[Next Friday there will be a webinar in place of the Friday note. Look out for an email invite this Sunday. Do check junk if it does not appear in your inbox]
The chaos of 2025 quickly got into its stride in 2026. The gloom of the UK media is unhelpful domestically, but an unhinged Trump turning on both his own people and the rest of the world triggers waves of uncertainty globally. At a high level this has not unsettled financial markets, not yet. But it can be very unsettling for individual investors. The risks are at two extremes.
On the one hand hyperactivity, and on the other procrastination…
Long term readers will recall Goalkeeper Syndrome i.e. the overwhelming need to dive for every shot, when standing still is statistically a far better option. So it is with investing. You don’t need to twitch your portfolio in response to every new (over) dramatic headline.
Other investors will be caught in the headlights (and also the headlines!), and do nothing when they should be doing something. Have you too much in cash as interest rates are falling? What are the sensible alternatives? More on this in next Fridays webinar, and how a balance can be achieved between these two extremes.
In the meantime, why not try out The Overnight Test:
· Assume someone sold all of your investments tonight without your knowledge, and tomorrow you woke up with 100% in cash.
· Here's the test…
· You can re-purchase the same investments at no cost.
· Which would you re-purchase? What changes would you make?
· Now ask yourself the question why aren't you making those changes now?
Let’s get into the recent stock market action. Since the last note before Christmas, China, Germany and Japan have all moved up by 3-5%.
The FTSE 100 was relatively quiet, gaining a little over 1% in common with the US indices. The domestically focussed small and mid-cap indices performed a touch better, 2%+… this is a minor differential against the FTSE 100, but perhaps a sign that 2026 could be the year of leadership from such companies. Cheap valuations and falling interest rates shine a light on the attractions.
Such attractions stretch well beyond the UK, and these have been coming to life thanks to The Orange One. To a very large extent the financial markets are not reacting to the chaos, with one mostly over-looked exception – the Value-style funds which we have often highlighted over the years. These funds invest into companies whose share prices are cheap and overlooked. For the last decade or so these were sidelined as the tidal wave of global money was sucked into the US, in particular technology, resulting in a scale of over-valuation and mania on a par with 1929 and 2000. The worm is turning…
Trump is singlehandedly adding momentum to the ABA investment theme – Anything But America – and investors embracing this theme see relatively cheap opportunities around the globe. Many countries now have a bias towards “loose” policy, for example, in the case of the UK this means notably lower interest rates, in China it is reforms to support consumer spending.
Trump also needs to keep his economic pot boiling, as there are Mid-Term elections in November, and the prospects for his Republic Party are gloomy right now. This may result in forcing interest rates lower (however ill advised), or dropping tax rebates into the bank accounts of the less well off. If this can hold the wobbly US edifice together through 2026, it will allow other world markets to continue making decent progress... though we remain on our guard.
Fund performances in the last quarter of 2025 highlight the resurgence of funds with a Value-style. Take the UK. The FTSE 100 index was up 4%, twice the return of the US, and a range of UK Value funds were up twice as much as the FTSE 100, gaining approximately 8% e.g Schroder Income. iShares Value Factor ETF gained 9% in those 3 months, while iShares Momentum Factor ETF, with its inevitable emphasis to US tech, was up just 3%.
I will look at this Value angle in a little more detail in the upcoming webinar – look out for the email invite this Sunday.
It’s also time for What’s Hot, What’s Not, where gold and the precious metal funds had a hot December, ending an extraordinary year. Chinese and Asian funds had a sensible breather (though recovering over Christmas), and Growth/tech funds underperformed again. The sector analysis reflects a world which is reflating, including the European Smaller Companies, UK Equity Income, and Commodity sectors.
Whether we observe the Christmas period, December, or the last quarter of 2025, there are clear themes emerging.
N.B. Next Friday there will be a webinar in place of the Friday note. Look out for an email invite this Sunday. Do check junk if it doesn’t appear in your inbox.