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After a week in the Yucatan contending with Tropical Storm Dom dumping vast amounts of water across the landscape you’re reminded of what a huge journey it must have been half a millennium ago when Cortes and his band of a few hundred Spanish mercenaries landed at close to present day Cancun. Within a generation the Aztec empire had been dismantled, New Spain established and the Spanish had discovered awesome seams of silver that even today account for 20% of global silver production and the Bailleres family who through the course of the 20th century took control of the Penoles deposits, better known in the UK as FRESNILLO, became along with Carlos Slim and others among the wealthiest families in Mexico.

We like Mexico as an investment jurisdiction despite El Chapo, talk of Trump walls etc.  It’s an A3 credit (source: Moody’s) with a large trade surplus and whatever concerns investors may have even were NAFTA to be heavily revised our assessment is that neither country would suffer too much. We have a significant weighting in fixed income via our holding in Galloway’s Global Emerging Markets fund in corporate blue-chip income while in equities we have traded both FRESNILLO itself but also US quoted HECLA for our exposure to silver.

Generally, we retain a healthy exposure to selective “growth” commodities. For example, we like cobalt for its key usage in EV technology.  Last week the price hit $57,000 a ton as companies from DAIMLER to TESLA announced plans to ramp up production of battery powered cars and the UK followed France in announcing the phasing out of petrol and diesel cars by 2040. (Notwithstanding the fact this could only be met by 10 new Hinkley Points to supply the Grid with the required power it was nevertheless headline catching!).

On nuclear power, we like uranium with an eye to the Kazakhs (42% of global production, source: World Nuclear Association) introducing more discipline and amid healthy demand for new nuclear in China, India and the US as well as in the UK.  There’s a great article by our resources specialist and South River Asset Management portfolio manager Amanda Van Dyke this week on uranium that goes into some detail about the state of the market. (Link below).

The Next Bull Market Move Interview – Amanda Van Dyke at South River Asset Management

Amanda van Dyke is a fund manager for South River Asset Management. Her primary fund the SF Peterhouse Smaller Companies Gold fund in Feb 2017 became the best performing fund year on year in the 2800…

And finally we continue to love paint and all suppliers connected with it.  Ilmenite and zircon have been among our highest conviction calls all year as the global paint market consolidates with the big players SHERWIN WILLIAMS and VALSPAR merging, PPG looking to acquire AKZO and NIPPON PAINTS and DUNN EDWARDS. Both BLUEJAY and MINERAL DEPOSITS are our direct exposures.  We also quite like oil and copper. Both of these bellwethers have started a move and while partly sentiment and supply driven we believe any commodity right now is subject to at least a trading rally given just how poorly the dollar is acting. (Dollar index DXY 93 and down 8.2% year to date, source: Bloomberg).

Overall our commodities exposure accounts for 20% of our diversified funds currently.  20% is in cash and short duration, 25% is in blue chip corporate bond for income and 20% is in alternatives, private equity and property.   Our general equity exposure is the lowest I can remember it at 15%. The cyclically adjusted price earnings (CAPE) ratio at 30 is the highest it’s ever been, Washington politics becomes ever more bizarre and the profit shortfall from AMAZON and zinger of a warning from ASTRA ZENECA last week showed how vulnerable markets are to any hint of volatility.

Investment strategy remains to focus on yield, sustainable dividends, blue chip investment grade credit and emerging market income. We like real assets, inflation protected cash flows and discounts to net asset value where we can find them.

That’s it. Results season is well underway. Markets continue to be set much as they have been all year. The big tech stocks are seeing strong revenue growth, copper and oil are rallying on the global pick up in GDP while bonds remain supported by lower than expected inflation. Despite the gloom around the London property market it hasn’t stopped Chinese property investors buying top end property in London, Hong Kong based Lee Kum Yee’s food conglomerate’s property arm shelling out £1.3bn for the Walkie Talkie building in Fenchurch Street previously owned by Land Securities demonstrating the voracious appetite for quality London property.

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