One year ago, the financial world was abuzz when the bond manager of what was once the world’s biggest bond fund had a dire prediction about how “all of this” will end (spoiler: not well).
Gross: Global yields lowest in 500 years of recorded history. $10 trillion of neg. rate bonds. This is a supernova that will explode one day
— Janus Henderson U.S. (@JHIAdvisorsUS) June 9, 2016
Two months later, it was the turn of another financial icon – if from a vastly different legacy and pedigree – that of Rothschild Investment Trust Chairman himself, Lord Jacob Rothschild, who echoed Bill Gross with an unexpectedly gloomy warning in his 2016 half-year financial report, saying that central bankers are continuing “what is surely the greatest experiment in monetary policy in the history of the world. We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30% of global government debt at negative yields, combined with quantitative easing on a massive scale.“
His outlook was just as gloomy: “the geo-political situation has deteriorated with the UK having voted to leave the European Union, the presidential election in the US in November is likely to be unusually fraught, while the situation in China remains opaque and the slowing down of economic growth will surely lead to problems. Conflict in the Middle East continues and is unlikely to be resolved for many years. We have already felt the consequences of this in France, Germany and the USA in terrorist attacks.”
One year later, the scion of the most (in)famous name in all of finance, is back and in his latest letter to RIT Capital Partners investors, Lord Jacob Rotschild has released what is perhaps his gloomiest outlook ever; here are the highlights:
We do not believe this is an appropriate time to add to
risk. Share prices have in many cases risen to
unprecedented levels at a time when economic growth is
by no means assured. The S&P is selling at 25 times
trailing 12 months’ earnings, compared to a long-term
average of 15, while the adjusted Shiller price earnings
ratio, which averages profits over 10 years, is
approximately 30 times.
The period of monetary
accommodation may well be coming to an end.
Geopolitical problems remain widespread and are proving
increasingly difficult to resolve. We therefore retain a
moderate exposure to equity markets and have
diversified our asset allocation towards equity
investments where value creation is driven by some
identifiable catalyst or which are exposed to longer-term
positive structural trends.
Furthermore, Rothschild continued the shift away from US capital markets exposure announced one year ago, noting that “we have a particular interest in investments which will benefit from the impact of new technologies, and Far Eastern markets, influenced by the growing demand from Asian consumers.” What is surprising is how aggressively Rothschild has cut its allocation to US-denominated assets in just the past 6 months.
Not surprisingly, RIT’s investment portfolio continues do quite well, and has now returned over 2,200% since inception
Below is a snapshot of where every hedge fund wants to end up: the Rothschild investment portfolio.
Finally, for all those wondering where the Rothschild family fortune is hiding, here is the answer.