Latitude PM on value positioning, consumer weakness, and avoiding tech hardware (with Guy Johnson, Anna Edwards, Tom Mackenzie)

Consumer is cracking, not just low-end but US middle class. Discretionary spend is rolling over. Stay defensive in value (13.5x P/E), which benefits from higher yields. Avoid tech hardware; earnings estimates are a cyclical fantasy. The flat curve offers zero premium for duration risk amid looming sovereign fiscal crises (see UK). Stay short-dated. The massive lag in energy stocks vs. oil confirms the market sees the price spike as transient.

Yields

NDX

RUT

implicit

Metals

USD

Latitude Investment Management 7.8
Asset Manager
Freddie Lait 7.5

Latitude PM on value positioning, consumer weakness, and avoiding tech hardware (with Guy Johnson, Anna Edwards, Tom Mackenzie)

Guy Johnson

Asks how Lait is adapting to higher yields and if he feels the need to get into tech hardware.
Freddie Lait

Made very few changes this year. No interest in tech hardware. The music is playing, but it's pricing in a very positive outcome. Earnings estimates are 3-4 times higher than 18 months ago; he questions if that is sustainable or if this is a cyclical build. He is firmly in the cyclical camp.
Anna Edwards

Asks about the UK grocery space and the proposed voluntary price caps.
Freddie Lait

The policy is ludicrous and unworkable. Grocery margins are very thin (3% system-wide). It is one of the most competitive sectors in the economy. Capping prices will have unintended consequences on farmers, producers, or other prices.
Tom Mackenzie

Asks if he is worried about the consumer.
Freddie Lait

Yes, particularly in the US, where consumer sentiment has gone from quite bullish to weakening, not just in the bottom quartile but also middle consumers. Consumption around discretionary goods is really weakening. In the UK and Europe, it never got that good; it's still bad.
Tom Mackenzie

Asks how close higher yields become a problem for his equity holdings.
Freddie Lait

His portfolio is deliberately in the value end (13.5x earnings). Less expensive shares are less impacted by higher yields. They buy lowly indebted businesses. Some financials like JP Morgan are net beneficiaries of higher yields. Higher yields will be a positive overall for his portfolio.
Guy Johnson

Asks if Lait is painting a deflationary picture by being in short-dated bonds.
Freddie Lait

The yield curve has been flat for years, so there is no premium for taking duration risk. The next big issue is government debt and fiscal balances. The UK is high on that list. Taking on duration risk when the core problem could whip bond yields higher doesn't make sense when you can get 4.8% on average in short-dated bonds.
Guy Johnson

Asks about the risk of an inflationary surge forcing the BOE to hike.
Freddie Lait

If they were in longer-dated stuff, they would lose money. They are in six-month bonds, which won't move on a change in rates.
Anna Edwards

Asks how his US stocks (non-tech) are performing with the focus on big tech.
Freddie Lait

This year has been relatively anemic, but the businesses are growing 15-16% a year, in line with the last 5-10 years. He expects share prices to perform in line over time. Everyone is ignoring it for the drumbeat of AI.
Tom Mackenzie

Asks how he would position for a resolution to the Iran conflict and the Strait reopening.
Freddie Lait

He wouldn't make any changes. He feels relatively neutral. They own Shell, which has been a marginal beneficiary, but energy stocks have hardly rallied (up 25% vs oil up 100%). The market sees it as a one-off bump, not something to capitalize on.

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