Speaker 0:
well, you might recall that the first half of the year was dominated by concerns about the path of inflation and the unexpected impact of the collapse of Silicon Valley Bank. This was a volatile and challenging environment for discretionary macro strategies and one where we were very comfortable to be cautious, uh, running at a lower level of risk.

Speaker 0:
We ended that period saying that the themes continued to be a balance of inflation and growth and that this was a tricky environment.

Speaker 0:
So coming into the second half of the year at the beginning of the third quarter, while inflation continued to be a concern, we became more focused on central bank policy responses

Speaker 0:
in thinking about positioning. We've been very focused on the central bank's ability to manage a soft landing and to achieve a balance between growth and inflation.

Speaker 0:
So as recently as a month ago, expectations were for a fall in US policy rates in 2024. But the more recent narrative has been high for longer, and that is to say that interest rates would need to settle at a higher level to keep inflation on track to reach its target level of 2%.

Speaker 0:
What we've seen is the benchmark US Treasury 10 year yield racing up, increasing by about 100 basis points in recent months, and risk assets have declined equities and, more recently, high yield credit and emerging market currencies. Oil prices have also been soaring, touching around $90 a barrel. It's fair to say that the outlook remains complex, but more than ever, it's important to be nimble to diversify and to carefully scale the size of our positions to reflect our confidence.

Speaker 0:
The most recent quarter has been a good one for our strategies, against a backdrop of a fall in equities and bonds, which really demonstrates that the value of diversification above and beyond a 60 40 balance portfolio.

Speaker 0:
So if we think about the three building blocks of our portfolio, in turn, you've got first of all, the different uncorrelated trades and the discretionary macro portfolio. Those work really well this quarter, with the market dislocations presenting a broader opportunity set. So the market was flip flopping and we were able to be nimble and dynamic.

Speaker 0:
A variety of positions contributed to performance from this portfolio, ranging from a view on UK rates through to, uh, our view on obesity drugs in our thematic equities portfolio,

Speaker 0:
and the breadth of ideas that we have is is very important because we believe it's this breadth that will give us the best chance of success.

Speaker 0:
So going back to the position on UK rates, we put that on in August, reflecting our expectations that the Bank of England was unlikely to raise policy rates as aggressively as the market was pricing. And this played out well as the Monetary Policy Committee did actually decide to keep rates on hold at that meeting. So we've recently taken profits on that trade. Um, we've moved to a curve steeping position. We still have some concerns about the pricing at the long end of the curve, and that position reflects that concern,

Speaker 0:
uh, turning to the dynamic asset allocation model. Uh, the long allocation to equities was, uh, albeit underweight, was unhelpful. Last quarter, there was a bit of a kicker from the commodities allocation, uh, which was supported by rising oil prices. Trend following strategies have been whipsawed this, um, period, as markets have struggled to find direction and currencies, commodities and equities have all struggled in this environment, although fixed income and cash did do a little better.

Speaker 0:
This has all been a contrast to the first half of the year when it was very much the directional and trend following strategies that were making the biggest contributions to performance. But we're particularly pleased to see that the diversification in the discretionary macro portfolio is being rewarded in this challenging macro environment.

Speaker 0:
We're excited, Um, macro variables that we care about, such as activity and monetary policy, are beginning to matter more for asset prices, which really gives us the confidence to increase the volatility in our portfolio. So we've had a period of running lower risk. Um, the macro factors that we focus on coming back into play means that we've been confident to increase our risk closer to the long term 6% target in August, which is great news.

Speaker 0:
Um, we were more positioned for what we would call a no landing US growth scenario, which would be one where high interest rates would drive both equities and bonds lower. But we're now some more closely aligned to a soft landing scenario

Speaker 0:
where we would expect to see a successful management of interest rates without adversely affecting growth. And we've done this by adding exposure to both asset classes going into October. We're constructive on Japanese and UK equities. Um, we've taken profits on our oil exposure. Um, given the rise in oil prices, uh, there that we've capitalised on. We continue to hold a diversified basket of precious metals which we think would benefit if real yields and the US dollar reverse.

Speaker 0:
And we're reviewing our stance on the euro versus the US dollar, which has been short for some period of time. Well, it seems unlikely that bonds and equities will continue to decline in tandem. We have a tactical position that provides some convexity, which would be protection against a real yield or oil shock if it were to occur simultaneously with the correction in equities.

Speaker 0:
Our goal remains to navigate, uh, market shocks in a way that really limits the risk for significant drawdown.

Speaker 0:
So overall, um, where we are now, the portfolio remains close to average exposure and equities slightly long duration, and it's focused on a selection of other investment ideas that are less directional in nature.

Speaker 0:
We're framing our outlook in terms of how likely we are to see a global soft landing versus a hard landing or even a no landing. As I've already mentioned, uh, we're not trying to call which of these we're most likely to see. But really, the signals from the systematic input into our process have been leaning towards more of a no landing territory.

Speaker 0:
This would support the view that rates would stay high for longer, and our belief is this. This is quite likely to be the new normal across most regions, not just the US.

Speaker 0:
The breadth of positions in the discretionary portfolio means we're well placed to see our views rewarded regardless of what economic outcome we see. Um and so while this approach remains front and centre of our discussions, we're also looking quite carefully at Japanese policy, Italian deficits, oil prices, a potential US shutdown

Speaker 0:
and a plethora of other themes that might give us new ideas for our discretionary portfolio. While we're cautious given the recent pace of declines, the current environment presents us with a number of short term tactical opportunities and we have slightly increased the volatility in the portfolio lately. Overall, we're really optimistic about the outlook