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What we’re thinking about markets right now
Markets are behaving in a way that doesn’t quite add up.
We’ve got multiple conflicts ongoing, oil prices have jumped materially, consumer sentiment (particularly in the US) is at levels you’d normally associate with a recession and yet equity markets are broadly holding up.
The best way to think about this is that markets are currently only really focused on one thing – whether the US goes into recession.
At the moment, the answer appears to be no.
Employment data is still strong, people are still spending, and none of the traditional recession indicators are flashing red. As a result, markets are effectively looking through everything else.
That creates an unusual environment:
- The backdrop feels fragile
- But prices haven’t really adjusted to reflect that
In simple terms, things don’t need to get much worse for markets to struggle, but they do need to get worse in a very specific way (i.e. US recession) before that happens. To the markets, only the US matters.
What we reviewed and agreed
At the Investment Committee, we spent most of our time on this disconnect.
The key conclusion was that markets are not obviously wrong, but they are vulnerable.
So rather than making a big move, we focused on improving the structure of the portfolios and taking a slightly more measured stance where it made sense.
There were two main decisions:
1. High yield bonds – moving to active management We agreed to switch from a passive US high yield bond ETF into an actively managed fund.
The reasoning is straightforward:
- High yield is one of the areas where active managers can add value
- Passive exposure is limited (particularly being USD-only)
- We want broader, more flexible exposure over time
Importantly, this isn’t a market call, it’s about doing the job better.
2. Cash / ultra-short positioning - improving flexibility We also discussed how we hold “cash-like” assets.
The ultra-short bond position works well for flexibility, but it doesn’t behave exactly like cash. So we agreed:
- to keep using it tactically where speed matters
- but to move part of the Defensive portfolio into a true liquidity-style fund (subject to final checks)
This gives us a better balance between:
- stability
- income
- and the ability to act quickly when opportunities arise
Across both decisions, the theme is the same – refining how the portfolios behave, rather than reacting to headlines.
What this means for you
Your portfolio remains fully invested and deliberately positioned.
We haven’t taken a defensive stance, because the key trigger - a US recession - simply isn’t there yet.
But we are very aware that the backdrop has become more fragile:
- geopolitics are more unpredictable
- inflation pressures are re-emerging via energy
- and markets are relying on things staying “just about okay”
So what we’ve done is:
- improve the quality of certain exposures
- increase flexibility where it matters
- and ensure we’re in a position to act if conditions change
If we do see a genuine deterioration (particularly in US employment) markets are likely to react quickly. At that point, we would expect to be adding risk, not reducing it.
For now, this is about staying balanced, staying disciplined, and being ready.
Next Investment Committee Meeting
The next ICM is scheduled for 21 May.