Mid-Year Outlook 2019

The provenance of the expression “never believe anything until it is officially denied” seems to be disputed but it nonetheless shows a great insight into the realities of politics, bureaucracy and perhaps life itself. Denying something, truthfully or not, gives credibility to the matter in question.

So, with this logic in mind, it was somewhat perturbing to see a tweet from the official White House account with the text “We’re killing it on the economy!” accompanied by a 30 second video of Larry Kudlow, President Trump’s currently most favoured economic advisor, selling the merits of the economy in a manner reminiscent of a TV home shopping infomercial.

Admittedly, Mr Kudlow wasn’t denying anything, but it still begged the question as to why the topic was even being discussed. It seemed odd behaviour. Would it not have been better to let the economy do the talking?

Of course, President Trump was elected precisely because he defied convention and perhaps one should not be surprised when members of his administration deploy unorthodox tactics to buoy confidence. However, global growth appears to be slowing and although the stockmarket has cheered what it sees as an apparent peak in US interest rates, the full effect of the previous interest rate increases has yet to be felt.

US and thus global stockmarket indices remain heavily skewed towards the technology, unicorn and new media areas and it is here that we think that valuations and expectations remain overly enthusiastic, creating a suboptimal balance between risk and reward. We have purposefully minimised exposure to these areas. Outwith these areas, valuations remain more reasonable, and our portfolio focusses here.

As I have previously noted, as contrarian investors we actively seek unfashionable and unpopular investments that we believe can recover. This is where we find the best balance between risk (expectations are low) and reward (things can get better). Our investment approach is designed to anticipate and benefit from change and we will continue to seek out opportunities with potential to profit the long-term investor.

Alasdair McKinnon

*17 June 2019

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments. This may mean you get back nothing at all.

Investment trusts are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.