For Professional Clients Only
Macro & Market Update
Financial markets were jittery in April, illustrating how unstable the equilibrium of the past few months has been. We mentioned in last month’s commentary that investors seemed to have switched their focus towards growth, worrying less about inflation and thus reducing their reliance on future interest rate cuts. For a few weeks at least, this theory was turned on its head and concerns about inflation became prevalent again. Whatever the narrative and whether investors’ mindsets are truly changing or not, what is undeniable is that we have experienced noisy financial markets for months now and that, in areas like US equities where valuations are toppy, sentiment can turn quickly.
In April, the US growth data (particularly the jobs report and retail sales) continued to paint a robust picture for the economy. However, for the third month in a row, inflation came out higher than expected. Perhaps the more concerning is that positive momentum appears to be back in prices in the US with the 3-month inflation numbers higher than the 6-month ones, themselves higher than the 12-month numbers. Market participants were content with sticky –albeit higher than ideal- inflation, but accelerating inflation re-ignites a battle that most thought was behind them. From three rate cuts in 2024 priced in at the beginning of the month, less than two remained at the end. Moreover, a fringe –but growing- cohort of investors are betting on the US Central Bank being forced, not only to forego any rate cuts this year, but to contemplate rate hikes to combat a resurgent acceleration in prices.
Sentiment in April was also affected by the escalation of tensions in the Middle-East with the growing risk of a full-blown regional war between Israel and Iran. While seemingly contained at the time of writing, the consequences of such a conflict would be much more far-reaching than the present one between Israel and Hamas, since it would involve nuclear threat from Iran and require direct involvement from allies on both sides. This fear pushed oil over $90 a barrel for the first time this year (from ~$75 at the start of the year), a move which itself fed into the renewed inflation concerns previously mentioned.
Another interesting feature that became even more apparent last month are the growing divergences, both at the macro-economic and market levels, between countries. At the macro-economic level, UK inflation, like in the US, is stickier than expected but, unlike his American counterpart, the Governor of the Bank of England struck an optimistic tone and reiterated the view that the data were on track with the Bank’s expectations, leaving the door firmly open for upcoming rate cuts. Whether this is pure rhetoric or will prove to be true remains to be seen, however. In the Eurozone in contrast, inflation keeps coming down, thus making rate cuts more of a certainty. In yet another category, the Bank of Japan, far behind the curve compared with its main G7 counterparts, only came out of negative rates for the first time in 17 years in March and is resisting market calls to hike further. Finally, China is still battling deflation, despite recent data indicating conditions might start to improve. All of these have, in the short term at least, led to pressures in currency markets (which are driven by growth and interest rate differentials between countries) and divergent performances in the stock markets. US and Japanese equities, which have led the pack for the past few months, had a difficult month as sentiment shifted, and better opportunities might be presenting themselves elsewhere. European equities were flat, while China showed some signs of recovery. And the UK, towards which sentiment is probably one of the worst globally, and which thus has some of the greatest upside potential, topped the returns tables. Bonds were generally weak because of interest rate cuts being pushed back and commodities, not only oil but also gold (hitting a new all-time high) and industrial metals led by copper, had a strong month.
Fund Performance
Wise Multi-Asset Growth
In April, the IFSL Wise Multi-Asset Growth Fund was up 3%, ahead of both the CBOE UK All Companies Index (+2.3%) and its peer group, the IA Flexible Investment Sector (-0.5%). Our focus on value paid off in last month’s febrile environment where margin of safety was rewarded. As such, all of our UK managers (investing in small and large companies) performed well and outperformed the market. Our positions in commodities (Jupiter Gold & Silver, BlackRock World Mining) benefitted both from their cheap valuations but also from their role as hedges against inflation and war, as well as from the early encouraging signs of stability in China. It might seem odd to describe our position in gold and silver miners as cheap given gold reached an all-time high during the month, but the performance of the mining companies has remained subdued, and they are close to the cheapest they have ever been relative to their net assets and relative to the precious metal. Given how profitable these companies now are with the gold price where it is, we would expect them to become increasingly attractive to investors.
