Transcript
Tom Merchant:
Hello and welcome to our Q4 investment update. My name’s Tom Merchant. I’m a partner and business development manager at Saltus. I am delighted to be joined today by David Cooke, our CIO. Hi, David.
David Cooke:
Hello, Tom. How are you doing?
Tom Merchant:
Very good. Thank you. Very good. As always, with these quarterly updates, this is just sort of a bite-size look back at what’s gone on historically for the last three months. In this case, the last three months of 2025. But as always, I would point people towards our website and the investment update section, as there’s plenty more deep dives that David and his teammates put on there as well. So if you’d like something that goes a bit more into the weeds and into the details in this session, please feel free to have a look on there. As always, David, to kick it off, what happened? If you can maybe summarise the last three months of 2025.
David Cooke:
Sure. A lot happened. It was that kind of a year. It was basically a continuation of the trends that we’ve seen in the second and third quarter. It was a good quarter for markets and portfolios because we had more interest rate cuts. We didn’t have a problem with inflation readings. We had some good growth and hence some good profit figures in the corporate sector. That was similar to what had been happening in the second and third quarters. So all in all, it was a positive backdrop. I think the thing that maybe stood out was that the rate of progress was slightly more moderate than it was in the preceding two quarters when it felt for quite long periods that everything everywhere was going up at once after the shock of the April tariffs worked its way through the system. We had quite a lot of positive things happening.
I think one of the most interesting things was happening is the markets became generally more discerning. Some of the frothier asset classes just got a rising tide, lifting all votes. So things like cryptocurrencies, Bitcoin had a lot of the froth taken out of them. A lot of the artificial intelligence stocks, the big American technology companies were all rising together. In the latter part of the year, the final quarter, the market was a lot more discerning between those companies that were using their free cash flow advisedly and using their own in house products in order to build out the CapEx programmes as people like Google, their share prices did well. Whereas people that weren’t doing that were spending a bit more starting to take on more debt, didn’t really have noticeable in house advantages. Companies like Facebook Meta strongly underperformed. I think there was a 40% price difference between the performance of those two companies. It’s a good illustration of market becoming more discerning as we ended 2025. 2025 as a whole was a strong and positive year, and so was the final quarter.
Tom Merchant:
Fine. It’s remarkable when we think about tariffs in terms of the amount of column inches and amount of discourse around them to begin the year, and candidly how that fell off a cliff. So it’d be great maybe just to touch on that a little bit. Are we a tariffs in the rear view mirror? Are portfolios no longer looking at them? What’s the feeling around tariffs? Is that done essentially?
David Cooke:
They may be in the rearview mirror. I’m not quite sure how quickly we’re going to get this video out, but the Supreme Court has to rule in the United States as whether the administration overstepped its powers and may roll it back, at which point the administration will try and reintroduce the tariffs in a different form within its executive powers. But to answer the question, the story of the whole 2025 was that things turned out better than people had been expecting. Both economies and societies proved a lot more resilient. Tariffs is a good example. I mean, there was a lot of shock at the scale of the initial levels, but then those levels were walked back through negotiations with individual countries to the point where you had something that was capable of giving a heart attack to the global economy. Even implemented in the initial numbers was half as bad as expected.
It may be even less than that. And actually, I don’t know if you remember, it gave birth to this taco narrative, which was Trump always chickens out, which was an investor way of saying that the new U.S. administration’s bark may prove worse than its bite. We dealt with the tariff issue, but we’ve got to remember at the same time, we did have a good growth backdrop, a supportive interest rate backdrop as well. You’d be amazed what low cost money flashing through the financial system can do for investors’ animal spirits.
Tom Merchant:
So it was more a renaissance in mild heartburn than a defibrillator and a heart attack essentially.
David Cooke:
So far, yes.
Tom Merchant:
Okay, good. Moving on from tariffs, a strong but softening end of the year, and then naturally it comes to the question our clients want to know is what did we do? I suppose what did we do ahead of the fourth quarter, and then what are we doing going into Q1 this year?
