In the event, there was no explosion. Instead, there was a clean-up effort that lasted years and the undamaged reactor did not reopen until 1985. However, the public’s confidence in the safety of nuclear power had eroded and Three Mile Island was eventually closed in 2019.

Grow your own

Despite the energy source remaining shrouded in speculation, in September 2024, Constellation Energy announced that Three Mile Island would be reopening, with Microsoft as the sole purchaser of its energy on a 20-year contract. The motivation? Powering Microsoft’s data centres for the growing presence of AI.

Microsoft is far from the only company to anticipate the burgeoning need for energy in coming years and to take matters into its own hands. However, as investments in AI have shot up in recent years, investments in energy, and specifically renewable energy, have tanked.

See also: Aegon: Data centres are the new dividend drivers

By 2030, the US Electric Power Institute estimates the energy demands of data centres could account for more than 9% of all US energy consumption. Currently, this sits at 4%. Jim Wright, fund manager of the Premier Miton Global Listed Infrastructure fund, says the phenomenon could lead to “a land grab” for energy supply and generation, exemplified by the Microsoft deal.

“The requirement for additional electricity will stretch the system capacity, particularly at seasonal and daily demand peaks. The inevitable solution is more investment in generation capacity, which will include renewables, batteries, gas-fired generation and nuclear power,” Wright explains.

“The costs, lead times and technological and regulatory challenges make new nuclear, either in the form of Small Modular Reactors or large power plants, a longer-term solution. There is considerable momentum, as shown by Meta’s recent request for developers to provide between one and four gigawatts of new nuclear capacity in the US to power its AI data centres.

“The growth in electricity generation capacity will require significant capital expenditure and changes the long-held perception of electricity utilities, which may now be classed as ‘growth stocks’ for the next decade.”

Read the rest of this article in the January edition of Portfolio Adviser Magazine

Thomson has been on the board since the company launched in 2018, and served as chair of the audit committee. This position will be taken on by Margaret Stephens, and the trust said the search for a new non-executive director is “at an advanced stage”.

See also: Japanese small caps: Too many cooks

“The board would like to express its gratitude to Katya [Thomson] for her invaluable contributions to the company since its launch in October 2018. Her guidance as chair of the Audit Committee has been greatly appreciated.  We extend our best wishes to her for the future,” the board stated in a stock exchange announcement.

See also: PA Live Slicing The Regional Pie

AVI Japan Opportunity is currently trading at a 3.4% discount to NAV, and has a share price total return of 31.4% over the last year, compared to a sector average 9.1%, according to the AIC. Over the past three years, it has returned 41% while the sector has lost 8%.

The strategy will act as a complement to more traditional portfolios, and begins with near $100m. It will invest across the liquid multi-asset universe, taking long and short positions.

See also: BlackRock enters pact with Saba to ‘not seek to control or influence the board’

LOIM’s DOM Global Macro team is made up of five people and led by Valentin Petrescou and Didier Anthamatten. The team collectively transferred from Credit Suisse to LOIM, where they managed two multi-asset investment strategies.

Jean-Pascal Porcherot, co-head of LOIM, said: “At LOIM, we have deep partnerships with our clients and help them to precisely manage the risks and opportunities that arise across market cycles.

“With the launch of DOM Global Macro, clients benefit from the team’s extensive expertise managing multi-asset macro strategies that target absolute returns. The launch is an important milestone in strengthening LOIM’s alternatives business, as we expand our range of differentiated strategies that seek to create sustainable value for clients.”

PA Events: PA Live A World Of Higher Inflation 2025

Instead, the portfolios will operate on a combination of equity, cash and bond allocations. Particularly, this year will see a lift in non-GBP equities and an uptick in GBP cash & bonds.

Ryan Hughes (pictured), managing director at AJ Bell Investments, told Portfolio Adviser: “We’ve had a very good look at this alternatives space and the types of assets that we consider to be investable, and ultimately, we concluded they are not adding to the portfolios, and therefore they shouldn’t be there.

“We understand there are lots of people out there that use different flavours of alternatives, but we have a very particular approach to that has to be available actively and passively, which rules out a lot. The simple, transparent, low cost, that rules out a lot more. We’ve also seen a lot of this stuff go very wrong over the years. It’s great while it works, and then it doesn’t. (It’s) in your portfolio to provide you the protection when your equities aren’t doing so well, and the alternative should step in, but in reality, it just doesn’t work like that.”

