At the end of January, President Trump nominated Kevin Warsh to be the next Chair of the US Federal Reserve, and although there was little impact on treasury bonds or the dollar, we did discuss the choice with US asset managers in February. The broad consensus, which explains the muted market reaction, was that Warsh was a classic Republican pick, unlike some of Trump’s other appointments. From his time as a Fed governor, including during the global financial crisis, he knows the institution and financial markets well. As an adviser to Stanley Druckenmiller, the famous investor, he is already connected to Treasury Secretary Bessent1. Interestingly he was not Trump’s first choice, showing that Republicans still do exercise some influence, but having a billionaire father-in-law who is well known to Trump may have helped.

Figure 1: The Fed balance sheet and US treasury yields

Source: US Federal Reserve, Bloomberg. Treasury bond yields are quoted in US dollars.

As for interest rate policy, Warsh was a noted hawk2 after the financial crisis, when he believed the Fed kept rates too low for too long, but in his recent comments he has supported lower rates. So, the market is not unreasonable to expect a few cuts this year, bringing dollar rates closer to 3%. He does have views on the size of the Fed’s balance sheet, which may involve selling bonds back into the market, but his relationship with Bessent means we don’t expect this to be too disruptive for treasury yields.

As noted in the previous section, February was another volatile month for commodities, especially metals. However, prices remain well up on the year, and far ahead of previous years, leading to much improved profitability for mining companies. Several times last year we looked at gold miners, but never made an allocation, as their stock prices shot up at twice the rate of the gold price. Now that precious and industrial metals have done so well, and we are reluctant to bet on or against them on a tactical basis, we looked again at miners. Our thinking was that even if metals prices rise no further from here, or even decline a bit, the profitability of mining companies is still well ahead of previous years, and this might not be fully reflected in their valuations, which for gold miners are not far from historical averages3. But when we studied previous metal price cycles, we found that miner stocks peaked around the same time as the metal price, regardless of their enhanced earnings power. So, for now we are still holding off on allocating to miner stocks.

Figure 2: Metal prices and mining stocks

Source: Bloomberg. All prices are in US dollars. We use the NYSE Arca Gold Miners index3 and the Solactive Global Copper Miners index.

In our January letter, we mentioned the performance of Latin American equities, a tactical position that we had introduced last May and increased in September (funded from developed world equities). The region has outperformed our expectations since initiation, beating the global index by almost 30% despite all the geopolitical volatility, and so in February we looked into taking some profits. The macro cases for Brazil and Mexico (59% and 26% of the index respectively) are still strong, and we note that international fund flows into the region have risen as we had anticipated. Valuations are close to historical averages now, rather than well below, which is still better than almost everywhere else. We decided that it would be good portfolio discipline to book at least some of the unexpectedly strong gains, and prudent risk management to trim the position well in advance of the Brazilian elections, which have historically been negative for local equity markets. See the next section for portfolio details.

Figure 3: 2025-26 performance of Latin American equities