What were the major recent events and impacts on your asset class?
So I think the biggest event to occur over the last couple of months was the reporting of results, Q1 results from Nvidia, the company that makes most of the chipsets used in artificial intelligence. And this acted as a catalyst for a huge wave of excitement about the artificial intelligence opportunity. So Nvidia itself was up 30% on the day of their numbers. And there was another company, Marvell, that reported a day later, also very attached to the artificial intelligence opportunity was up 30%. There's been a real surge in artificial intelligence share prices and also in the general interest in AI as an opportunity. So this has really been pretty helpful for the whole growth investing space because it has reminded investors generally that the fundamentals in disruption are still very much alive and kicking and going strong. So this has led to a move higher in both AI related share prices, but also more broadly to growth equities generally.
What can your asset class offer in the current environment?
So the opportunity remains very much based around those companies which are showing above average growth, benefiting from disruptive trends. But I think the big difference more recently is that we've got very clear line of sight on what that opportunity might look like with the results from Nvidia. We don't see very small increases in earnings and revenue expectations. We see real step changes and against an economic backdrop which is uncertain. This is super encouraging for investors because it really shows that these companies, as we've always said, tend to grow through downturns in just the same way as back in 2007/8/9 during the financial crisis, companies like Amazon and Salesforce were able to grow their revenues very strongly through that downturn. We're now seeing clear evidence of that for new disruptive trends like AI and crypto and software as a service. And so this is providing a great backdrop for some of the severe share price falls of last year to start to get significant recovery.
What is your outlook in the near and medium term?
So going to the second half of the year I think we're likely to see a continuing revaluation of duration assets. You know, many names, many very good quality companies fell 80 or 90% from their peak in late 21/early 2022. A lot of those names have seen recoveries already in the 50/60/70% order of magnitude, but that still leaves them down 70% plus from their highs. So the sort of renewed sense of optimism and the fundamentals that are coming through showing these companies are still growing strongly means that we have a great backdrop for those companies to continue to perform. In addition, and the most important macro catalyst, is that we're starting to see some stability in the expectations as far as interest rates are concerned. We've always said that once there is visibility on where interest rates are going, it doesn't matter if they stay high, higher for longer, if they are higher on an absolute basis, that's not what matters. What matters is the certainty of where that path lies. And I think the markets generally have a much greater level of comfort with where interest rates are going to stay or sustain themselves, and that we're not going to see a surge higher. And equally, we're not going to see inflation taking another leg up either. In fact, in the United States, we're seeing inflation come off pretty sharply. So that macro backdrop is also incredibly important with the duration assets. But the two factors together macro with fundamentals and I think you've got a fantastic recipe for these companies to continue to revalue themselves over the second half of the year.
Is there one chart you’re currently monitoring closely?
So we're still focusing on the same chart that we focused at over the last two quarters, which is the performance of duration assets, duration equities versus broader market indices like the S&P, like the World Growth Index. And we're very, very close to that looking extremely positive. It's already positive enough for us to have wanted to increase our duration asset portion of the portfolio and to be more aggressive and take a much more positive stance on those names. But we haven't quite got the trigger yet, but we're very close and as soon as we see that in unprofitable tech and in expensive tech, expensive duration, that will be the point to make a final step towards being what I might call fully invested in the duration trade.
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