Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
Experience counts. That’s how jaded old dogs try to reassure ourselves. With all the gyrations in markets over the last few years and the recent rush for AI and ‘Trump-bump’ stocks, it feels like this could be the moment to look back and draw on experience. History doesn’t repeat, but it often rhymes.
In the context of 2024 so far, the head tells us to forget all of those investments that offer specialist exposure in niche but interesting areas of the market, and stick everything in a US tracker. What is the point of trying to fight the heart, which keeps faith in active management, stock picking and asset allocation? The head says generating performance through passives is so simple and so cheap nowadays. And investment trusts have hampered everything anyway, with those pesky discounts widening out. After such a bruising year for active management, there is little Christmas cheer left in many portfolios.
Unfortunately, the coming year is fraught with much greater uncertainty. Aside from heightened tensions politically, the economics don’t look much better either. In the UK and Europe, growth is stuttering and government finances are stretched. In Asia, a big question remains over China. And the huge rock that will be thrown into the water will be President Trump, whose potential tariffs will spread unpredictable ripples into different parts of the global economy at different times and in different ways. Where to turn?
We have no answers, other than to turn back to portfolio construction 1.0: diversification. Experience tells us that the elastic can stretch for what seems like forever. But 2022 is a very recent reminder that when it snaps back, it can do so very quickly. With the whole alternative income sector looking bombed-out, a promising diversification strategy could be to look for quality alternative income trusts that have been unfairly derated with their lower quality peer group. With underlying portfolios harder to properly analyse, the experience of the digital infrastructure subsector suggests it will pay to stay as close to the piste as possible.
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