Forget Trump, I’m now fully invested again

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If you’re reading this while perched on a ski lift, put your phone away! You’ll drop it in deep powder like my daughter did in February half term. And besides, given the volatility in markets this week, you’re better off ignoring the world until you’re home.

Unlike me. Stupidly, I’ve tried to finesse a dozen new portfolio positions over the Easter holidays. As I wrote in my last column, I have been watching and waiting as company valuations fell and bond yields rose.

Well, I’ve finally pressed the button. I now have four stock ETFs, a regional equity fund and some government bonds. My cash position is back to zero. To be honest, having sold everything last October, I expected to be out of the market for longer.

So what changed? And what is the thinking behind each of the purchases made? Let’s begin with my overall view of the investment landscape and then take new allocation in turn.

To recap, I took profits on my equity funds partly owing to a fantastic run of performance — especially in Japan and the UK, my biggest exposures. But also (the flip side of course) because valuations weren’t as attractive as before.

In fact they had moved above their long-run averages. And while the equities I owned were nowhere near as expensive as American stocks, they were no longer screamingly cheap, and I worried that if the US cracked, other bourses would follow.

It’s impossible to pick the top of a bull market and so it seemed for a few months as prices continued to rise. But along came Iran and down prices went. Did I feel smug? Not a bit of it — for three reasons.

First, the correction didn’t happen in the manner I expected. Second, I had sold out at levels still below where my old funds were now trading. Third and most importantly, though, valuations plummeted much faster than prices. I didn’t think shares would flash “buy” again so soon.

So suddenly I had a decision to make. Should I use the Iran sell-off to buy back into the market? And did the discounts available offset my (long-held) view that US technology companies were still ridiculously overvalued?

After crunching a few numbers I decided the answer for Japanese equities was yes. Price-to-earnings ratios are in line with ten-year averages again. The yen is weak. Companies are restructuring and the new prime minister is pro-growth.

I also still like the fact that Japan is less exposed to AI. Its corporate balance sheet is more skewed to tangible rather than intangible assets such as software. Plus what you pay for those assets — price-to-book ratios — remains low.

Not as low as they were when I had almost half of my portfolio in Japan, hence only a 10 per cent weighting now. Valuations in the UK, however, have fallen much more since Iran kicked off — even below long-run averages.

On the latter, my thinking also goes like this. If the war ends, all good. But the FTSE 100 is nicely hedged too, being chockers with oil majors and banks. If crude prices stay elevated, the likes of BP and Shell do well. Ditto HSBC if inflation and higher interest rates become a concern.

Given my liabilities are also in sterling, a one-third allocation to UK stocks seems reasonable. In addition, I’ve bought an Asia ex-Japan fund again. It’s cheaper than Japan but not quite versus the Footsie. Thus, I’ve split the difference in terms of weighting.

Even more affordable than both of them on an earning basis is Latin America where I now have a small position too. I like the cash flow growth and that governments have got their fiscal acts together. My core scenario is the war ends soonish and thus a weaker dollar should help.

Again, I’m partially hedged if wrong — as I am with Asia. If missiles keep flying both these funds are denominated in dollars before converted to pounds. Any sell-off in the underlying equities should therefore be mitigated by a rise in the greenback.

This indeed has been happening when Trump has decided to scare the crap out of markets, with my losses being not as bad as the indices themselves. Sure that means less upside on the good days — but I’m willing to suffer this for now.

Likewise for my most surprising new equity exposure: 10 per cent in America. A robustness of earnings plus a decline in the magnificent seven has returned earnings multiples to decade averages. What if AI isn’t bollocks? I don’t mind being a hypocrite but promise to return to this decision in more detail.

And finally for the first time since May last year, when I sold my one-fifth weighting in short-dated US Treasuries, I own some government bonds again. As I wrote a week ago, the sharp increase in UK gilt yields towards 5 per cent across a number of durations was too much to resist.

I cannot reveal exactly which one I purchased for 30 days. With such a flat yield curve, though, it doesn’t matter much. Sadly, being held in a self-managed pension means I won’t get the thrill of not having to pay capital gains tax when it redeems at par. It’s automatic.

Will my leaping into the market again prove clever or loopy? I’m sad to say it depends on Donald’s daily ditherings in the short and medium run. Thank God — literally — most markets are closed on Good Fridays. I’m exhausted already.

Beyond that, at least I’m no longer as vulnerable to inflation as I was only holding cash. And it seems to me that all this talk of an energy crisis has raised our tolerance of AI bubbles and private credit woes. That’s bullish for a while, no?