As many market participants probably did, we spent much of the month trying to figure out the implications of President Trump’s various actions and threats. We were particularly concerned that the military operation in Venezuela, along with threats to other regional leaders, would be damaging for our tactical position in Latin American equities. However, as it quickly became clear that the operation was more about oil extraction than regional regime change, markets relaxed and the regional index (of which 59% is Brazil and 26% is Mexico) rallied hard. In fact, this position has performed so well recently that we may consider re-sizing it.

Figure 1: 2026 performance of Latin American equities

Source: MSCI. Price returns are all calculated in US dollars.

More broadly, where global economic growth was threatened, by a tariff war over Greenland for example, it was instructive to watch the behaviour of the US dollar and US treasury bonds, both traditionally considered as safe haven assets. Last year they sold off together in the April tariff episode, yet they rallied on fears of escalation between Israel and Iran. This time in January they both fell as the geopolitical risk rose. This reaction, if it persists, has implications for our asset allocation choices, but it also creates a negative feedback signal for the Trump administration, which we hope will restrain more extreme actions. As for our portfolio positioning, even though the dollar has declined to much more reasonable levels vs the euro and the pound, we believe it is still worth maintaining much of our dollar hedges and underweights.

Figure 2: US asset behaviour during recent political stress

Source: Bloomberg. The dollar index is a weighted basket of the US' major trade partners.

We mentioned in our November letter that we have been studying the recent performance of equity sectors and styles, investigating the multi-year dominance of the largest technology stocks, and the surge in lower quality stocks since the tariff turnaround1 last year. Since November we have observed a rotation and a broadening in markets. More speculative stocks have lagged while more traditional cyclicals have taken over, including materials and industrials, as well as small caps and emerging markets (“EM”). Positive economic momentum, lower US yields and a weaker dollar have historically been tailwinds for EM equities, and we noted that fund flows to this area have picked up, as investors seek diversification away from expensive US stocks. We are already overweight EM via our positions in Latin America and China A-shares, but these are relatively small parts of EM2, with low correlation to the overall index. So, we decided to introduce a new tactical position in EM equities, funded by reducing our developed world equity holding. See the next section for details.

Lastly, given that gold was such a strong performer in portfolios last year, repeatedly breaking through new record levels, we spent more time looking at the drivers of this price action. The supply of gold is relatively static, so changes in demand must be moving the price. The first thing that stands out in the data is the sharp increase in buying by central banks in 2022, after western banks froze Russian reserves and other countries decided to diversify their reserves into the precious metal. Then last year as price-sensitive buyers, like jewellers, began to be edged out, price-chasers in the investment world increasingly drove demand, via bars and coins and financial securities (ETFs3). More recently, Asian retail buyers have joined in, contributing to the massive surge in gold and silver in January.

Figure 3: Sources of gold demand (2020-2025)

Source: World Gold Council.

Retail buyers are notoriously flighty, increasing the risk of reversals, although the sudden sell-off at the end of the month was unusually extreme. We still firmly believe in the value of diversifying assets in our portfolio, for both risk and return reasons, and gold is a strategic long-term position for us. However, we also believe that changes in ownership patterns warrant further attention and will continue looking to see if this changes the behaviour of gold in a crisis.

1 President Trump postponed his most aggressive tariffs in mid-April last year, leading to a very strong stock market rally, especially in lower quality stocks.

2 Latin America makes up roughly 7% of the EM index, and China A-shares (the onshore market) make up about 5%.

3 An ETF is an exchange-traded fund, which can hold many different assets, including gold, and is traded like a listed equity on a stock exchange.