Head of Multi Asset
Craig joined Keyridge Asset Management in March 2004. He became Head of UK Equities in March 2010 and was appointed Head of Multi-Asset Funds in May 2018.
He previously managed income funds at Govett Investment Management Limited and prior to that worked at Deloitte Touche. Craig has a BSc in Mathematics from Warwick University. He is also a Chartered Accountant and a CFA Charterholder.
Each month, the Keyridge Multi-Asset desk will provide a candid look at the key market signals shaping our portfolio construction.
Signals
Most investors expend much effort sifting useful data from the noise. The Hormuz crisis has drowned out almost everything else. Markets are whipsawing, and the stakes are high. Negotiations are painful. The future of over 150 million souls and 7% of global economic activity hang in the balance. It is easy to conceive any of a wide range of outcomes.
Past the noise, the mullahs cannot wish Tehran to resemble Gaza, while the US wants cheap oil and an off-ramp to hostilities. Despite this, all the rhetoric is now pointing towards a ground war. A land assault in Hormuz is risky, expensive, and unpopular. For markets, both action and inaction appear awful. This means the risk/reward is tipping lower. Infrastructure damage is mounting, and so too the impact on energy prices and inflation.
Conventional wisdom is to buy on the sound of bullets – which we might hear soon. This time though, it remains difficult to envisage any good outcomes. Any assault might escalate to more infrastructure damage. This includes assets piping nine million barrels of oil daily around the problem. We might also see the closure of the nearby Strait of Bab el-Mandeb guarding access to the Red Sea and the Suez Canal.
Meanwhile US military assets are draining away from Ukraine and from the Far East. This raises the risk of geopolitical turmoil in both areas. Pressure is growing in Europe to look to itself for security needs and currently weaknesses have been awkwardly highlighted. This is a lengthy process which has barely started.
Strategy
Full panic selling has not occurred yet, and the narrative is worsening with no solution in sight. The short-term trade, we think, is to reduce equity exposure. This marks a change from my note just 4 weeks ago when we favoured holding equity exposure through volatility, but the risk/reward no longer supports that.
Longer term trend analysis is harder. We believe structural pressure on inflation is upward. Equities are the best asset class if so, and careful management of long duration fixed income advised. However, short-term inflation spiking has driven expectations of higher central bank rates which is negative for equities. A growing risk of recession will also place downward pressure on rates. On balance, we position for the equity bull market to resume, but after further correction.
During volatility, we also seek relative trends that remain intact. Opportunities present in sectors that were in strong uptrends and have suffered profit-taking, such as miners, healthcare, banks, and surprisingly, gold, aerospace, and defence.