MEETING PURPOSE
Our investment team aim to meet every week to discuss the macro environment and how this could impact our current and future portfolio construction.
KEY TAKEAWAYS
- Commodity Super-Cycle: A new cycle is driven by energy intensity and supply-side constraints. Copper is a key indicator, with demand from AI data centers creating a structural deficit.
- Market Divergence: The US market is outperforming due to its energy independence and AI-driven productivity gains. Europe and the UK face energy-driven inflation and weak technicals.
- Gold’s Role Shift: Gold is no longer a reliable geopolitical hedge. Its price is now driven by US interest rate expectations and financial flows, not safe-haven demand.
- Portfolio Action: Reallocate from gold to US tech. The MitonOptimal International Managed Flexible Fund’s 6.5% gold position will be trimmed to fund an alloction to US equities, aligning with the team’s conviction.
TOPICS
Market Overview & Technicals
A broad market turnaround is underway, with most asset classes showing bullish momentum.
- Volatility: VIX and commodity volatility are drifting lower from recent peaks.
- Yield Curves:
- US: Bull-steepening (short end down, long end stable), reflecting less energy-driven inflation pressure.
- Europe/Germany: Bearish, reflecting energy-import inflation.
- Brazil: 9.61% real yield on local currency bonds, compensating for high debt (90% of GDP) and political risk.
- Currencies:
- DXY: Trading in a 3-year range (95.5–100.5). A break above 100.5 would signal a bullish trend.
- JPY: Nearing a significant bullish breakout against the USD, which could trigger a rally in precious metals.
- Equities:
- US: S&P 500, Small Caps, and NASDAQ have broken bullish. The Dow is the only laggard.
- Europe/UK: Euro Stoxx and FTSE 100 show negative distribution patterns, reflecting weak economic fundamentals.
- SA: JSE indices (Top 40, Mid-Cap, RESI) also show negative distribution patterns and are lagging.
Commodity Super-Cycle & Geopolitical Impact
- Copper: A structural deficit is driven by massive demand from AI data centers (50,000 tons/center) and years of underinvestment. US stockpiling, driven by tariffs, is exacerbating global shortages.
- Energy:
- Crude Oil: Prices are rising, but the forward curve is distorted by financial flows (derivatives turnover is 10x the spot market).
- Refined Products: Avgas and diesel prices are soaring, creating refinery margin pressure. China has banned refined product exports to conserve domestic supply.
- Agriculture: Rising fuel costs are forcing farmers to cut fertilizer use, which could significantly reduce crop yields (e.g., a 66% drop in US grain yields without fertilizer).
- Precious Metals:
- PGMs (Platinum, Palladium): Technically weak. Platinum has a better earnings upside story than gold due to its lower starting base.
- Gold: Price is driven by US rate expectations, not geopolitical risk. The recent sell-off was likely a funding trade (profit-taking to fund other investments).
Portfolio Positioning & Strategy
- International Managed Flexible Fund:
- Current: 63% equity (vs. 72% neutral), 6.5% gold.
- Action: Trim the 6.5% gold position in order to fund an increase in US tech (via Janus Henderson and/or S&P 500 ETF).
- Local Flagship Funds (MitonOptimal BCI Active Beta, MitonOptimal BCI Worldwide Active Beta):
- Current: Marginal overweight in global developed market equities
- Action: Maintain global overweight. Use Dollar cash to add to EM or US tech, consistent with the global fund’s strategy.
- SA Equity Strategy:
- Challenge: The JSE’s high beta to resources (gold ~17%, platinum ~13%) creates significant volatility.
- Manager Views:
- Truffle: Constructive on SA financials and select industrials (e.g., Bidvest). Bullish on Shoprite as an “inflation edge.”
- M&G: Bullish on gold, but bearish on platinum. Recently bought Naspers.
The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness.3