Recent positive equity market momentum continued into June, as investors contemplated the outlook for global economic growth amid ongoing trade uncertainty. A more constructive outlook surrounding trade negotiations between the US and key global trading partners fed into an uplift in risk appetite over the month, as US equities finished the second quarter at all-time highs (in dollar terms). The OCM portfolio suites benefitted from a strong month for growth assets as our US and Global equity exposures boosted performance, whilst an increased exposure to Asian equities within the OBI Volatility Managed portfolios fed into a period of outperformance against its peers.
Portfolio Positioning Changes
Against a rapidly shifting macroeconomic backdrop, our Investment Committee reviews the portfolio suites and their underlying asset allocation daily to ensure that the portfolios remain adequately positioned given the changing investment outlook. As a result, over the month, we have taken the decision to implement portfolio changes across the tactically managed OBI Volatility managed portfolio range this month.
Firstly, with increasing uncertainty surrounding the UK fiscal situation and the implications this may have on the domestic bond market, over the month we removed our overweight position to UK government debt, sheltering the portfolios from yesterday’s bond market sell-off due to the uncertainty surrounding Chancellor Rachel Reeve’s future. While we remain positive on these assets given our expectations for UK interest rates to fall in the years ahead, it is now our view that other assets offer greater return potential, while we see ongoing fiscal uncertainty weighing on the asset class in the short term. It is key to note that we remain constructive on UK equities however, with current valuations in quality assets with strong balance sheets offering in our view a greater upside than their US counterparts.
The proceeds from our Gilt sales alongside existing cash levels, have been redeployed into areas of the market we deem attractive over the medium term, namely in Emerging Market and Japanese equities. In our view, a weakening of the dollar, favourable developments in the trade negotiations between the US and China, and attractive valuations relative to the rest of the world are potential tailwinds for these assets that have been unloved in recent months. On the non-equity side, we have also increased exposure to high yield bonds and absolute return assets, further enhancing the levels of diversification throughout the OBI portfolios that we expect to help manage potential near-term volatility that may arise from ongoing trade negotiations.
Geopolitical Escalations
Investors were forced to navigate a rapid spike in geopolitical tensions in the Middle East this month, as the conflict between Israel and Iran threatened to spillover into a wider conflict within the region and disrupt global oil trade. News of an Israeli strike on Iran’s nuclear facilities saw oil prices surge as investors braced for potential supply disruption, weighing on risk appetite. Global equity and fixed income markets faced headwinds in the immediate aftermath, as investors contemplated the potential for rising oil prices to detail central banks’ efforts to bring inflation consistently back to target.
As peace talks looked to be making little progress, US President Trump gave the order to strike Iranian nuclear facilities, although the success of the strikes is still being debated despite the President claiming that the strikes had ‘obliterated’ the desired targets. A controlled, and pre-warned retaliatory strike from Iran on US military bases, whilst appearing likely to spark wider conflict, was more in line with previous Iranian military responses and signalled the opportunity for further peace negotiations before a ceasefire was eventually put into place.
The rapid whipsawing of sentiment throughout the month reinforces our view that diversification in asset classes and sectors will be key to navigate the short-term uncertainty in markets in the coming months.
Ongoing Tariff Uncertainty
As we edge closer to the 9th July tariff pause deadline, investors are growing increasingly wary over the potential for global tariff rates to revert back to the levels put forward in Donald Trump’s April 2nd ‘Liberation Day’ announcement. According to recent reports, a large number of major trading partners are racing to avoid steep tariff hikes, with the UK and China among the few to have agreed deals with the US.
Despite key economies such as Canada, the EU and Japan having not reached an agreement, we believe that President Trump is unlikely to want a full-scale trade war as he remains wary of the impact on US bond markets as he looks to also pass his ‘Big, beautiful bill’ into law which would deliver a number of tax cuts and spending increases. It is our view that further extensions are likely, with Canada having already secured itself an extension until July 21st by agreeing to demands from the US to scrap a digital services tax. Negotiations between the US and Japan as well as the EU may lead to a rise in tensions, with symbolic retaliation a possibility as Japanese trade ministers refuse to agree to US demands which include purchasing a greater amount of US rice.
While rising trade tensions may weigh on sentiment somewhat in the near-term, it is our view that the portfolios are positioned to weather any short-term uncertainty and participate strongly through selective exposure to sectors and geographies which are well placed to perform moving through the second half of the year and beyond.
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
