Wise Multi-Asset Growth

Bond markets increasingly reflected the latter risk. All long-term bond yields across developed markets pushed through multi-year highs in September increasing financing costs and the returns against which other investments must compete. Inflation fears were amplified by concerns of deficits getting out of control, leading to those sharp moves in the bond market. At the same time, the US economy continued to demonstrate considerable strength. An August employment increase largely beat expectations, while September’s business surveys showed output expanding at its fastest pace in five years. This was encouraging for the growth outlook but less helpful for investors hoping that weaker demand would contain inflation. Headline inflation remained at 3.4%, although core inflation (which excludes food and energy) eased. In the UK, inflation rose to 3.1%, but weaker employment and subdued private-sector wage growth provided a counterweight to higher energy prices. In the Eurozone, inflation accelerated to 3.3%, particularly hit by the higher gas prices we mentioned earlier.  Against this backdrop, central banks had difficult decisions to make. In the US, the Federal Reserve raised interest rates by 0.25%, its first increase since 2023. The unanimous decision, despite President Trump’s demands for lower borrowing costs, underlined the priority given to controlling inflation. The European Central Bank also increased its deposit rate by 0.25%, its second rise since June. Neither decision resolved the underlying supply problem, but both reflected concern that allowing inflation to remain above target for longer could make it harder to bring back under control. The Bank of England was more cautious, holding rates but warned that policy might need to tighten. The next big event investors will be focusing on is the Autumn Budget on 28^th October. Higher borrowing costs are eating into the fiscal headroom, limiting the scope for additional spending so ambitious political promises might need curtailing or tax increases will be required.

The sharp rise in bond yields left equity investors on the defensive, with most markets struggling to make headway during the month. AI stole the limelight again, presenting a combination of opportunity and risk. Leading industry executives called for a slower pace of development as concerns grew that increasingly capable systems were advancing faster than safeguards. These concerns did not prevent renewed enthusiasm, however, with the index of leading technology companies in the US reaching a record high, helped in part by strong performance from Meta (owner of Facebook and Instagram) which released its new AI assistant. The contrast illustrated how quickly sentiment could switch between concerns about the technology and excitement about its commercial potential. There was hope that the question of AI security would be discussed between Presidents Trump and Xi during the US-China summit but this issue and the important one related to rare earth minerals was avoided with the summit producing more breathing space than any meaningful breakthrough. The trade truce was extended from November to January, alongside a lower-tariff arrangement covering $60bn of non-sensitive goods. These were useful but limited outcomes, rather than a broader resolution of the strategic disagreements between the two countries.

In September, the IFSL Wise Multi-Asset Growth Fund fell 2.5%, behind both the CBOE UK All Companies Index (-1.8%) and its peer group, the IA Flexible Investment sector (-0.5%). In a reversal from last month when fiscal concerns helped boost gold prices, both the Jupiter Gold & Silver Fund and BlackRock World Mining gave back some of their recent gains. Rising bond yields had the most direct impact on the property sector in the portfolio and TR Property was thus a strong detractor. Private equity is also perceived as interest rate sensitive due to the leverage embedded in its structure, which impacted the discounts on the trusts. We had updates from all of our private equity managers during September, however, and all of them confirmed either their lack of financing needs or their ability to refinance at attractive terms due to their size and reputation. We thus would not expect rates at current levels to have much of an impact on their Net Asset Values (NAVs). Software companies were weak again due to the ongoing fear of AI taking over their business combined with higher yields creating a valuation headwind for companies relying on long-term growth. This impacted HG Capital Trust and Finsbury Growth & Income. Finally, Pershing Square in US equities saw its discount widen and mixed performance between its technology names (including Meta) and the rest of its portfolio. The two main positive contributors to performance were Mobius Investment Trust in emerging markets and Achilles Investment Company which jumped to its highest level of the year following the completion of the acquisition of Spire Healthcare at a substantial premium.

In terms of portfolio activity, we added a new position in the Vontobel TwentyFour Multi-Asset Credit Fund, managed by the same team as the Vontobel TwentyFour Strategic Income Fund we already own but with more emphasis on generating performance purely from credit (i.e. company-issued bonds) with no government bond exposure. We believe the current environment should be opportune for expert managers who can generate returns from pure stock selection, avoiding the general macroeconomic noise. We also started a position in Rockwood Strategic which complements our existing smaller-company exposure by investing in some of the smallest companies on the UK stock market, seeking undervalued businesses where changes in management, operational improvements, restructuring or takeover activity can help unlock value. On the back of strong absolute and relative performance, we exited our position in Pantheon International in the private equity space. Otherwise, we added on weakness to Finsbury Growth & Income, HG Capital, Pershing Square and TR Property, while continuing to build up the position in MIGO Opportunities. Those were financed by taking some profit in infrastructure names, as well as Odyssean and RIT Capital Partners.