PA Events: PA Live A World Of Higher Inflation 2025

Where, then, will the team find their diversifiers in 2025? In this case, the simple answer is the right one to the AJ Bell team.

“It’s nice and straightforward. It’s cash. You can get a return of 5% today from money market funds and cash. Do you actually need to look to alternatives to provide that low risk, uncorrelated return when you have got a great standing start from a very low risk asset?” Hughes said.

“People generally have been reaching into the alternative space, either when there’s been very low returns on cash available, or when they got concerned about fixed interest. At the moment, only one of those is probably true, which is the risk around fixed interest and where we go from here with inflation. But if you’ve got a standing start of roughly 5% from your cash for a low risk investor, bag the easy money. Over the years, a lot of people try and over-complicate it. Sometimes the right answer is staring you in the face, and it’s the simplest one.”

In the last financial year, AJ Bell Investments grew by 45% to £6.8bn in assets under management, including £1.5bn in inflows. Its yearly strategic asset allocation begins by using a mean variance optimiser to create portfolios near the efficient frontier. The AJ Bell team then makes tactical adjustments to account for market context.

The MPS options include both active and passive versions, as well as a blended version. Notably, 2024 saw the active MPS outperform the passive version for the second year in a row.

“I’m not sitting here saying I’m beating the drum for active management,” Hughes said. “But I think what it is showing is that there is pockets of the market where active management can do well and that careful manager selection can be beneficial to that.”

US equities

AJ Bell Investments will up its allocation to US equities across all risk profiles, with the highest increase to its risk level three at 11%. In overall allocation, risk level one will have the smallest holding in US equities at 12%, with the highest at risk level four with 25%.

The decision is a reversal from 2024’s strategic asset allocation, where the team opted to take down the allocations to US equities. However, across the last year, the S&P 500 continued to climb over 26%.

As AJ Bell increases its allocation however, it proceeds with guardrails. It will introduce equal-weight products instead of simply market-cap products to protect against some of the concentration risks in the market.

James Flintoft, head of investment solutions, said: “We’re bringing in the equal weight to cushion that allocation, to make sure we’ve got the right time for diversification. The concentration is at a record high. Who knows how far it’s going to go? If you look at the top 20, that’s now 40% of the index, the top 10 is 37%, and the top three is over 20%.”

China allocation

Following the macroeconomic conditions of the past few years, the team also took a closer look at how China should play into its portfolio, not just in its allocation, but how it is viewed as an asset class.

Previously, China was placed within AJ Bell’s emerging markets and Asia Pacific ex-Japan categorisations. But in recent years, it has become clear to the team that the category is not necessarily reflective of where China sits. Instead, it has now been positioned as its own asset allocation.

While the move to separate China has been on the minds of the team for a while, it was not made possible until more recently as ETF products diversified. Now, the team feels there are enough individual China products, as well as emerging markets ex-Japan and ex-China products, to allow them to sit independently.

“This has been a really hot topic over the last couple of years that people want flexibility in their portfolios to dial up and down China exposure. We don’t have at this point a really specific view on China, but we’ve got the lever there should we need it. So we’ve put that as a standalone holding, whereas previously, if we wanted to do something very specific with China, it was very difficult to do,” Flintoft said.

Bonds

In the team’s 2024 allocation, the team found frustration in the performance of bonds, particularly when it came to the low risk end and the performance of US treasuries as markets went through a series of re-pricings on interest rates.

See also: ‘Strap in’: Trump returns to questions on tariffs and inflation

“That’s something that we can sit here today and say, ‘hands up, a year ago, we got that wrong’,” Hughes said.

“We thought that there would be more interest rate cuts than there have been, and I don’t think we’re alone in that position. We had lots of conversations with managers saying that they expected plenty of rate cuts, and they haven’t come through. That’s definitely been painful for us at the lower risk end.”

The surprisingly sticky inflation and higher interest rates have led AJ Bell to cut a significant amount of its exposure to non-GBP cash & bonds. The lowest level of risk now has an exposure of just 9% to the sector, with the highest risk having none.

Last year also presented surprises in the success of high yield, which AJ Bell had decreased its exposure to in 2024.

