Market Update • 11 July 2025
Investment Markets
That was the first half of the year. Ultimately no big damage to equity or bond markets, despite a good deal of political action on both sides of the pond. No resolution to the two main conflicts and no major recessions.
Nothing much to say then. That did not seem the case when we sat down with our macro advisers TS Lombard this week to run through their 62-slide power point summary. Martin Shenfield, who sits on our investment committee and who understands what we are trying to deliver to Tideway clients, summarised it in just over an hour. We took the transcript from that meeting and got it down to two pages.
Here are my key take outs on TS Lombard’s views, summarised from those two pages and in words we might all understand:
- There has been a shift in the way investors are allocating money in global investment markets, which TS Lombard see as potentially seismic. In the post ‘Liberation Day’ sell off, when equity markets tumbled, the dollar dropped against other currencies and US treasuries went down. They usually both go up when investors are selling riskier assets – this is the first time this has happened since the 2008/9 Great Financial Crisis.
- This leads TS Lombard to conclude that ‘US exceptionalism’*, as it has become known, may have peaked. Particularly foreign investors, who support a good deal of US investment markets, appear to be having second thoughts.
* Where investors buy everything US; the dollar, the US equity market, and the US bond market. - The impact of US Tariffs has yet to be felt and appears to be being discounted by equity investors – particularly those piling back into the S&P 500 index. Watch out for the second half of the year as these begin to bite. Profit forecasts for 2025 have already been downgraded but may need further downward adjustment. Over 40 years of profit expansion from US companies may not be sustainable when the President is hell bent on returning industry onshore to the US.
- The US and UK have an awful lot of debt to finance. Starmer’s U-Turn and Trump’s Big Beautiful Bill don’t appear to have helped. It is not too great elsewhere, either. Both Japanese and European bond yields have been rising with bond values falling.
TS Lombard’s clear advice:
- Stay globally diversified in equities
- Avoid longer duration government debt
- Don’t get over exposed to the US dollar
A sigh of relief from the Tideway investment team, as that is exactly where we are already.
Performance
We have published our performance versus our peers in this Benchmark Review. These show 6-month, 1-, 3-, and 5-year returns, versus the average returns for funds in the Investment Associations sectors that most closely match the constituents of our portfolio (the benchmark). These figures take account of the underlying fund charges, but don’t allow for Tideway’s ongoing fee.
It gives me great pride to publish these figures, which are a huge endorsement both of our Investment Director Nick Gait and his team’s efforts, and the Tideway Investment Committee which ultimately makes the decisions on what we buy and what we sell.
The good news here is that, almost without exception, Tideway’s returns are higher than average and that outperformance is more than covering Tideway’s fees. Put another way, you are getting to use the AJ Bell platform and getting all the service and advice you get from Tideway effectively for free 😊 as compared to the average UK investor.
The exception is in our equity returns, where our blended portfolio (which we use in the majority of our multi-asset portfolios) underperformed up until this year due to our relatively underweight position in the Magnificent 7 stocks. In the first half of this year this has been reversing with our equity portfolio outperforming the average manager.
We have also published a Passive Review, looking at returns over the same periods compared with funds available from Vanguard, one of the UK’s major passive fund managers.
I can’t find information on how much money Vanguard manages in the UK, but they manage over $10 trillion globally. I can see that they have around £1bn in their Cautious 20% Equity Life Strategy fund, which has made just 1% in 5 years versus Tideway’s Cautious fund which has made our clients c18%. They then have £5bn in their 40% Equity Life Strategy, which made 14% over 5 years versus Tideway’s Moderate and Balanced funds which returned 24% and 30% respectively.
Those investors collectively would be £780m better off if they had invested with Tideway! Cheap is not always best, or as we say in the Baxter family, “cheap is cheap” (ref. Woody Allen’s Midnight in Paris) and good advice does not have to be expensive. In fact, just the opposite – it should be value adding, not a cost.
Active vs Passive
We have had some questions regarding the passive figures, especially around the fixed income figures and lower risk mixed asset figures. “Are those returns correct?” “Are you taking a lot more risk?”
The answer is emphatically yes and no.
Fixed Income
We have been arguing for years that when it comes to investing in fixed income markets, passive makes no sense. Now we have a period that really shows this up.
A typical Mixed Asset fund like the Vanguard funds holds mostly government debt, and through index funds will hold longer duration government debt. These have been really bad investments, whether in Gilts, US Treasuries hedged into Sterling (which is expensive to do), or directly in Dollars which are now getting hit by the exchange rate.
It is the governments around the world who now have the problem of balancing deficits and rolling over debt. Corporates, by contrast, are in much better shape. Just today I read in the FT that Dutch pension schemes are offloading government bonds (about £100bn worth) as they switch from defined benefit (DB) to defined contribution (DC). The UK government would also like UK DB pension schemes, currently mostly in Gilts, to invest in UK shares and infrastructure. Someone has to own all this government debt – the price just gets cheaper and the yields go up to attract new buyers. TS Lombard’s warnings on this were clear.
Buying long duration government debt right now is much riskier than buying the short duration corporate bonds we own.
In corporate bond markets we find active managers consistently outperforming passive indices. There are a range of reasons (we have written on this before), but in the main, managers are not buffeted by the sort of speculation that goes on in equity markets and they can verify good opportunities with relatively simple maths.
Equities
Which brings me to equity markets.
It has been a very hard argument for a long time, but actually it’s really only been since the Great Financial Crisis that market cap weighted indices have become dominated by a handful of US tech companies, which have grown to enormous valuations with their returns, leaving the rest of the world’s equities trailing in their wake.
Nvidia breached $4 trillion this week and now makes up more than 5% of the MSCI world index, with the top ten companies (all US) making up 25%. The average Price Earnings (PE) ratio of these ten companies is estimated at 50x earnings (about the same as Nvidia) and only two of them (JP Morgan and Google) have PE ratios less than 25. If your investment thesis is to invest in the biggest and most expensive companies on the planet on the hope they will get even bigger and even more expensive, be our guest and buy the index.
It is increasingly hard to do any sensible, down-to-earth maths on the growth in earnings these companies will need to deliver in order to make the same returns for investors in the next decade as comparable with those of the last.
Hope is not a strategy (copyright General Gordon R. Sullivan of the U.S. Army).
By contrast, whether it’s in European banks in our Artemis Global Equity Income fund, or investments in unloved markets such as the UK equities in our Redwheel Global Intrinsic Value fund, our active managers can take much bigger positions in good, calculable opportunities without taking big risks.
- Redwheel Global Intrinsic value holds c30% in UK stocks, which make up 3.6% of the MSCI world index
- Artemis Global Equity Income holds c40% in financial stocks, compared to them making up 17% in the MSCI world index
These managers have been delivering solid returns for a long time; we will generally only invest in managers with good long term track records. Their results have been outshone by passive strategies in the last decade but are now starting to shine through.
As can be seen in our performance review figures, our global value and income managers have now delivered bigger returns over 5 years than passive global equity strategies and substantially more this year so far.