Our detractors were limited last month with International Biotechnology Trust the most notable one as it gave back some of its strong gains since last October and also saw its discount widen.
Wise Multi-Asset Income
In April, the IFSL Wise Multi-Asset Income Fund rose 2.7%, ahead of the IA Mixed Investment 40-85% Sector, which fell 0.7%. Our commodity holdings were the strongest performers over the month reversing some of the weakness they have experienced over the last year. Strong net asset value performance, a proposed mega merger in the sector between BHP and Anglo American coupled with a narrowing of wide discounts saw Blackrock World Mining and Blackrock Energy & Resources deliver strong returns. Our equity funds delivered strong performance reflecting the strength of their relative markets, mergers and acquisitions (M&A) and the outperformance of managers with a value style over the month. Aberforth Smaller Companies, Fidelity Special Values and Man GLG Income in UK produced strong returns, as did Abrdn Asian Income and Murray International. All of the investment trusts saw their abnormally wide discounts to NAV narrow, further boosting returns.
Our infrastructure holdings were a source of positive returns. Ecofin Global Utilities & Infrastructure delivered good underlying Net Asset Value growth in the month whilst the appearance of an activist shareholder on the share register led to its anomalously wide discount narrowing. GCP Infrastructure performed strongly as it announced the disposal of its interest in the Blackcraig Wind Farm at a 6% premium to the latest valuation. Having started the month trading at a 34% discount to net asset value, this transaction helps demonstrate the underlying value in the portfolio and marks the start of the recently announced capital policy to dispose of £150m of assets (15% of the portfolio), to pay down debt and return at least £50m to shareholders. Despite this positive news, the discount at the month end remained at a highly attractive 29% There was a similarly positive annual results update from Pantheon Infrastructure detailing how the underlying portfolio of privately held infrastructure assets are performing ahead of initial expectations. In both cases, the implied returns that these portfolios should deliver to shareholders over their life are over three times higher than that currently available from 10-year UK government bonds. Performance from our property holdings was positive although not uniform. News flow, however, from the property companies themselves remains supportive. In the industrials subsector, Urban Logistics reported increased occupational activity with significant rises in rental rates as well as evidence that valuations are stabilising. Abrdn Property Income disposed of two properties at a premium to book value and confirmed that a vote would be tabled this month to approve the orderly wind-down of the company. Helical, a London focussed office specialist, reported on continued lettings momentum at rental values exceeding those used by its valuer. Good interest is being shown in its remaining vacant space and on the development side they anticipate signing a joint venture partner for a best-in-class office development at 100 New Bridge Street. The average discount of over 30% on our property holdings coupled with a positive outlook for rental growth should provide a significant margin of safety in the face of higher interest rates.
Past performance is not a guide to future performance
Portfolio Changes
Wise Multi-Asset Growth
Our portfolio activity was limited during the month, having already taken some profits the previous month. We nonetheless trimmed two of our strong performers, Man GLG Undervalued Assets and Jupiter Gold & Silver to prevent the position becoming too large. We also, regrettably, exited our position in the KLS Corinium Emerging Markets Fund which was closed by its manager.
Wise Multi-Asset Income
Over the month, we sold our holding in TR Property, which has performed strongly and seen its discount narrow, as well as trimmed some of our UK equity holdings, which have seen strong recent performance.
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Full details of the IFSL Wise Funds, including risk warnings, are published in the IFSL Wise Funds Prospectus, the IFSL Wise Supplementary Information Document (SID) and the IFSL Wise Key Investor Information Documents (KIIDs) which are available on request and at wise-funds.co.uk/our funds The IFSL Wise Funds are subject to normal stock market fluctuations and other risks inherent in such investments. The value of your investment and the income derived from it can go down as well as up, and you may not get back the money you invested. Capital appreciation in the early years will be adversely affected by the impact of initial charges and you should therefore regard y our investment as medium to long term. Every effort is taken to ensure the accuracy of the data used in this document but no warranties are given. Wise Funds Limited is authorised and regulated by the Financial Conduct Authority, No768269. Investment Fund Services Limited is authorised and regulated by the Financial Conduct Authority, No. 464193.