-26%, twice the level it was at the peak post-the COVID reopening. Then you get to you get to the 80s, you get to the Falkland conflicts, you get to riots in this country, you get to the market collapse of 87, you get to the first Gulf War in the early 90s, you get to the Russian debt crisis, you get to the second Gulf War in the early noughties, you get to the global financial crisis, you get to the American debt crisis, you get to the Euro crisis, you get to COVID, you get to Ukraine being invaded. It's always something there, always something there to spook people. And if you track back through history, that is life. So you you just have to manage it, and you manage it through diversification.

SPEAKER_00 10:44

Ending on a rather philosophical note is mankind's drive for survival.

SPEAKER_01 10:48

Yeah. Here's an interesting thought for you here. Mankind's drive for survival makes us always want to do things and be better. We have an assumption that if we get to AGI and we get to the singularity it's get it's called, that it will then design every machine that mankind ever needs from there on in. Artificial general intelligence. Artificial general intelligence, which effectively means it sits alone and thinks. The question is, what will motivate it? Why should it design any more machines? What if it's just lazy and won't do anything? Yeah, there's a lot of assumptions being made, and we sort of anthropomorphise this AI because it talks to us and it's you know, if you have a conversation with it, it's like it's like talking to a good friend, it's very respectful, it chats to you, and we kind of assume that this AGI being is going to be have um the same motivation that that that we have, but who's to say?

SPEAKER_00 11:44

Well, at the end of the day, its brain is everything that we've learned over years, decades, yeah. It's consolidated into a really quick search engine.

SPEAKER_01 11:52

Yeah, yeah. I I if there's one thing I I would say is that I do think some of the move to AI and thinking it's going to be more intelligent than us is not doing justice to how quite remarkable human beings are. And that I think that's uh that's a key issue because to try and find a machine that will do what we do, the fact that all the stuff we do subconsciously, our social interaction, the fact we can get up, dress in the morning, feed ourselves, drive, do things, fly, there's a whole host of things. We don't even think about it, but it's it's tough to try and get machines to have that level of awareness.

SPEAKER_00 12:38

Food for thought. Gary, thanks for your insight into many things, what's going on with the funds? Uh, I look forward to talking to you and the team more about how things develop there. Uh, if you do have any questions for your advisor or if you'd like us to put anything to the investment team, please do contact your advisor or contact us through the website.

unknown 12:57

Thank you.