Best ideas portfolios: June roundup

The market has ignored underlying economic data and is hoping that central bank stimulus will be enough to further extend this economic cycle.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Kasim Zafar, 25th July 2019

The complexity of financial markets can be likened to weather systems. They are hugely complex and interconnected systems where apparently small changes in one area or another can have disproportionate effects elsewhere in the system. As taught in chaos theory: the flutter of a butterfly’s wings in Florida could lead to a tornado in Texas. As professional investors, we devote a lot of time and energy understanding complex interactions to create a foundation on which to base our investment decisions. Nevertheless, sometimes all you need to know is “it’s a bull market, dude”.

June was one of those months. The complex view saw signs of a weakening global economy with stalling job creation, stalling manufacturing activity and stalling consumption activity, together with geopolitical tension in the Middle East and the ongoing trade battle between the world’s two biggest economic powers. The simple view saw central banks pivot further towards easier monetary policy. Markets got another morphine shot. Bad news was good news. It’s a bull market, dude!

For what it’s worth, I’m still concerned about fragility. The uncertainty created by the US-China trade war (and Brexit for that matter) are burning a hole in business confidence and investment. There isn’t yet definitive evidence of a significant economic slowdown, nor in fact any change in actual monetary policy. There are indications by central bank officials and market expectations of slightly easier policy. In the short term, the market has ignored bad economic data and is hoping that central bank stimulus will be enough to further extend this economic cycle.

I remain confident our recent shifts towards higher quality companies within equities and reducing risk within our bond and alternative holdings will lead to portfolio robustness whichever way markets evolve. More definitive shifts in portfolios will be made accordingly.

There is more information in our latest blog posts and the Strategy Insight section of our website. Portfolio factsheets to 30 June 2019 are now available here.

As always, please do get in touch with any questions or feedback!

About the author: Kasim Zafar

Kasim graduated with a BSc (Hons) in Physics from Imperial College and is a CFA charter holder, being a regular member of the CFA Institute and CFA UK. He began his career in investments in 2002, gaining experience as a portfolio manager and senior analyst of global capital markets. His experience spans multiple asset classes, constructing portfolios with varying risk/return objectives and active risk management processes.

Kasim is the portfolio manager for the EQ Investors Best Ideas and Absolute Return portfolios. He is an active member of the investment management, strategic asset allocation and fund selection committees.

When not immersed at work, Kasim often finds himself stumped and constantly amazed by his young daughter at home. He also enjoys spending time in the kitchen practising his “cheffy” skills with both European and Asian cuisine, reflecting his mixed background.

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