By the time you’re reading this it’s nearly mid-March and the world looks even more complicated than it did at the end of February.
A war has now erupted in the Middle East. Markets don’t like uncertainty and geopolitical conflict adds another layer of it. So before anything else, yes, we are watching events very closely. We are stress testing portfolios. We are adjusting position sizes where needed. And we are constantly reviewing price to fair value assumptions as new information comes in.
That’s our job.
It’s important to say though, the conflict does not change February’s results. February was actually a constructive month for most of our funds despite the volatility and despite the sharp rotation that caught headlines.
The AI narrative that moved markets
As I mentioned on LinkedIn recently, an online piece from Citrini Research triggered a meaningful shift in positioning and investor thinking (that AI was going to lead to US unemployment rising from 4% to 10% within two years). Tech and software sold off aggressively and capital rotated into hard assets. From memory chip manufacturers through to real estate and infrastructure, money moved quickly.
A number of our funds benefited from that rotation. Global Growth was the top performer for the month. Property and Infrastructure followed closely behind. Several funds were broadly neutral which is exactly what diversification is designed to do.
Two of our Australasian funds did feel the impact of the software sell off given their holdings. That is the reality of active management. When markets rotate quickly, some exposures are temporarily out of favour. Importantly though, fundamentals in those businesses have not deteriorated in line with share prices.
When markets overreact to narratives
It’s also worth remembering that even leaders within the AI ecosystem, including Anthropic and Jensen Huang from Nvidia, pushed back on the idea that AI is hollowing out the labour market. In fact, job postings for software engineers have been rising again. Markets can overreact to narratives, especially when positioning is stretched.
Volatility is the price of admission
At Pie we’ve now lived through the GFC, the European debt crisis, Covid, inflation shocks, the Ukraine war, banking stress events and countless geopolitical flare ups since 2007. Every one of them felt uncomfortable in the moment. None of them justified abandoning disciplined long term investing.
Volatility is not new. It’s the price of admission.
And more often than not, volatility creates opportunity. When markets move quickly and sentiment overshoots, long term investors get chances to buy quality assets at better prices.
Interesting times, yes. But we are calm, we are engaged and we are doing the work like we always have.
As always, thank you for your trust.