“We didn’t have enough high yield. We took high yield down a little bit last year and allocated that to investment grade. We were concerned about spread levels last year, because we thought they were pretty tight. They just got a whole lot tighter,” Hughes said.

Looking ahead

For 2025, the AJ Bell team predicts an average case one-year return of 5% for its lowest risk portfolio, and 7.5% for its highest risk portfolio. But the team emphasises that while it’s pleasant to have a high return, it is also important to deliver that return in the right way, and in a comfortable way for investors.

“We’ve all been on plenty of flights, and there are certain people that when the captain says fasten your seat belt signs, they absolutely panic. I’m one that grips the seat and the knuckles go white and I can’t stand any kind of turbulence. There are other people that are blissfully unaware and just sleep all the way through it,” Hughes said.

“That is exactly the same with markets. What we need to make sure is that those people that are in our lower risk funds, that want to grip the seat every time there’s a bit of market noise, they actually can be comfortable and still reach their destination. To the same point, we need to make sure that those people that are happy to sleep through all those lumps and bumps while the seat belt sign is on still reach the destination have the right kind of experience too.”

Jewell spent 15 years with RBC BlueBay, where he began as head of high yield trading before becoming a portfolio manager and later a partner of the firm. His career included oversight of a team of 30 and $18bn (£14.7bn) in assets across high yield, leveraged loan, CLOs and multi asset credit.

See also: PA Live A World Of Higher Inflation 2025

In his new position, Jewell be part of the developed markets specialist credit team, and partner with Darpan Harar on Multi Asset Credit and Global Total Return Credit. The team will work to expand the firm’s developed market specialist credit platform.

Mimi Ferrini, co-chief investment officer at Ninety One, said: “Justin brings with him extensive experience, leadership, expertise, and an outstanding track record.  He will play a crucial role in the development and expansion of our developed markets specialist credit platform while delivering long-term value to our clients.

“Ninety One’s credit offering is differentiated through its global and unconstrained universe and its highly dynamic investment approach. We are committed to helping investors capture the full diversification benefits and defensive portfolio properties that global credit markets have to offer.”

Despite a year of analysis of what a second Trump term will mean for markets, the only market consensus seems to be that the future is unclear. Trump is a tricky test subject: the claims he made during his first campaign turned out to be more bargaining chips than promises, and a revolving door of cabinet members made for constant adjustments in policy. And a second set of questions come in how these policies will actually impact markets once put in motion.

This time around, Trump has kept to many of his favourite platitudes, including stricter immigration policies and a barrage of tariffs, but has also aligned himself with the tech world, specifically with the appointment of Elon Musk to head the new Department of Government Efficiency. He also faces an ongoing war in Ukraine that has shaped the European economy, which he claimed he would end before even taking the Oval Office. This promise has proved to be untrue.

See also: Will Trump’s return to the White House derail the green agenda?

While Trump works as an erratic force in the Oval Office, markets found more stability in his selection for Treasury, investor and hedge fund manager Scott Bessent.

Russ Mould, investment director at AJ Bell, said: “Markets are eagerly awaiting Trump’s first batch of executive orders as this will provide clarity on the lay of the land. Immigration, energy and trade will be high up the list and, as always, the devil will be in the detail. Trump has had a lot to say on these issues but he also has a reputation of not always following what he’s promised to do to the letter.”

Tariff policies

Tariffs have been the center of attention in the lead-up to Trump’s second presidency, as markets attempt to understand how literally to interpret his claims. Trump has claimed he will put in place tariffs between 10% and 20% for all imports to the US, and 60% to 100% for imports from China.

“Markets want to know which countries and industry sectors will be targeted and the relevant tariff rates to price in any risks or opportunities to equities, currencies and bonds around the world,” Mould said.

“Trump is likely to have a much greater influence on markets than Joe Biden due to his punchier policies and unpredictable nature. Investors should strap themselves in, as this situation implies much greater swings up and down for share prices, currencies and other asset classes.

See also: PA Live A World Of Higher Inflation 2025

Patrick O’Donnell, senior investment strategist at Omnis Investments, said in addition to the obvious effects on China, policy could be particularly punchy for Europe.

