Expectations continue to weaken…
We wrote last week about US tariffs and the uncertainty added to the global economy. The situation continues to evolve with an announced trade deal with the United Kingdom (details still to be worked out) and the potential for talks to start with China this coming weekend. Our major concern is that it now becomes extremely difficult for corporate management to make capital allocation decisions. We reproduce Figure 1 from last week as an example of how quickly management expectations can change. This was the first bit of published data that we noticed that clearly demonstrated the pull back in management expectations.
On a day-to-day basis, we track various data sets released from the G20. This week, Purchasing Managers Indices data was released and we noticed weakness, particularly on the manufacturing side. We reviewed the data back 6 months and, as a generalization, management expectations have moved from constructive at the start of the year, to clearly negative today. Figure 2 presents the most recent data. There is a significant difference between the various countries. India has a strong outlook. Brazil, China and the US are essentially balanced. Europe continues to look negative (similar to the last year) but Mexico and Canada are the real outliers. At the beginning of the year, both countries had a constructive and improving outlook. Manufacturing in Canada in particular was clearly expanding (52.2) and now the situation has turned dramatically (45.3). Both Canada and Mexico, for obvious reasons, have very pessimistic manufacturing outlooks.
“This means that” this is only the beginning and we expect more difficult data ahead. It will take some time for this to work itself out. In the meantime, we should expect more financial market volatility.
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Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
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*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
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