Transcription
The markets are all over the place. One minute they're happy, one minute they're worried. I know inflation underpins everything. Are the markets too optimistic about what we'll live through in the next 6 to 8 months? Well, it's a very interesting question.
You know, in a way, the world is splitting into two, and that means that we probably will see lower growth and there is a risk that we will see higher inflation. And so the market is very resilient given that backdrop, I think. So which means that you're expecting maybe a correction. And are there parts of the markets that seem too sanguine at the moment? Well, we've been saying for quite some time that we think it will be more difficult to make money going forward. And so I suspect with all the uncertainty that we are seeing just now. I think you would continue to see, you know, tough times.
So what's it like being in the markets? Do you worry? Is this an opportunity? What does it mean for how you position your portfolio for long term investments? Well, I think I think the way to behave in the market now is just to be broadly diversified and very, very long term. You need you really need to put your long term hat on. And I think to do, you know, tactical reallocations and movements is very, very difficult because things they move so fast. You know, when we last met in Davos, it looked like the US was going to be fantastic. From a stock market point of view. And Europe, all the leaders we met from Europe were really, really depressed. Well, you fast forward a couple of months and the whole thing is just turned upside down. So it's very, very difficult to get these these trends right.
But what does it mean longer term? Because actually it's unclear where the trade barriers exist to whether market pressure will make the Trump administration do a U-turn. So even three or four years, visibility is extremely difficult. Yeah, no, absolutely. We we really don't know how this is going to pan out. I think what is what is certain is that the the long term trend of globalization, you know, growth, these kind of things, stats that will look very, very different going forward. So the easy money is not there anymore.
You have over 50% allocation into US assets. Does that change? No. We are very happy with our US allocation. We have, you know, big holdings and in Treasury and we have, you know, big holdings in the large companies in America. They are great companies and we love owning them. I mean, Treasuries, are they a safe haven? What are they? Because I think, yeah, we think quite differently. We think is the safest place you can be still now despite the market move and some of the uncertainty. Yeah, that means dollar stays the reserve currency. Well, so there are other people who are better able when it comes to currencies than than me. We, for instance, see the podcast with Ken Rogoff last week. So tune in to that one and find out. I love that I'm speaking to like podcasters podcaster but Nikolai overall so 15% for example, Europe. Are you allocating more to Europe, you know, as opposed to other emerging markets.
So what we what we have we have a very clear mandate from the Ministry of Finance, which in broad terms tell us where we should be invested. And what we do is we are very, very long term. We stick to the mandates and make just small allocation relative to that. And I think that's I actually think to have a a long term plan and a long term mandate in these turbulent times is a very, very good idea. But but it's hard. I mean, when you look at, you know, for example, The Magnificent Seven, some of the tech stocks, I mean, you were slammed because of the market volatility and those so staying in takes quite a lot of courage.
Yeah. I mean, on the one hand, on the other hand, we are, after having been down the market is now pretty much back to, to where it was. When you look at the global index and you know, the fund is pretty much where we were at the beginning of the year. So you just have to sit through some of this volatility. I think it's interesting when you look at our first quarter results, we were down some $40 billion. Now that's giving back only 10% of the combined gains of the two prior years. And, you know, markets don't go up in a straight line. You have to you have to assume some volatility here. They also don't go down the straight line. That's also great.
Where do they go down first? Is there any indicator that you see for for a bigger market correction? Well, I think it's all depending on what's going on with the trade tariffs and whether you manage to solve the kind of the relationship between the superpowers. Right. We are seeing impact now in terms of incoming container traffic into the U.S. and so on. So it starts to have some real, real economic effects.
Nikola, when you say I mean, we started the conversation by saying actually there's a split, right? There's a fragmentation around the world. What does that mean for tech stocks? Why are you so still invested in them, do you think? Well, you do it well. So we have no I think if you have this fragmentation, it will have more negative implications for markets. We publish our stress tests every year and we put them on our website so that people know what we think in the various types of outcome scenarios. We think if you have a proper fragmentation of the world, there is could be like 35, 40% downside in markets.
