Why I need US shares to leap like Nureyev as soon as extra | USAEMALL.com

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Sorry everyone — it was my fault. A month ago my editor routinely asked me what I was writing about next. I said a celebration of my portfolio increasing by a hundred grand since the first Skin in the Game in November 2022.

Doh! I regretted the words as soon as they escaped my mouth. That is the top for equity markets for a while, I warned Nathan. Sell everything! And I need to come up with another column idea.

Anyone who has run money knows that hubris is the apex performance killer. It is no coincidence that 90 per cent of gung-ho US active funds have trailed the index over the past two decades.

It was just that £538,339 was only half a percentage point away. My portfolio was up almost 5 per cent for the year — double the return of funds with a similar equity/bond mix to mine. I got cocky.

That number is somewhat more distant now. It’s been a brutal month. I haven’t written about the sell-off yet, having spent the previous two columns pondering European equities.

What is my take on markets? Should investors buy on the dips, head for the hills, or sit on their hands? Or maybe relish the mix of metaphors and do all three depending on the asset class?

Let’s start with bonds as they are the most-owned securities in the world — especially Treasuries. If you look at long-dated notes, for example 10-year bonds, prices are basically where they were a year ago.

But that hides a rollercoaster (could David Copperfield do that?) in yields as investors couldn’t decide if the US economy was being hurtled earthwards or was about to fly. They still can’t.   

Add to the ride a US president and Treasury secretary who openly wish to see long-run interest rates decline — both to spur the domestic economy as well as lower the borrowing costs of government.

Nor does anyone seem to have a scooby where US inflation is heading — the other big influence on bond prices. Traders must be loving the ups and downs: 10-year yields have round tripped more than 150 basis points since November.

I care not for my equities — I have written often why rates don’t matter for them — but I do worry about my shorter-dated Treasury fund. If Scott Bessent tries to lower longer-term rates by restricting the supply of those bonds, then he may have to issue more of mine — which would raise their yields (and lower prices).

I will keep an eye on this. But for now I’m still happy that my Treasury fund offers some protection vis-à-vis stocks. I also like the exposure to dollars and the not to be sniffed at 4.4 per cent yield.  

Meanwhile, I don’t own the sovereign debt of any other country (unless Donald Trump gets his hands on Canada), nor any corporate bonds. Nothing I’ve seen or read this year makes me want to, either.  

It is clear from the Spring Statement on Wednesday that the UK’s finances are shot. Europe needs to spend big on arms (10-year Bund yields have quintupled in three years), while emerging debt is a lottery.  

As for corporate bonds, my logic is I’m already in hock to the outlook for earnings and cash flows via my equity funds. If companies are healthy enough to pay their creditors, that’s also good for me.

Moving to stocks then, I read recently that net inflows from retail investors into US equity funds is $70bn since January — bang in line with last year. Far from being scared by the sell-off, they are piling in as usual.

Remember, though, this isn’t cash into the market. That cannot happen. Someone must be selling their shares to them. The story above could have also been: “Institutions dump their American shares”.

I had plenty of emails a fortnight ago asking if I was tempted after the S&P 500 had dropped a tenth from its highs. Sure, a price around 27-times earnings is cheaper than the 30-times it was in February. But the 100-year average is almost half the latter.

That’s not bottom fishing in my view. But do I want US shares to sink? Sure, my Asian, Japanese and UK equity funds haven’t fallen as much recently — as I knew they wouldn’t. They still lost money though.

This got me thinking again about the inconsistency in my portfolio I’ve mentioned before. How can I spurn the largest and most influential stock market and yet own others that would also fall even if I’m right?

So upon reflection, I want the S&P 500 to keep rebounding off the lows of mid-March. I want it to leap like Rudolf Nureyev and remain elevated until I work out whether to leave the equity theatre completely.

I do feel like US shares are struggling under Donald Trump. Not operationally, businesses will work out a way to maximise profits. I mean the multiples of those earnings that investors are willing to pay.

Valuations are a confidence game. Doubly so for expensive stocks such as the big technology names which make up such a whopping share of the US market. Expectations even returning to normal would crush returns.

Ditto equities everywhere — no matter how cheap on a relative basis. But what the hell to buy if I reckon that’s going to happen? This will be my topic for next week. All suggestions to the email below.

Before then, please dear markets, allow me to revel in making £100,000 first. It’s a pretty sum that would equate to a 23 per cent gain since I first showed readers my portfolio, or 9.4 per cent annualised.

I would have taken that two and a bit years ago if offered.

The author is a former portfolio manager. Email: stuart.kirk@ft.com; X: @stuartkirk__