UK vs US – Dynamic Asia Soars – Bonkers 21x Index – AI Universe Update

Fri 08 Mar 2024

By Brian Dennehy

Access Level | public

Market commentary


quoteThose of you who were previously FundExpert Gold Members will recall the oft-shown slide of the acrobat on a tightrope.

He was trying to balance the opportunities in the UK, Japan etc with the nasty risk of the US stock market bubble bursting. How could this circle be squared? If (when?) there was a bust of globally dominant US equities, how could those other opportunities gather upward momentum at the same time?

History shows that Japan has the potential to do that, being less dependent on the US. But the UK would not be able to resist a sharp multi-year downtrend in the S&P 500.

But in 2024 an “out” for the UK has come into focus. In a nutshell it has two requirements:

  • US bubble valuations and mania behaviour must become even more extreme, creating a benign window for the UK, and other world markets, to bounce, and…
  • There must be a catalyst to drive UK equities higher.

The former is perfectly possible, as there is no rational end to an irrational market. Knowing it is a bubble-cum-mania merely informs you of the scale of vulnerability. Like the avalanche-prone snowy slope, it merely requires the final snowflake, of unknown nature and timing, to bring it all tumbling down.

The catalyst for UK equities is really plural. First a baked-in sharp fall in inflation, which will become most visible in the April inflation numbers. Second a shallow economic downturn. And this week came the Budget proposal for a British ISA. A £5,000 ISA is not going to transform the outlook for the UK stock market. But taken together with UK equities being so cheap, a positive picture has been building.

The Chancellor could have done much more. The extensive and serious reforms in Japan in January 2023 set their market alight. Nonetheless, all of these elements in the UK give more fuel to the uptrend which has been in place since late October.

With that budding uptrend in mind, in the November teleconference we considered the unfolding opportunity in the FTSE 250, which, unlike the FTSE 100 index, truly reflects what investors think about the UK. Listen in to the recommendation for the Mercantile Investment Trust – do note the reasoning for highlighting that fund, and only that fund. The result has been interesting and is worth exploring…

For the sake of argument let’s assume that a broadly-based global uptrend began on 1st November. After a sharp rise, markets took a breather for 3 weeks from late December, and then renewed their uptrend on 17th January.

From 1st November the news has been all about the US, and the role of the Magnificent Seven, in particular the AI darling Nvidia, driving the S&P upwards. All very exciting and newsworthy. From then until 6th March the S&P was up 15%. Not mentioned by the media was that the Mercantile Investment Trust, invested into the boring FTSE 250 with no AI propulsion, was up 21%.

Focussing in on the period from 17th January, that was the time when the extraordinary Nvidia results came out and set the US market alight if you read the press. Since that date the S&P 500 is up 7%. Over the same period the Mercantile Investment Trust quietly went up 7% too. Ssshhh, don’t tell anyone, after all the UK stock market is so dull and lacking any potential.

Last week I promised an update on our Artificial Intelligence fund universe, and here it is. These specialist funds have had a great run, and, if you are tempted, those with the greatest 3-month momentum should fit the bill. Just try and make sure you do this rationally, like the rational speculator we described last week.

There are two portfolios being updated this month, Bonkers 6-Months and Dynamic Asia & EM Portfolio. They both had a storming 6 months, Bonkers up 21.96% and Asia an even more impressive 25.25% of growth. When you link through you can see the latest funds with momentum, to hold for the next 6 months.


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