“The initial emphasis is going to be on China but also on Europe. Recent sound bites from the administration are floating the idea of a middle ground between a broad-based tariff on everything and selective tariffs on Chinese manufactured goods. This is softer than what we heard on the campaign trail, but the precise details will matter for investments as we move through 2025.”

The US will not be immune to the tariff policies it puts in place, with many economists believing it will lead to a further increase in the price of goods for US consumers. But Cathie Wood, CEO of ARK Invest, sees an alternative if the tariffs are handled with care.

“Uncertainty during the transition could add to the wall of worry that has kept the markets on edge recently. Will tariffs trigger another bout with inflation? We think not: instead, those tariffs should be selective and incremental, their discrete effects ultimately displaced overwhelmingly by tax cuts, deregulation, and dollar appreciation,” Wood said.

“Indeed, we believe the market is likely to discount a successful Trump Administration, which could turn out to be one of the most successful administrations since the Reagan Revolution.”

The risk of inflation

One of the longer-term concerns that comes with Trump’s term is the inflationary nature of many of his policies. In addition to the possibility of higher prices due to tariffs, strict immigration policy could have an inflationary effect by driving up the cost of labour. The Federal Reserve has reevaluated its easing plans for 2025 in light of the possible policies, and treasury yields sit at a 14-month high.

The economic impacts for the US will also become more clear as tax policy unfurls. But O’Donnell says much of this will come down to what can be passed in Congress, which is less unified than in Trump’s first term.

See also: How will Trump’s tariffs impact markets?

“An extension of the Trump 1.0 tax cuts is widely expected but the politics this time are much more difficult than in the first administration which may make it more difficult to pass further tax cuts. The majority in the House of Representatives is much thinner this time round and the members tend to be less disciplined than in the Senate,” O’Donnell said.

“Overall, uncertainty is likely to remain high over the next year and whilst we think the net impact of the new policy initiatives are likely to be well received by markets, the risks are elevated.”

If the policies are passed, Wood said the equity market could be put in a comfortable position.

“Trump Administration is likely to convince Congress not only to preserve the tax cuts scheduled to expire by year-end, but also to cut other business and individual tax rates and deregulate industries in which large corporations have armed lobbyists and benefitted from “regulatory capture” at the expense of small- to mid-sized companies,” Wood said.

“As a result, the bull market in equities is likely to broaden out from just a few cash-rich, large cap stocks to a broad swath of stocks that have been hampered by the supply shocks, the record-breaking burst in interest rates, and the rolling recession that have characterized the last four years.”

Is it time to make decisions?

The lead-up to inauguration day has been long, first with uncertainty of who would be president, and then with uncertainty of what that presidency would bring. But just because the day has arrived, not all believe it is time for major changes.

While much policy is squeezed into the first 100 days of presidency while momentum is high, another 1,361 days will still remain. And the advent of Trump is hardly the only influence on markets across the next four years.

“This economic cycle is relatively long in the tooth, there is a relatively structural large fiscal deficit, inflation risks are still present, economic activity outside of the US appears subdued with political issues in Europe. We expect markets to remain volatile, and not just because of social media posts from the oval office,” O’Donnell said.

Nina Stanojevic, senior investment specialist at St. James’s Place, also reminds that changes in political leaders have not necessarily been the bellwether for economic change in the past.

“With the presidential inauguration taking place today, we recognise the significance of this transition and its potential impact on the markets and economy,” Stanojevic.

“Despite the uncertainty surrounding the future direction of the new administration, investors should avoid making any immediate portfolio adjustments in response to this political development. Historically, markets have shown resilience across political transitions. Reacting to short-term political shifts introduces unnecessary risk and often undermines long-term returns. Investors should remain disciplined and avoid reactionary moves that could detract from sustained growth.”

Parkinson has been with Lombard International Group since April 2020 as group CEO, and previously spent near three decades with HSBC. He joined as an international manager in 1993 and worked his way to global chief investment officer by 2014, with roles across the globe including Hong Kong, Thailand, Dubai, Mexico City, Taiwan and New York.

See also: Edinburgh Worldwide releases full-year results ahead of Saba vote

In his role for Stonehage Fleming, which went into effect 20 January, Parkinson will be based out of London.

