Monthly Review – May 2023
OUR PERSPECTIVE
As we write this month’s commentary, we appear to be on the verge of either the unimaginable reality of a US default or an increase in the US debt ceiling. We hope that it will be the latter. Whilst we believe balancing a budget is important, whether you are a household or a nation, we also know that politicians are rarely willing to make tough decisions, as these might just cost them their jobs! So, rather than increasing taxes or cutting spending, we expect the most likely outcome to be more of the same……namely more money printing. Under the circumstances a devaluation of the US Dollar is most likely, and probably not for the last time either. Where the US leads many have been tempted to follow, so we should not be surprised if other developed economies head down the same inflationary path.
This brings us to our topic this month: Gold!
We have just released a podcast (listen here) discussing its value(s) and characteristics, but suffice to say the three pillars of our Gold-thesis are:
- A store of value whilst central banks and governments around the world continue to devalue currencies whose intrinsic value is ultimately based on trust (fiat!),
- A provider of insurance amidst the rising risks of increasing geopolitical tensions as the two biggest global powers continue to lock horns, and
- A provider of liquidity as asset values – from equity markets to commercial real estate – potentially take a plunge later this year!
As for the debt ceiling, we believe the true risk lies not in a US default…this will merely be a technicality…but in the nature of our escalating reliance on debt and the very meaning of fiat…Trust!
History shows that when Trust is in short supply Gold tends to outperform…and right now Trust, in both the fractional reserve banking system and the fiat currencies that underpin it, are definitely in short supply!
Chart: The magical $2000 has been seen as the ceiling for the price of gold in recent history. This number might just become the floor for the price of gold in the future!
Source: BullionVault Ltd. 31/05/2023
EQUITIES
It’s all about AI! Equity markets continue to be led by a narrow set of companies. The market words to reference in earnings calls are “integrating AI” and the biggest contributions are coming from the likes of Nvidia, AMD and Microsoft. We’re not in an AI bubble, in our opinion, yet. But these companies are not cheap…and it has all the hallmarks of the making of a bubble!
FIXED INCOME
Fixed Income volatility bounced back up as fears of a US debt default rose to the fore. Core UK inflation proved to be stickier than many expected, and Gilts sold off heavily over the course of the month. We retain our views that inflation is a problem in the rear-view mirror, and that the bigger issue lies in deflationary risks alongside an over-reliance on debt. For this reason, we retain exposure primarily towards high quality nominal bonds, with a marginal exposure in short duration inflation-linked bonds as a hedge. With regards to broader credit markets, we remain underweight as we believe markets are mispricing risk, with downside potential further exacerbated by our concerns around liquidity.
REAL ASSETS
Fears of a property crises continue to be topic du jour and given the extent and pace of the rise in interest rates and tightening of lending standards, we share much of the concerns highlighted in financial media. Whilst we’re not expecting anything like the GFC, we remain underweight property given prices do not reflect the significant re-pricing of interest rates and of weakening demand. We retain conviction in the infrastructure space, especially in the renewable and digital infrastructure.
Within the commodity complex, whilst positive on the longer-term trends, the near term the risk of an economic downturn could put further pressure on already weak prices, and we remain underweight. We retain however a significant overweight position in gold.
SPECIALIST STRATEGIES
Specialist strategies continue to play a significant stabilising role within our portfolios. Managed futures continues to see a recovery following a relatively difficult Q1, whilst our market neutral exposures continue to deliver solid results. We retain limited exposure to private markets and retain concerns regarding NAV and risks of mark downs.
CURRENCIES
Generally, we remain neutral on currencies. On the margin we note that whilst inflation and interest rate differential would support a stronger USD, the risks of devaluation and trust in the US political systems are major longer term concerns. We remain positive on the Japanese Yen, which we believe is both undervalued and under-owned, with potential catalysts for a revaluation higher.
CONTACT US
For further information on any of our services, or if you would like to arrange a meeting with an investment manager to see how we can work with you, please get in touch.
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Important information
Shard Capital Partners LLP is a limited liability partnership, registered in England with registration number OC360394. Shard Capital Partners LLP Registered office: Floor 3, 36-38 Cornhill, London, EC3V 3NG. Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, reference number 538762.
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
Disclaimer:
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
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