David Cooke:
We didn’t do a lot in the fourth quarter because we had already positioned for a positive but more moderate return environment. We’d already done that positioning at the end of the third quarter of September-ish. What essentially we’ve been doing is booking profits and things that have been going very, very well, such as AI stocks and geographies where the American equity market where we’ve been taking profits and syphoning that money, recycling that money into other assets, in that case, riskier bonds, emerging market debt. Also, we continually trim our profit making things that are showing supernormal returns, things like gold mining, shares and some of the portfolios that can hold those.
With just a little bit of trimming here and there, a few ideas like infrastructure, we never really scaled very much. We just kind of took the capital back out of that and tried to redeploy it across our core investment themes and geographies. We’d done all that positioning in September-ish and through the fourth quarter we didn’t need to do an awful lot else. What it’s done is put us in a good position as we come into 2026, because many of the positive trends are still in place. It’s not as if the underlying drivers of markets have changed a lot. So we’re in position for the way things are at the moment, and it gives us a reasonable degree of confidence when we look into 2026 as complicated as the outlook is.
Tom Merchant:
Interesting. I suppose similar to the tariff story last year, how it’s U.S. outward facing and how that’s going to affect markets, what’s taking up a lot of column inches early in 2026 is still their foreign policy, but this is more sort of expansionism. So we’re looking at Venezuela and potentially Iceland. Obviously hard to say, but just in terms of, do we think that’s going to be the shock and awe of this and are markets resilient enough towards that behaviour, do we think? How do we think that’s going to play out?
David Cooke:
I think we could add Panama and Iran and Greenland. There’s a lot going on. The brutal truth is that markets don’t really care unless these economies are directly connected in a big way to the global economy or if their natural resources are directly connected into natural resource markets in a big way. Venezuela isn’t a big economy. I think it’s 0.1% of world GDP and about 1% of the export oil market. So collectively, markets yawned whenever it happened, even though it generated a lot of headlines. It was a similar issue last year with the Middle East and Ukraine in general, even though there was a lot of headline geopolitical conflict in the region, it didn’t really derail the market story. More positive growth globally in Europe, the United States and China, low inflation, supportive monetary policies overwhelm the geopolitical issues for the moment. And so long as something completely left field doesn’t happen, then that will probably continue.
In essence, the only global geopolitical relationship that matters is the one between the United States and China in a market sense being the two biggest economies, and they’re in some kind of uneasy detente at the moment. It started off all aggressive and then it’s, again, referring to the taco narrative calmed down a bit. Although that can change, so long as that remains broadly imbalanced, then you have the most influential things geopolitically not looking like they’re going to be disruptive. But obviously everything changes and I wouldn’t hold that beyond a rolling 12-month window at max.
Tom Merchant:
But the key point there is the underlying drivers remain the same in terms of from last year. While there was a slight softening towards the end of the year, it was still positive environment and doing it.
David Cooke:
Yeah. I think it’s also fair to say that there’s a time limit on that as well, that risk factors are in place because interest rate cutting and positive fiscal policies around the world are still providing a boost. But that will end most likely by the first half of 2026. In the second half of 2026, you’ll be not having those boosts and you’ll be also into things like election season in America. I suspect by the end of the year or second half, there’ll be a lot more questions on the artificial intelligence space about the amount of money that’s been sent and investors asking, “Can you start to show us where the profits are coming from?” With that in mind, it’s the feeling that maybe the second half of 2026 is probably harder than the first. We might get the returns, we don’t know, but they might be front end loaded. So we’ll see.
Tom Merchant:
Perfect. Brilliant. From myself and David, as always, if you have any other questions, if you’d like to read a deeper dive, like I mentioned, please use the website as a resource. We’ll also ping out some additional bits with the CEO’s picks that come out once a month. If you do have any questions, do reach out to your advisor or investment manager, and obviously they’d be delighted to speak to you further about this. But for me, David, it’s just a big thank you for your time again and your thoughts.
David Cooke:
Pleasure.
Tom Merchant:
Very interesting. For myself, thank you very much for tuning in. Look forward speaking with you at the end of Q1, hopefully talking about a real calming of the political situation and very strong returns. Thank you all. Bye-bye.
