CIO's Half Year Letter 2025

The first half of the year has been one of pretty much global mayhem. President Trump’s chaotic and unusual approach to tariffs, the escalated military conflicts in the Middle East, the continuing war in Ukraine with its existential threat posed to NATO, have left global markets amazingly unscathed.

Despite constant talk of rate cuts from central banks and commentators around the world, rate reductions have all but stalled. At the end of 2023, the futures market was anticipating a Fed funds rate of around 3.5% but by December 2024 was still up at 4.5%. At the end of last year, the rate was again expected to have declined to 4% by now, but it’s still stuck at the 4.5% level. However, with the US economy, and the consumer, confounding the gloomy prognosis of economists, the US central bank has resisted increasingly strident calls from the White House for the Fed Chair Jerome Powell, who President Trump calls a “very stupid person”, to cut borrowing costs. Powell has in part blamed the expanded use of tariffs on lack of cuts so far. We still believe that central bank rates are due to fall, but exactly when is open to debate. The Fed has not ruled out a cut at their next meeting at the end of this month. Of course, inflation could remain sticky for some time, but it is generally thought that its direction will be reducing going forward.

I am very pleased to report that all our client portfolios to continue to significantly outperform their benchmarks this year. We are always consistent with benchmarks but also crosscheck the numbers with other indexes such as PIMCO’s market bellwether, their Total Return Fund. Somewhat incredible this index shows a minus figure for the last five-year period (-1.14%).  As we have stated in the past, towards the end of last year we decided to adopt a risk-off sentiment for the portfolios which has proved successful. This entailed moving portfolios modestly longer, increasing portfolio ratings to average investment grade and, importantly, decreasing re-investment risk by selling all short-dated securities. The reason behind this last move was that in case we find that by the time of redemption of individual bonds we are then having to invest at prevailing yields that are at much lower levels.    

We intend to maintain our cautious philosophy in the coming months as we believe the world remains precarious and unpredictable place. Avoidance of risk is perhaps the most important element in the creation and successful running of any portfolio. The past months have proved that there is still an awful lot of risk in the world. President Trump’s tariffs remain a complete unknown global hazard for investors. We believe that our careful observation of global events and economics together with our research and consideration of sectors and companies will continue to maintain successful portfolios.       

For some time now the largest constituent of all our portfolios has been the debt of significantly important financial institutions, which has served them well. We remain convinced that the sound and secure structure of the bank debt held will continue to serve the portfolio’s well. Our client portfolios hold a mixture of senior and junior debt, to give both strength and yield. We hold debt in American, British and European banks. Other sectors we currently favour are Consumer Discretionary, Utilities, Industrials and Energy amongst others. Naisbitt King Asset Management remains committed to running client portfolios that continue to give superior capital appreciation and income.