Giuseppe Ciucci, executive chairman of Stonehage Fleming, said: “Stuart is a highly experienced global financial services leader and we are proud to welcome him as CEO of Stonehage Fleming. His track record, including deep expertise in growing international businesses, building and managing diverse teams and bringing resources together across multiple geographies, clearly demonstrates that he possesses the skills and ideas to help our business continue to thrive.

See also: PA Live A World Of Higher Inflation 2025

“We have worked hard to develop a highly differentiated position serving the needs of successful families and wealth creators; Stuart’s fresh ideas and perspective, alongside an excellent understanding of this client group, will complement the proven capabilities of our current team.”

Current chair Jonathan Simpson-Dent took on the role in March 2024 and began a review of the process and management following a period of turmoil for the trust.

Across the past three years, the trust has lost 18.8% in share price total return, compared to a sector average loss of 8.8%, according to the AIC. However, in the past year to 20 January, the trust has a share price total return gain of 31.6%.

See also: AIC raises concerns over Saba with FCA

The trust has also seen a turnaround in its discount, which narrowed from 17.4% in October 2023 to 7.6% in October 2024. This was aided by share buybacks of 14.7m shares for £21.8m, representing 3.8% of the company. As of 20 January, the discount stands at 2.82%, according to the AIC.

Changes to the management of the fund included the appointment of Luke Ward and Svetlana Viteva becoming co-managers alongside Douglas Brodie. The company continues to invest over a quarter of its assets in private companies, including SpaceX.

A requisitioned general meeting will be held on 14 February which could result in the removal of the current board, including Simpson-Dent and the newly-elected Gregory Eckersley.

See also: Saba’s Weinstein fights back at criticism over trust plans

“Edinburgh Worldwide is run solely and independently for you, our shareholders. You have chosen Edinburgh Worldwide for its unique and early access to hidden gems, ground-breaking businesses which in many cases are not available on the public markets. Let’s not let Saba take that away. This is about consumer choice, allowing you the freedom to decide how, where and when to invest your money,” Simpson-Dent said.

“I am deeply troubled by Saba’s proposals. Investment trusts are extremely democratic by construction – Saba’s proposals are not. Saba’s overt land grab for its own end game exploits our long-standing retail Shareholder base, who usually do not vote.”

• World Economic Forum, Davos, Switzerland (all week)
• Rightmove UK house price index
• President Trump inauguration, Washington DC

Tuesday 21 January

• First-half results from Kier
• Trading statements from Cranswick, Premier Foods, Serica Energy and Yu
• UK unemployment and wage growth
• In the US, quarterly results from 3M, Capital One, DR Horton, United Airlines, Fifth Third Bancorp and Seagate
• Netflix full-year results

Streaming giant Netflix will release its full-year results on 21 January, currently sitting as the 25th most valuable company in the world.

The results come after consistently rising share prices for the company since 2022, but have seen a small taper in January amid rising US treasury yields and results anticipation.

Russ Mould, AJ Bell investment director, Danni Hewson, AJ Bell head of financial analysis, and Dan Coatsworth, AJ Bell investment analyst, said: “Netflix fell out of favour in 2022 when it doled out some disappointing subscriber growth numbers, interest rates rose, and the share price fell by two-thirds.

“In a trend that may show how useful, or otherwise, catchy mnemonics and marketing tags are, Netflix’s shares promptly more than quadrupled as it got subscriber growth back on track and generated substantial improvements in sales, profits and cash flow as a result.”

In the coming results, analysts will watch for sales of $38.9bn, up 15% year on year. Earnings per share are expected to be $19.76 for the year, up from $12.03 last year.

At the end of the third quarter, Netflix had 282.8m subscribers, up from 167m at the end of 2019 before Covid broke out. However, Netflix is now placing less of an emphasis on membership numbers or average revenue per member, and will stop publishing this data.

“Mr Peters and Mr Sarandos argue that revenue, profits and cash flow are now better indicators, given Netflix’s greater maturity,” the AJ Bell trio said.

“In addition, there are new growth levers in the business beyond just subscribers and pricing, notably advertising, additional features and varied price and membership tiers, so viewer engagement is now a greater focus than just net adds and subs numbers. All the same, ARM has generally started to flatten off a bit, perhaps as a result of the new business models and segmentation.”

