We remain confident with the companies we hold, including Amazon. We bought more of the company as the share price fell abruptly. This is a quality business that is taking share from its rivals while also concocting new business lines to hoover up even more money from other companies.
A case in point is Amazon’s burgeoning advertising business which is expected to create more than £10bn in extra operating income by 2020.
Still, as much as we like the companies we own, we have been wary about the overall market for the past year or so.
We thought volatility could rise as investors became more nervous about rising interest rates and Mr Trump continued to play hardball over trade.
That’s why we’ve been buying safe haven currencies, such as yen and Swiss francs, gold and put contracts on the S&P 500.
We think sovereign bonds – particularly gilts – offer much less protection in market sell-offs than they have in the past. That’s why we’ve moved to creating a basket of diversifiers that gives us more comfort than expensive gilts would.
The Treasury market is critical now, we think. Aside from a recent slowdown in housing, the US looks very healthy.
Economic growth overshot expectations again in the third quarter, coming in 20 basis points higher than consensus at 3.5 per cent. It’s hard to see the wheels coming off the economy in the coming six months.
However, if the Fed overdoes its tightening, it could force a recession. Also, there’s an outside chance that China retaliates to American tariffs with the nuclear option: selling its hefty holdings of Treasuries.
Doing that would boost the supply of US debt, sending the borrowing cost for the US government and western companies significantly higher.
It’s a fiscally fragile time for the US. After splurging on tax cuts, the country is burning through 17 per cent more cash than a year ago and issuing more bonds to finance itself. It’s sold more bonds this year than in any of the last five.
A sharply higher 10-year yield could cause yet another fall in markets.
While we see this as but an outside chance, it reinforces why we’ve built ourselves a basket of defensive assets to dampen our downside during corrections like we’ve just seen.
David Coombs is Rathbones multi-asset portfolio funds manager
