Geopolitics continued to be the central theme across the globe as election risk remained in focus.

In the UK, the Labour Party won most seats in Parliament, resulting in Keir Starmer being elected as the new Prime Minister, while the Conservative Party shed a meaningful number of seats. In France, the second round of elections resulted in a hung parliament for the first time since the late 1980s. In the US, Republican Presidential Candidate, Donald Trump, survived an assassination attempt at a rally in Pennsylvania. The current standing President, Joe Biden, opted to step down as the Presidential Democratic Candidate and offered his support to the current Deputy President, Kamala Harris, to lead the party heading into the November elections.

On the inflation front, US CPI surprised to the downside in the June print. In fact, this registered as the first negative month-on-month reading since the early stages of the pandemic in 2020. In the UK, however, inflation surprised to the upside coming in at 2% year-on-year as at the end of June compared to Bloomberg expectations of 1.9%. While the UK headline inflation figure is lower relative to the US, services inflation in the UK remains excessively high at 5.7% year-on-year. This may well limit the Bank of England’s (BoE) ability to slash the bank rate meaningfully heading in 2025. Similarly, the European Central Bank (ECB) also stated that they will not pre-commit to any particular interest rate path at this stage. This allows room to have a data-dependent approach, although European economic data has recently started to falter.

An interesting reversal in market performance in the US transpired over the month. Small caps meaningfully outperformed the NASDAQ 100 over the month, likely due to some interest rate reprieve, lessening the interest expense burden among smaller businesses in the US economy thereby lifting valuation multiples. This swift reversal was exacerbated by a market short squeeze in the Russell 2000. The biggest software outage in history from global cybersecurity firm, CrowdStrike, plagued markets mid-month resulting in airlines being grounded and bank operations being negatively impacted.

In line with market expectations, the US Federal Reserve (Fed) kept the federal funds target range unchanged at 5.25% to 5.5%. However, Fed chair, Jerome Powell, signalled that it will likely be appropriate to ease the policy rate at the next meeting. Moreover, the official Monetary Policy Committee (MPC) statement was more attentive to risks of the dual mandate compared to primarily being focused on inflation in recent quarters. Labour statistics will likely be the primary focus heading into the next meeting.

On the fiscal front in the US, the Treasury Quarterly Refunding Report highlighted that issuance will likely be lower-than-expected this quarter. The decomposition of funding along the curve is projected to be less focused on T-bill issuance going forward. While plans to reduce the Treasury General Account have been forecasted by the end of the year before temporarily building it up this quarter, which may well be supportive of medium-term liquidity dynamics.   

In Asian markets, the Nikkei has recently struggled to come to terms with rising bond yields amid less accommodative monetary policy dynamics. This comes on the back of the Bank of Japan (BOJ) hiking the policy rate from a range of 0% - 0.1% to 0.25% and committed to reduce the pace of prospective bond purchases. Accordingly, due to the narrowing yield differential between Japan and US over the month, the Yen saw a sharp countertrend move appreciating by approximately 7% against the dollar in July. In China, the market welcomed the surprise 10bps cut in the 1 and 5-year Loan Prime Rates to 3.35% and 3.85%, respectively. This was short-lived as the reality of a fragile economic recovery and soft credit uptake remains the primary focus for market participants. Policies aimed at restoring consumer confidence, addressing the credit profile in the debt-ridden property sector and encouraging a sustainable turnaround in credit extension will go a long way in lifting potential economic growth – particularly as recent GDP statistics disappointed market expectations.  

Fund strategy

From a security selection perspective, we remain positioned in selected opportunities within our internal equity building blocks consisting primarily of Ashburton’s Global Leaders and Global Equity Growth Funds. Themes such as the emergence of Artificial Intelligence (AI) and the recovery in China are on our radar.

China’s equity market performance has faltered recently, and we have reduced emerging market exposure even further for risk management purposes. We remain encouraged by even further accommodative monetary policy supportive measures. Overall, multiples remain low in the country and international investors are generally very underweight in the region. We remain acutely aware that both investor positioning and multiples historically change rapidly once confidence returns.

Along with emerging markets, we have also reduced positioning in Europe in favour of high dividend and low volatility exposures as sectoral and style leadership changes have emerged in broader markets. Given less US fiscal risk premia due to lower-than-expected issuance dynamics combined with more stable inflation levels, we have also begun to add some more fixed income exposure. We remain cautious of forecasting a scenario of deep rate cuts in the coming months and are still watchful of the overall level of duration in the multi-asset funds. We maintain some allocation to US T-bills with attractive yields at about 5%.

Fund performance

The USD Global Growth Fund climbed 0.2%[1] while the USD Global Balanced Fund increased 0.7% compared to its Morningstar peers which rose 0.9% and 1.3%, respectively. The primary reason for lagging the respective peer groups over the month stems from a downturn in both our internal equity building blocks, the Ashburton Global Equity Growth and Global Leaders Funds. Our underweight to fixed income was likely a slight detractor, although our relative geographic positioning to regions such as the US and Europe and underweight to Japan certainly added value over the month. This keeps both funds in the second quartile in the Morningstar category year-to-date.

Disclaimer

Waystone Management Company (Lux) S.A. is regulated by the Commission de Surveillance du Secteur Financier (CSSF) (ref A00000395 & S00000734), Waystone Management Company (Lux) S.A. is a company located in Luxembourg, L-1273 Luxembourg at 19, Rue de Bitbourg. This document is issued by Ashburton (Jersey) Limited (The Investment Manager) which has its registered office at IFC1, The Esplanade, St Helier, Jersey JE4 8SJ, Channel Islands and is regulated by the Jersey Financial Services Commission. Ashburton Investments is a registered trading name of Ashburton (Jersey) Limited. In the event a potential investor requires material risks disclosures for the foreign securities included in a portfolio, the manager will upon request provide such potential investor with a document, outlining potential constraints on liquidity & repatriation of funds; Macroeconomics risk; Political risk; Foreign Exchange risk; Tax risk; Settlement risk; and Potential limitations on the availability of market information. The value of participatory interests and the income from them may go down as well as up and is not guaranteed. Past performance is not necessarily a guide to the future performance. Where an investment involves exposure to a currency other than that in which it is denominated, changes in rates of exchange may cause the value of the investment to go up or down. CIS portfolios are traded at ruling prices and can engage in borrowing and scrip lending. A full detailed schedule of fees, charges and commissions is available from Ashburton on request and incentives may be paid and if so, would be included in the overall costs. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The manager has a right to close the portfolio to new investors in order to manage the portfolio more efficiently in accordance with its mandate. This document does not constitute an offer or solicitation to any person in any jurisdiction in which Ashburton Investments is not authorised or permitted to communicate with potential investors, or to anyone who would be an unlawful recipient. The original recipient is solely responsible for any actions in further distribution of this document and should be satisfied in doing so that there is no breach of local legislation or regulations. This is a marketing communication. Additional information about this product, including brochures, application forms and annual or half-yearly reports, can be obtained from the Manager, free of charge, and from the website: www.ashburtoninvestments.com. In South Africa, the Fund(s) is/are approved for promotion under section 65 of the Collective Investment Schemes Control Act 2002. The Fund Prospectus, and further information including pricing and changes, may be viewed at the Fund’s representative office in South Africa: Ashburton Management Company (RF) Proprietary Limited (“Ashburton CIS”), 3 Merchant Place, 1 Fredman Drive, Sandton 2196. Ashburton CIS is an approved collective investment schemes manager regulated by the Financial Sector Conduct Authority and a full member of the Association of Saving and Investments South Africa.