Wise Multi-Asset Income

A clean sweep of the presidency, the House of Representatives and the Senate in theory gives Trump a free run at implementing economic policies that could range from lowering corporate taxes, extending existing loose government spending, imposing stringent tariffs on global trading partners, combatting illegal immigration and altering the course of US foreign policy, notably towards the Ukraine and in the Middle East. However, it is worth noting that unlike in his first presidential term when the economy was recovering, interest rates were low and there was some scope to increase the fiscal deficit, this time round there is more limited room for manoeuvre whilst as a result the scope for market volatility is greater in the event of a policy mis-step. The immediate impact of the election has been to see the US dollar strengthen, especially against those currencies where higher tariffs are most likely to be imposed. US equity markets have taken the result well, with notably strong performance from smaller US companies which are deemed to be the largest beneficiaries of an ‘America First’, lower tax economic policy. Financials, particularly US banks also performed strongly as the market bets on stronger economic growth, a favourable tailwind from higher interest rates and less stringent regulation. Looking beyond the policy speculation to the reality of political appointments, these have been at once eye-catching, sometimes concerning and other times reassuring but fulfilling the expectation that Trump 2.0 will continue to be unpredictable. A vaccine-denying former Democrat put forward as choice to lead the US health department and a lawyer investigated for sex-trafficking to run the justice department proves either that Trump is unconcerned about ruffling feathers or is one step ahead of everybody else, knowing that these candidates are unlikely to make it through the selection process which will make any alternatives more palatable by comparison. Elsewhere, whilst loyalty has been favoured over experience, the important nominations for Treasury Secretary and Secretary of State are considered less controversial.

Against this political backdrop, the Federal Reserve elected to cut interest rates by a further 0.25% in the immediate aftermath of the election. Despite Trump’s stated policies widely anticipated to be inflationary and likely to make future monetary policy loosening harder to deliver, the Federal Reserve responded to the current reality of lower inflation and signs of a cooler labour market. Higher US government bond yields over the period suggest markets are more optimistic about near-term economic growth but recognise this will come at the expense of higher inflation and higher medium-term interest rates.

Elsewhere, the Bank of England also cut interest rates by 0.25% and outlined its assessment of the recent budget, which it forecasts will add 0.75% to GDP and 0.5% to inflation in a year’s time. Businesses, notably in the retail sector, added their verdict on the national insurance and minimum wage changes with a group of leading retailers expecting these changed to cost the sector over £70bn which is likely to be mitigated through a combination of higher prices and job losses. In Europe, political disruption spread with the German chancellor ending its coalition which heralds elections in the New Year whilst in France the government sits on the brink of collapse in response to the recent budget. Finally, in China an underwhelming fiscal package to bail out local governments was announced with investors hoping that this reflected a need to keep powder dry in case a new US administration imposed further import tariffs.

In November, the IFSL Wise Multi-Asset Income Fund was up 0.7%, behind its peer group, the IA Mixed Investment 40-85% Sector, which rose 2.4%. US equities, where the fund is underweight given high valuations and low yields, rose strongly over the month as perceived winners from the US election. Strong local market performance was compounded by the strength of the dollar. By contrast, European and emerging market equities lagged as markets digested the prospect of higher tariffs. Similarly, Blackrock World Mining suffered as investors were unconvinced by the fiscal stimulus package in China and concerns over the economic outlook. The performance of our UK equity holdings also struggled in the wake of the budget, particularly our position in Aberforth Smaller companies, which saw discount widening on top of lacklustre net asset value growth. Despite fears that the budget could lead to lower growth and higher inflation in non-governmental areas of the UK economy, there have been a continued number of corporate bids which reflect the discounted valuation of the UK stock market. These twin pressures of lower growth and higher inflation also impacted our property and infrastructure holdings over the month despite the high discounts that would appear to already reflect these concerns. Bright spots were found in our private equity positions, ICG Enterprise and CT Private Equity, our financials holdings, Polar Capital Global Financials and Paragon as well as Middlefield Canadian, where an activist shareholder has built a material stake.

Over the month, we sold out of our holding in Abrdn Property Income following the announcement of its wind-down related asset sale as well as reduced our holding in Abrdn Asian Income and Middlefield Canadian Income. The latter has performed strongly as its net asset value has recovered and the discount has narrowed materially. We topped up our holding in Empiric Student Property as well as built on our holding in the Premier Miton Strategic Monthly Income Bond Fund. Finally, we took advantage of weakness in International Biotechnology Trust following the nomination of Robert Kennedy Jr as US Health secretary to add to our position.