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‘Trying to predict the future is like trying to drive down a country road at night without lights whilst looking out the back window’. So said the American consultant Peter Drucker.

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You can be fairly certain that when the consensus leans strongly in one direction the opposite often happens. Last year most believed that interest rates were set to decline after post Covid inflation, fuelled by government handouts, had been brought under control. Now Governments are at it again with profligate spending, risking a resurgence of inflation.

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Last year, we invested in bonds when interest rates were near their peak, anticipating that future rate cuts would boost bond values. While central banks have started to reduce rates they haven’t fallen to the extent we, and markets expected, nevertheless investors are benefiting from attractive fixed income returns in the meantime. Sectors like infrastructure and energy have also been impacted by the lack of significant rate cuts. With global growth slowing, rate reductions will eventually become necessary, but for now, we appear to be heading toward a period of stagflation at least here in the UK.

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The rise of machine-driven passive investments continues helping to reduce the cost of investing which is a good thing. At EXE Capital we include the Global MSCI World index in many of our client’s portfolios which has allowed them to benefit from the continued meteoric rise of the Magnificent Seven. It acts as our “momentum” play.

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There is however a downside as momentum can work both ways.  Passive strategies use market cap weightings in the main which increases concentration risk. Today, 35% of the S&P 500 consists of just seven companies. This means that via passives more money flows into those seven making them ever larger and more expensive.

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It is well known that most active managers underperform the indices largely because they simply track such benchmarks which makes them expensive trackers. They are not truly making active decisions that allow them to deviate from the benchmark or to seek tomorrow’s winners. It is why we only select conviction managers who are not restricted by benchmark driven investment committees.

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We don’t yet know who tomorrow’s winners will be, but they are there and only an active conviction strategy is likely to find them.

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Finally, as ever there is far too much news out there which creates short term noise and anxiety. Trying to manage money based on macro events is rarely a winning strategy. This week Bloomberg announced that hedge fund manager Said Haidar, well known for his highly leveraged macro trades saw his Jupiter fund fall by 32.7% in 2024 extending the 43.3% loss the previous year. The fund fell in value to US$818 million, down from US$5 billion due to such losses and investors withdrawing funds. Of course clients were drawn to the fund after a spectacular rise in 2022 of 193% but, according to Bloomberg, the fund needs to generate more than 160% just to recoup the last two years.

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Better to invest in quality companies that have a competitive edge, robust earnings and are able to ride out the inevitable volatility that capitalism creates.

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Commentary by James Scott-Hopkins

Founder, EXE Capital Management

The views are those of the author only. The above does not constitute a recommendation to buy the fund and advice should be sought from your financial advisor as to the appropriateness of this fund in your portfolio. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.

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