Wednesday 22 January

• Trading update from Hochschild Mining
• UK government borrowing figures
• In Asia, quarterly results from Kia
• In the US, quarterly results from Procter & Gamble, Johnson & Johnson, Abbott Labs, GE Vernova, General Dynamics, Amphenol, Kinder Morgan, Travelers, United Rentals, Kimberly-Clark, Las Vegas Sands, Halliburton, Teradyne, Textron and Alcoa

Thursday 23 January

• Trading statements from Harbour Energy and Mitie
• US oil inventories
• US weekly initial unemployment claims
• In Asia, quarterly results from SK Hynix, Hyundai Motor and Nidec
• In Europe, quarterly results or trading updates from LVMH, Christian Dior, EQT and Sandvik
• In the US, quarterly results from Visa, Intel, Intuitive Surgery, GE Aerospace, Texas Instruments, Union Pacific, CSX, Freeport-McMoRan, Western Digital, and McCormick

Friday 24 January

• First half results from The Works
• Trading update from Paragon Banking
• GfK UK consumer confidence survey
• Interest rate decision from the Bank of Japan
• Flash purchasing managers’ indices from Japan, Asia, Europe, the UK and USA
• US existing homes sales
• In Asia, quarterly results from LG Electronics
• In Europe, quarterly results from Givaudan, LM Ericsson and Signify
• In the US, quarterly results from American Express, Verizon and HCA Healthcare
• Burberry third-quarter trading update

Burberry will provide its third-quarter trading update as analysts anticipate a £27m operating loss for the year.

“Burberry’s first-half results for the six months to September lived down to a very low set of expectations when they were released in November, as sales fell by a fifth and the luxury goods company plunged into loss,” Mould, Hewson and Coatsworth said.

“Nor were chair Gerry Murphy and new chief executive officer Joshua Schulman able to offer too much succour for the rest of the year, as they noted it was just too early to see if the second half’s profit would be good enough to erase the first half operating deficit of £53 million.”

However, in the second half of last year, shares rose two thirds from their low points in summer. The AJ Bell trio believes the growth could be due to an improved outlook on China, a main market for the company; a new strategic plan and campaign push; and a slowdown in the rate of sales decline.

Currently, sales are expected to drop 19.5% for the fiscal year.

“Analysts and shareholders will also be on alert for any comments about inventory. The balance sheet bore £596 million of stock at the end of September 2024, up from £526 million the year before and £507 million at year end, despite the tumble in sales. That meant a sharp jump in inventory days,” Mould, Hewson and Coatsworth said.

“A bad Christmas would raise the risk of further discounting to shift unsold product which would in turn put further pressure on margins and elongate the recovery period to profitability and any return to the dividend list.”

Outhwaite was head of investment research solutions at Fidelity International, where she advanced research capability and data visualisation for fixed income and equities. Previously, she spent 12 years with Whitley Asset Management and Stanhope Capital in wealth management.

In her new role, Outhwaite will report to Kristian Cassar, head of manager research at Quilter Investors.

“We are thrilled to welcome Sophie to the team. Her extensive experience and proven track record in both equities and responsible investment will be invaluable as we continue to enhance our research capabilities and deliver the best outcomes for our clients,” Cassar said.

See also: Quilter reports 50% uptick in year-on-year net flows for Q3

Outhwaite added: “I am excited to join Quilter Investors and contribute to the firm’s commitment to excellence in investment research. I look forward to working with the talented team here and leveraging my experience to drive further advancements in our research processes.”

The AIC voiced concerns over the participation of retail investors in voting on the future of the trusts. While platforms have been supplying information on the voting to customers, the AIC called for platforms to “actively contact” clients to encourage voting and have investors automatically opted in to communications about actions within trusts.

See also: Saba’s Weinstein fights back at criticism over trust plans

Richard Stone, chief executive of the AIC, said: “Following Saba’s action, we are concerned that the current regulations do not protect the interests of retail shareholders. Saba is targeting investment trusts with a high percentage of retail investors, so it’s vital they have their say on the activist’s radical proposals to replace the board, change the investment strategy and become the investment manager.

“We are relying on platforms’ support to get this information out to their customers and encourage them to vote. Thankfully they have been broadly supportive of our call for action.”

In a presentation released by Saba, the firm outlined that if elected, it would assess options for liquidity events and appoint at least one additional independent director to the boards. In a longer-term view, Saba said it would consider ending the trusts’ current management agreements, research new managers which could include Saba and apply a similar investment strategy to the one used for Saba’s Close-End Funds ETF.