Do did you actually change your portfolio to maybe add some stocks or certain positions when there was a market rout? So that's so we have a very delegated mandates within the fund. So some people would so people would have done that and some people wouldn't. It depends. So it's a very high level of accountability in this fund. Out of the Magnificent Seven, is there one that you think will come up better than others? You know, it's difficult to say, but it is. What is clear is that it has really real implications for efficiency. So last year, we think we increased efficiency and productivity in the fund by 15% by using the new tools. I think this year will be even higher at all. And so we are we are working really, really hard with it and applying it to the whole tech stack that we have. And it's has got huge, huge results.
What's Tesla? So is it a Trump play or is it a renewables play? Is it a what do you do with the stock? Well, I don't have a I don't have a firm or specific view on on that one particular company. So I think you can perceive that in many different ways. You know what it is actually. So so when you do when you look at China, how does China plan to all of this? I mean, the biggest fight on earth is probably between the US and China. Yeah. How does that change your position on where you make money and how? Yeah. So again, we look at China as a collection of companies. We think they have some great companies and we are invested in those companies. We don't really do, you know, allocation just based on geography. When you look at the US tech stocks, they would have exposures around the world and just because they could list they are listed in America doesn't mean they are you guys only stocks, right? Same in Europe. You look at the big European companies, they are global companies, global leaders in and all the Swedish companies are global industrial leaders. In Denmark, you have pharma companies. In France, you have, you know, luxury goods companies. These are global global leaders, incredible companies.
But but because of the tariffs, are you expecting the tariffs to come back down again? You don't know whether a tariff is now? I don't know. I think there is one guy who knows and it's not me. So you just stay firm. Nicolette, talk to me about renewables. Yeah, It's clear that it's not part of the Trump's administration focus right now. What does that mean for how expensive they'll be and actually transition? Yeah, we got it into a mandate some three or four years ago that we could actually start to invest in renewable infrastructure. And at that stage, these stocks were these investments, but they were just very expensive, low yield, a lot of competition to get in because everybody was trying to make their portfolio a bit greener. So we did very little. Now it's very different. Right? They are not particularly in favor. The potential returns are coming up. There is less competition and so we can make real investments here at good returns. And that's what we are doing where Europe in the world, in Europe and and also potentially in the U.S., US. So it hasn't do you think it slowed down actually the adoption of renewables in the U.S.? Well, I mean, it depends whether you are talking about wind or solar at all, but we think they are potentially attractive investments.
What about the less liquid real estate and you have your tipping your toe into this to to, you know, because of M&A, it's always a pretty big toe because we have close to a thousand properties. You know, we own 25% of Regent Street in London. We we own, you know, big holding. You know, in Manhattan that's on I think relative to the stock market, these things start to get be pretty attractive. You know, you had kind of a perfect storm with everything from from Covid working from home, you know, regional bank uncertainty and so on in in the U.S. Now, just relative to other alternative investments, I think some of them are pretty attractive. So less we could, but actually more attractive in terms of returns. We think buying more if we find the right ones. Yes, it's the right ones is what prime prime real estate in in big capital. Yeah. Prime has generally done better than the less good real estate.
Nick, I can't tell whether you're bullish or not on the US because you say invested in the US have 50%. But do you think some of this is an opportunity for Europe to either attract talent, attract companies and attract capital? Well, in the long term, U.S. has got a terrific spirit innovation ability, great companies, great managements, business models and so on. What we're seeing now, we are seeing that Europe potentially is getting its act together, taking away some bureaucracy, starting to try to cooperate, merge businesses to get to make kind of stronger champions. And I think we have seen to start of that and I think there is a sense of urgency kind of creeping in there. So it will be really, really interesting to follow.
Now, I think you can look at this world in many different ways. You can put on your you know, you can be worried or depressed them and so on, or you can put on your student debt, which is what I'm doing. You know, your student had to because we are at a time where things are changing so fast at the same time as technology development is incredibly fast. And so just to live, you know, at these times and and see what's going on here is just so fascinating.
I love your podcast and you have someone from Formula One. What did you learn anything about leadership or what's the best piece of advice you've gotten? Well, the so the Formula One episode is is out in a few weeks. And I think what is really fun there is to talk about speed. Of course, they really live in the fast lane but that's no not only about the race but is also how they think about speed in the organization, speed in decision making and all these kind of things. It's just really, really fascinating. And he's a very, very charming and and professional CEO. You don't.