Portfolio Manager Update | HESPER FUND - Global Solutions
HESPER FUND – Global Solutions (*)
Key points at a glance
- Donald Trump’s return to power brings big changes. A lot of big changes. Some of them are unexpected or unintended.
- Trump’s pivot to Putin and US threats to withdraw from NATO are deeply shaking Europe and driving the biggest security initiative since the Cold War.
- The US imposes new tariffs on China and goes after Canada and Mexico
- China embraces tech billionaires to counter new US technology restrictions.
- The HESPER FUND – Global Solutions fell 0.78% in February as US stocks, the dollar and gold wavered. YTD +0.46%
- The HESPER FUND restructures its portfolio. The avalanche of Trump’s policy changes is changing the geopolitical and economic dynamics.
28.02.25 – The times there are A changing
HESPER FUND – Global Solutions Macro scenario: fiscal consolidation is over
Seeking independence from the US and pressed by the urgency of reviewing the defence system, Europe is prepared to allow more spending by member states by loosening fiscal rules and developing new common financing instruments. Separately from the EU initiatives, Germany is seeking to fast-track a debt-financed defence fund of up to 200 billion EUR. In addition, UK is seeking to raise its lift defence budget to 3% of GDP due to Russia fears.
On the other side of the Atlantic, despite the panic caused by the DOGE’s firing of federal employees, we don’t see any possibility of major fiscal consolidation. The US House of Representatives has passed a budget resolution that cuts taxes by 4.5 trillion USD and spending by 2 trillion USD, which bodes ill for the trajectory of the budget deficit, currently at 6%.
In China, the PBOC will continue to ease monetary policy. Fiscal stimulus is the imperial diktat from Beijing as the nation suffocates from the biggest property/shadow banking crash in history.
Monthly performance and current positioning
The HESPER FUND – Global Solutions (T-6 EUR) fell 0.78% in February as stocks and gold backtracked from record highs. Total assets fell to 54.7 million EUR. Volatility over the past 250 days fell down to 6%. The annualised return since inception decelerated to 3.37%.
During the month, Hesper increases duration to 2.7 years as signs of an evaporating upbeat mood in the US has started to show up. Due to higher volatility, the fund reduced its dollar exposure to 25% * and its equity exposure to 30%.
Performance in February (-0.78%) was as follows: +0.08% fixed income instruments, -0.91% equity futures, +0.26% commodities, -0.11% currencies and -0.10% fees and expenses.
Outlook: growth concerns in the US are showing up
The global economy has been resilient over the past two years. It has weathered the steep rise in interest rates in most Western countries to fight inflation and the slowdown in the Chinese economy. Thanks to the performance of the productivity-led US economy, the global figures masked significant differences across sectors, regions and countries. US GDP growth will remain steady, while inflation marked higher at the end of 2024, driven by a 4.2% increase in consumer spending. However, the US administration’s major strategic and protectionist shift could challenge the disinflationary path and weaken the global economy. Certainly, the recent tariff escalation doesn’t bode well.
After sowing confusion about the timing and scope of his tariff plans, Trump said that 25% tariffs on Canada and Mexico would go into effect next week and, in the latest escalation, that he would impose an additional 10% tax on Chinese imports. This is certainly not positive for global growth, as weaker international trade will take its toll.
Surprisingly, it is the US domestic front that has started to show some cracks over the past month. US consumer confidence is waning, small business enthusiasm is decreasing after the sharp rise that followed Trump’s election win and there are initial signs of a softening labour market. In addition, the S&P 500 is reversing the election rally and DOGE’s intervention is creating havoc among federal employees. These policies, along with forceful changes in immigration policy, could pull GDP growth below potential in the short term. It is worth to mention that private consumption fell in January for the first time since March 2023.
Thus, while the Fed remains on a “wait and see mode”, the pause it expects may be shorter than the market thinks. Despite inflation running above target, the Fed might soon have to switch from worrying about inflation to worrying about a slowing economy.
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