There was a sense of ‘deja vu’ this month as Donald Trump reached for tariffs again, his weapon of choice, and threatened the rest of the world with making US citizens pay more for foreign goods to try and get what he wants (yes, it is quite a weird weapon!).
As before we won’t know what prompted the U turn, but the sharp decline in US stock markets on Tuesday followed by the subsequent rally on the U turn all felt very familiar.
For those daily valuation checkers, you will have seen the drop in portfolio values, if you look once a week on a Saturday morning you won’t even notice it as portfolios continue their upward trend.
With so much political turmoil already in 2026, it’s worth looking at how the individual funds making up our portfolios are holding up. I have added the Fidelity US index fund we used to own, but sold last year, to help me illustrate a few points.
Tideway’s Funds Performance 2026 to Date
Source: FE Analytics, Total Return in GBP, 31/12/2025-22/01/2026
I should straight away caution that 23 days is not a very long time horizon on which to make any judgments, but if I were someone inclined to play fast and loose with the facts to back up their position (what great leader would do that?!) I could not have created a better looking table!
All funds are positive so far, so we have all made money. Our equity funds are outperforming our bonds, for now we are being rewarded for taking the extra risk.
A US equity fund heads the table, but it’s not an S&P 500 tracker fund. This fund (which we don’t own) is at the bottom of the table and pretty flat after adjusting for GBP/USD exchange rates. The best equity returns are coming from careful stock selection in the mid and small cap area of the US market, an area of the market barely represented in the US index. Also, from stock selection in the rest of the world’s markets, which are also poorly represented in the MSCI World Index now dominated by US mega cap equities.
How these individual fund returns translate into our portfolio returns in 2026 so far is shown below.
Tideway Portfolio Returns 2026 to Date
This would be good for a three-month chart, but for 23 days it’s clear 2026 has come out racing. These returns in equities won’t be sustainable, the fixed income returns are pretty much as predicted. What is good to see is that even our moderate risk multi asset portfolio has delivered not far off the same return as a world equity index fund and of course has taken significantly lower risks with only c25% in equities and infrastructure with the balance in fixed income.
Fundsmith and Lindsell Train
FT readers amongst you may have seen the articles on these two ‘star’ fund managers who have both been apologising to their investors of late for poor performance. We never held Fundsmith, Terry Smith is a bit ‘marmite’ and he is not for my taste. We did hold a Lindsell Train fund but sold out over five years ago.
Tideway’s Equity Portfolio vs Fund Smith and Lindsell Train last 3 years
Again, without having to embellish the truth, you can see both managers having a tough time last year versus world indices and versus our Equity portfolio. They both have similar investment styles, quite concentrated, with a buy and hold approach and invested in what’s known as quality growth companies. These are companies perceived to be growing profits reliably from very robust and hard to compete with business models. They are great fund managers, there is no doubting that, but their investment style did not work last year, nor has it produced very good returns in the last 5 years and questions are being asked as to whether their approach will ever work again.
We think it probably will but it’s a good reminder of having a diversified approach to investing in equities rather than relying on a single strategy.
It is also worth saying how this illustrates how careful you must be about generalising and taking things you see on the internet and in the press at face value. The returns from these two ‘star’ managers in 2025 make a good case for passive investing versus active but as our fund selections year to date and last year’s figures show it’s a more complex issue than that.
What is Going on and Why are Tideway’s Equity Fund Selections Doing So Well?
We gave Nick the day off from writing duties today as we had a very productive Investment Committee meeting this week which resulted in us agreeing quite a few changes to portfolios which he and the team will be implementing in the next few days.
We will report on these in two weeks’ time after we have completed them. Suffice to say some are defensive to protect the great returns of the last three years and some will hopefully be accretive deploying our capital to try and make the best return for the risk we are prepared to take.
So, it is left to me to try and explain what’s happening!
There are a few things in play in investment markets that we can see:
1. Broadly positive economic conditions
Our global macro advisers are bullish on equity markets in 2026. They think the economic conditions of contained inflation, relatively low interest rates and strong employment are all positive for corporate profits in most countries and especially in emerging markets supported by a weaker dollar, in Asia and Europe as well as in the US.
2. The AI infrastructure boom
Whilst the jury is out on whether the excitement over AI is justified, the spending on infrastructure to build out AI applications is undeniable, easily visible and feeding down through the supply chain and into the wider economy. It is capital investment on a grand scale.
3. Defence spending
Love him or hate him Trump’s actions have spurred a massive uptick in defence and infrastructure spending as other countries recognise the need for security and self-sufficiency. If we ever needed reminding on the risks of reliance on global supply chains, Trump and his cohorts just delivered that in spades.
4. Rare metals melt up
Whether from industrial demand or from the fear of the depreciation of other currencies, the demand for first gold and now silver has gone through the roof. So too have the shares of companies in their supply chains, which are in a boom
5. A building fear of US assets and the redeployment of fund flows
Who would have thought Davos could hold so much attention? This annual convention of the great and good in politics and business organised by Blackrock’s Larry Fink, so always US focused but held in Europe, had become a bit of a non-event but became the focus of geopolitical issues this week as Trump went about his business of looking to ‘acquire’ Iceland, sorry Greenland.
Stephen O’Sullivan gives us the backdrop to the Greenland story in his geopolitics update written before Davos. At Davos the clash between European/ middle power country sensibilities and American might and behaviour has never been so starkly on show.
There were already signs and evidence in 2025 that investors were shying away from the high valuations and concentration of US equity indices, heightened by the fear of an AI bubble with investors allocating more funds to ‘rest of the world’ investments.
Now we may have to add to that the real possibility of outright boycott of US investments by some investors. According to an article in Top1000 funds.com and more widely reported; the $24 billion Danish academics pension fund, AkademikerPension, made headlines this week after announcing that it will divest its entire $100 million portfolio in US government bonds. Whether this comes to pass more broadly or was one-off reaction to the pressure Trump has applied in recent weeks will have to wait and see.
But, add to this infamous hedge fund manager Ray Dalio’s comments on the dangers of the USA’s $38 trillion debt pile, set to grow faster than the economy and it’s not hard to create a narrative for investors taking profits in US equities and moving away from the mighty Dollar and US treasuries.
The common theme in our active fund managers is that they are being nimble and getting invested ahead of these new fund flows, taking profits and moving on.
Redwheel Global Intrinsic Value
This trait is very evident in this fund which was one of our top performers in 2025.
They recently reported:
For 2025, eight stocks in the portfolio saw their share prices double in the year and sixteen stocks rose by more than 50%. Nine stocks contributed at least 2% to the Fund’s absolute return and another eleven stocks each contributed at least 1% to the absolute return. One stock, the chemicals company Lyondell Bassell, detracted more than 1% from the Fund’s return in the year.
These are companies like Sandisk, Macys, Austrian bank Raiffeisen Bank, Bayer and Delta Air Lines, all are a million miles away from the US AI driven Mega caps.
But the Redwheel team are not buying and holding like Lindsell Train and Fundsmith. Our analyst Costa Michaelides estimates in 2025 they turned over (sold and reinvested elsewhere) around 30% of their holdings. This is in stark contrast to the quality growth managers and their multiyear, sometimes decade long holds.
Geopolitics and AI are clearly shaking up the world. There will be new winners and losers for sure, and it seems that such a dynamic environment requires a dynamic approach to take advantage of the opportunities presented.
Happy New Year