See also: Saba Capital and its intentions for the UK investment trust industry

The AIC also called on the FCA “to urgently explain its views on the independence of directors under the Saba proposals”, and questioned how conflicts of interest would be managed if Saba won the vote and was proposed as manager.

Saba said apart from Saba founder Boaz Weinstein and Saba principal executive officer Paul Kazarian, its candidates for directors are independent. Weinstein and Kazarian have committed to recusing themselves from any votes that would involve decisions related to Saba, including a vote to appoint the company as investment manager.

“The FCA must review the scope of board independence in the Listing Rules. Saba’s campaign raises questions about the independence rules if they permit a significant shareholder, who may have a conflict of interest, to effectively select board members – particularly when those board members may go on to appoint that shareholder as the asset manager,” Stone said.

Now, another turn in truths may be occurring for the asset class, as the risk factors of corporate and government bonds begin to shift. According to Shaniel Ramjee (pictured), co-head of multi asset at Pictet Asset Management, bonds issued by corporates are currently “paradoxically safer”.

“A lot of corporates have managed their balance sheets very well. They’re not as leveraged as they have been in the past, and therefore the spreads that they trade out over and above governments are low, but they might stay low for longer periods of time because of the nature of a much more diversified opportunity set,” Ramjee said.

“These corporates aren’t as indebted as the governments, and by and large, we see less and less corporate bonds being issued versus government bonds being issued every week. The supply and demand of these two asset classes is different. So I think paradoxically, we’re in a period where government bonds are riskier than usual, and actually corporate bonds can be less risky than usual. And I think that’s an interesting difference today than we might have seen in years gone by.”

While the issuance of some corporate bonds has caused a bidding war among investors, government bonds from typically desired countries such as the US and UK are all too available for investors as they attempt to stimulate their economies.

Other countries with typically stable markets, like France, have been rocked by political uncertainty. French 10-year government bond yields currently sit above 3.4%, almost a percentage point above the 2.6% levels of last January. French yields now sit in line with the government bond yields in Greece.

See also: What does the gilt yield spike mean for UK bond prospects?

“Ultimately, these governments have borrowed a lot of money. They’re highly leveraged, and unfortunately, like we see in the UK, the propensity for these governments to want to come and borrow is very high. So the risk is that the credit worthiness of those countries are deteriorating, and no one wants to really think about reducing spending,” Ramjee said.

As of October 2024, the estimated UK government bond issuance for the 2024/25 fiscal year was £294bn following an expansion by Rachel Reeves during the Autumn Budget.

When markets opened on the day of the budget, the yield of a UK 10-year gilt sat at 4.27. As of market close on 6 January, the yield is 4.61. Year on year, yield has increased by 23%. In the last week, 30-year gilt yields hit their highest level in near three decades.

To Ramjee, this could be the beginning of a larger problem if the economy is not able to grow under the new fiscal policies.

“Particularly within the UK, we’re at a really high tax burden. But on top of that, what’s happening is that if you don’t grow the economy, the risk is that the government has to come back for more taxes in the coming years. And I think that’s the other element that markets are worried about, especially in UK gilts, is that the tax rises have not finished,” Ramjee said.

“That’s why it’s so important to have growth policies along with any other tax rises, because if you don’t have them, then the market will get more concerned that you’re not doing anything to actually to grow the economy. That’s what’s been weighing on the gilt markets to date.”

See also: Will bond yields stay higher for longer?

As the asset class shifts, Ramjee said its use in portfolio’s becomes less clear: government bonds in particular were traditionally seen not just as a diversifier against equities, but a way to manage levels of risk. Now, Ramjee said it can not be relied on as heavily for either of those reasons.

“Government bonds provided a good stabilizer in a portfolio. They provided income, but they also provided a diversifying effect. When equities went down, bonds went up, and that helped the overall balance of a portfolio.

“What we see now as those debt levels have risen, and as the risk in those government bonds has risen is that the correlations are no longer as good for multi-asset portfolios, so you can’t rely on them as much as you could before to give you that diversification. And I think that is worrying from a multi asset standpoint, that you have to rely on different types of assets to diversify you.”