July 2025 Update

July, 2025

Now "Trust in rust"?

Despite an escalation of the Iran Israel fight via the US intercession with "Bunker Busting Bombing"; the passing of the Big Beautiful Bill (upon which the Congressional Budget Office warned of unsustainable debts); and the probable reappearance of tariffs, the equity markets rose in the second quarter. Out on its feet in April, the NASDAQ reached a new high as the market's job to cause the maximum pain to the maximum number of fund managers was expertly accomplished.

The Delft global strategies rose in the quarter with the diversified trust up almost 5% (A$ terms) and the Value strategy up over 6.5% (A$ terms). Note these are gross because we offer different ways to access these returns, and the fees are thus different. We are launching the Global Listed Equities Infrastructure strategy as an Australian trust in July. Since inception almost 8 years ago this strategy has risen c.12% p.a. outperforming its benchmark by around 4% p.a. More on Infrastructure below.

The Big Beautiful Bill (BBB) seems to be a replacement for the TCJA or Tax cuts and Jobs Act of 2017. This TCJA seemed to be having some Laffer curve benefits to the USA economy before we got another triple B in the form of serious pork barrelling or Build Back Better by the Democrats which didn't do much more than showcase the inefficiency of government spending in growing per capita GDP. What we need now everywhere is less government and more private sector. What also interests us is the current reappraisal of the benefits of big government as evidenced by the re-examination of Roosevelt's New Deal and its impact on the dynamism of the US economy.....see books by Burton Folsom Jr.

Hopefully, the effect of the BBB and targeted tariffs will induce the private sector to invest capital while government overspending is reduced. Then the economy will grow faster than the debt incurred, and the numerator denominator will work to reduce debt to GDP. Then we can breathe as we work out a way to reduce the various egregious inequalities that have arisen from the adoption of 'Keynesian Kommunism'. (1. Public spending is as beneficial to wealth creation as private 2. All tax increases increase revenue 3. All income in an economy potentially belongs to the government).

We view the USA as first off the block, and even here the price of gold and crypto is telling us that the jury is undecided on whether we can turn this around without again resorting to printing money to provide 'growth'. Europe is struggling even to accept it has a problem with debts and its growth trajectory. NATO appears to have strong armed semi-bankrupt European governments into spending 5% of GDP on defence whereupon the definition of defence spending was enlarged to include windmills and other aspects of 'soft' defence!

It may not matter; the source of the money for essentially re-industrialisation is going to be attempted, which will benefit stocks that "make stuff." Hence the title. We therefore still think that Industrial stocks are in a sweet spot. We think any investment pick up is likely to benefit companies operating in the infrastructure spaces of power, including nuclear, where we have been adding to Japanese nuclear power companies at half-stated book value, storage and management of information, logistics, and transport. We also anticipate that this paradigm shift will cause large reappraisals of asset values and profitability. Some companies are already blaming tariffs for pulling or cutting earnings guidance, such as Centene and Nike—neither owned. The cross-sectional volatility of the market is likely to rise, which will have some interesting effects on active management and the benefits of growth versus value.

Holdings in Sumitomo Electric, Hitachi, Quanta, Emcor, Emerson, Sterling Infrastructure, and Heidelberg Materials (again) rose very strongly in the quarter. There's much more to come.

Delft Partners July 2025