Trade policy remained a key focal point in markets this month, after the eagerly awaited 9th July tariff pause deadline came and went as negotiations between the US and its trading partners continued into their fourth month. After limited progress in the lead up to the initial deadline prompted scepticism over the potential for key partners to reach agreements on future trade, throughout the month, talks proved constructive, and the political noise that had been a key source of uncertainty for investors softened, cooling tensions and reassuring investors that a wider trade war would likely be averted. Against this backdrop, the OCM portfolios have experienced another positive month of gains, resulting in an exceptional period of performance so far this year.
Amid challenging market conditions over the year-to-date, the portfolios have benefitted from our dynamic, data driven approach to managing assets, with a diverse basket of high-quality holdings and a blend of growth and value investments across the portfolio suite which have generated strong risk-adjusted returns so far this year. The tactical positioning within the OBI portfolios has performed particularly strongly over the period due to robust performance from our active holdings in Europe and the UK, where sentiment has improved following positive trade developments. In addition, the recently added Asia and Emerging Market holdings have made positive contributions, as trade talks between the US and China, while still ongoing, have proven to be more constructive than initially feared. On the earnings front, the Long Hold growth portfolios have benefited from a rally across the tech sector, with key AI related names reporting attractive returns from their substantial investment into machine learning within their Q2 earnings reports, culminating in a strong boost for risk assets.
US Tariff Update
While investors failed to get the clarity on tariffs they sought in early July, negotiations between the US and trading partners over the month appear to have been productive. Several deals that have been agreed have given many nations more favourable rates than what was first set out in President Trump’s Liberation Day announcement. In our view, this reinforces the rhetoric that the Trump administration has no problem being overly aggressive in its negotiations in order to cut a deal, however ultimately, policy makers and investors will welcome a greater sense of clarity.
A key development to trade over the month came during Trump’s visit to Scotland, where he met with President of the EU Commission Ursula von der Leyen. The resulting trade deal saw tariffs on EU goods reduced from the threatened 30% to 15%, whilst the EU also agreed to make investments into US energy. Whilst investors initially viewed this positively, European businesses voiced criticisms, citing expectations of rising costs in the second half of the year. Political leaders have also criticised negotiators for being overly generous to the US, with Germany’s Friedrich Merz warning the deal would raise inflation and hurt transatlantic trade, whilst French Prime Minister François Bayrou labelled it a “dark day” for Europe.
Elsewhere, tensions between the US and China have eased somewhat since the initial round of liberation day tariffs, as U.S. and Chinese officials agreed to seek an extension of their 90-day tariff truce following two days of what both sides described as constructive talks in Stockholm. Whilst a final deal is yet to be announced, investors have welcomed a diffusion of tensions between the world’s two largest economies and are now speculating on whether we see a summit between the leaders of the two largest economies before a final agreement is announced.
Moving into August, it is clear that considerable uncertainty remains over trade policy in the near-term, however with deals now in the making with key US trade partners, we remain constructive on the medium-term growth outlook.
AI Returns Drive Robust US Earnings
With Q2 earnings season now in full swing in the US, it’s been no surprise to see AI back in the spotlight in recent weeks. Capital expenditure within AI technologies remains a focal point for investors, and more specifically, the efficacy of the eye-watering spending has been a cloud of uncertainty when it comes to mega cap tech names. Recent reports highlight a combined expenditure of $155 billion so far this year, which is more than the US government has spent on education, training, employment and social services in the 2025 fiscal year so far and shows no sign of slowing down. However, following numerous results released during July, investors welcomed reports from the likes of Meta and Alphabet that highlighted that these expenses were paying off in the form of revenue and earnings beats.
Exceptionally strong performance naturally brings with it some scepticism, with some analysts questioning whether the momentum can continue, and those more bearish making comparisons to the 2001 tech bubble. One key difference to note is that these companies are funding AI investment through free cash flow, as opposed to the debt and equity combination that was so common back in 2001. This suggests a more stable and sustainable expansion, albeit in our view valuations appear quite stretched in the near term, which is a key reason we remain tactically underweight to US mega cap tech within the OBI portfolios. Over the long-term however, we expect the US to remain a key growth driver and for technology to open up more opportunities for increased productivity and growth in the global economy, and we are therefore happy to retain our positioning within these high growth areas within the long-hold growth focussed portfolios.
Tactical Positioning Changes Over the Month
Following strong year-to-date performance, particularly within our actively managed UK and European holdings, equity valuations have continued to appreciate, and we therefore took the opportunity this month within the tactically managed OBI portfolios to lock in some of this profit by trimming some of our holdings to reduce equity exposure. Following such as strong period of performance, it is our view that markets are likely to face volatility in the short term as we await further clarity over policy, inflation and interest rates. As such, we think it is only prudent within the volatility managed strategies to move to tactically lock in profits at this stage. It is key to note that this is a purely tactical decision to manage volatility exposure within the OBI portfolios to lock in profits following a period of strong performance, and we remain positive on the medium to long term outlook. As such, if markets were to fall or if the risk outlook improved in the short term, we would move tactically to redeploy cash into new opportunities. The key is that we remain flexible, we are closely monitoring the risks, and we are ready to take advantage of any opportunities as they arise.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment. OCM Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (FCA Registration No: 418826) OCM Asset Management is a trading name of OCM Wealth Management Limited
