October 2025

“I’m forever blowing bubbles…”

October provided no major surprises, although for the first time market concerns over elevated tech valuations manifested themselves in a broad selloff.  To be sure, the scale of the correction was relatively modest at month end, and there is no indication yet that there is any panic selling on the horizon.  On top of which, there hasn’t been any noteworthy negative news nor is there any threat of higher interest rates.  So perhaps this is just a healthy correction, more “1996 than 99”.  We reference those dates because in the past few months we’ve seen more charts of the NASDAQ in the late ‘90s since, well, the late ‘90s.  The comparisons are obvious – new tech paradigm requiring massive investment in infrastructure, a wave of innovation threatening to unleash both unprecedented creative and destructive forces – and at some stage will probably end in the same way for markets.  But there are many differences as well.  Firstly, the overall mood couldn’t be more different.  The post-cold war, feel good ‘90s, with the peace dividend resulting in responsible fiscal policies and with Europeans looking ahead to the promise of the Euro (and let’s not forget, the last decade with decent music), is the polar opposite of where we are today, still mired in post COVID-lockdown debt and with a rancorous political environment.   We’re also still awash in liquidity with an inflation cycle which is likely more dormant than dead, but with central banks ready to come to the rescue of distressed markets.  So maybe it’s not time to party like it’s 1999…

Speaking of central banks, the Fed predictably cut rates as expected but then signalled that any further cuts should not be taken for granted and indicated that it would also stop reducing the size of its balance sheet (currently $6.6T).  Early month data was softer, but a government shutdown led to an absence of data for most of the period.  The general consensus is that the economy is slowing, and that notwithstanding any comments, rates are likely to fall in December.  In Europe, the direction is also for lower rates, but a febrile political environment remains in many key states.  The UK market is awaiting the annual budget announcement, due on November 26th, but speculation is already rampant.  There will be numerous tax hikes, including on income, which could put the current Chancellor in a difficult position, and will almost certainly be economically restrictive.

European banks performed well considering the circumstances, supported by solid results and announced capital repatriation.  The consolidation story continued to unravel as the BBVA/Sabadell deal finally fizzled out while others were hanging by a thread.  Regular readers will know our views on this topic as we have written about it at length, and we find it ironic that the one notable deal that is going ahead (MPS/Mediobanca) is the one that makes the least sense.

Another old story to receive a new lease on life is that of the Credit Suisse AT1s, with court actions possibly opening up the spectre of payouts to holders of the residual rights.  There’s a long way to go in this story, but it could get spicy.  We’ve long believed that the prudent thing for UBS to have done was to offer the government a way out of this embarrassment by offering a “switch” that would have resulted in a similar outcome for AT1 holders as equity investors received.  This may have eased the regulatory challenges they have faced since then.

For the month the funds A shares rose +0.23% despite the topsy-turvy markets, with contributions of +46bps from credit and -17bps from equities, gross of fees. Our portfolio remains defensively positioned going into year end, which suits our views about the environment, namely that there is more value to be gained by retaining the capacity to respond to changes.