Wise Multi-Asset Income

existed, a universal 10% tariff was applied to all imports into the US (except from Canada and Mexico) within three days. On top of this blanket tariff, supplementary tariffs were announced on countries with significant trade surpluses with the US whilst there was a specific increase in tariffs between the US and China as a retaliatory response saw the trade war escalate. The initial response from investors was to sell riskier assets (eg equities) and seek safe havens (eg fixed income and gold). The extent of investor surprise was reflected in the moves in financial markets in the immediate aftermath of Liberation Day. US equity markets experienced their 5^th worse consecutive two-day fall since World War 2. Equity market volatility reached levels seen only during the Global Financial Crisis of 2008 and during the Covid pandemic and gold, seen as the ultimate safe haven, rose to an all-time high of $3500. Markets have faced the challenging task of trying to decipher what is a negotiating position for Trump and what represents a policy with achievable objectives were it to remain in place. With regards to tariffs, it is hard to guess whether there is a genuine belief that current trade surpluses represent the US being ripped off by its trade partners or that higher tariffs will lead to a flood of low value-add jobs returning to the US or whether this is a manufactured argument intended to force trading partners to rework trade deals. The most pressing concern is that there is a timing disconnect between the negative impact of tariffs that will be felt immediately compared to trade deals, which historically take over two years to agree, and the time needed by global multi-national companies to rearchitect their supply chains, which will take longer to deliver than is left under the current political administration. Economists have been reluctant to commit to economic forecast changes given the ephemeral nature of the tariff announcements made thus far, however, it is likely that the current level of policy uncertainty will see global growth forecasts fall and could see the US economy tip into recession. Towards the end of the month, US GDP was notably weak driven by a sharp increase in imports as companies increased inventory in anticipation of upcoming tariffs. The underlying US economy has remained robust, however, although movements in the expected level of interest rates over the month, which now factor at least an extra 0.25% interest rate cut by the year end, suggest investors are expecting more economic weakness ahead.

 The difficulty in navigating current markets is reflected in the performance of US equity markets over the course of the month. US equities fell 15% peak-to-trough in the 3 days following the tariffs announcement, before rebounding another 15% into the month-end as Trump responded to weak bond markets (and higher debt servicing costs for the government) by delaying the worst of the supplementary tariffs, carving out industry-specific exemptions and clarifying he did not intend to fire Jerome Powell, the independent Chairman of the Federal Reserve. The reputational damage, however, of such erratic economic policies is perhaps best seen in the dollar, once a safe-harbour for investors in times of volatility, which has fallen over 8% since the start of the year. The merits of an internationally diversified portfolio (away from the US) came to the fore over the month with UK equity markets, particularly smaller companies, where low valuations, a resilient domestic consumer and less exposure to international trade tariffs helped drive positive returns. Commodity markets were notably weak, particularly among industrial metals and oil, as weaker demand is now forecast for commodities, which was not helped by the announcement from OPEC (the Organization of the Petroleum Exporting Countries) that it intended to increase output further than expected.

Despite intra-month volatility for both the fund and its benchmark, the performance over the month highlights the merit of remaining calm in times of market stress and the reassurance that can be derived from an investment process with a focus on valuation underpinned by a high level of covered income. In April, the IFSL Wise Multi-Asset Income Fund rose 1.4% ahead of its peer group, the IA Mixed Investment 40-85% sector, which fell 1.1%. The best performance came from the infrastructure and property sector, supported by highly visible future earnings and another possible bid for our largest property holding, Urban Logistics. We have increased the fund’s exposure to infrastructure, notably to renewables at the beginning of March, as wide discounts look at odds with the net asset values (NAV) which now reflect higher bond yields. The emergence of activist investors in the property sector forcing boards to crystallise discounts to NAV either by selling assets or the companies themselves will no doubt also be seen in the infrastructure sector if discounts persist.

We took advantage of the significant falls in certain assets during the month to increase our holdings. International Biotechnology trust was notably weak as was Helical, despite announcing the disposal of a development building which will generate a healthy profit. We also added to our holding in the Renewables Infrastructure Group funding these purchases from positions (TwentyFour Strategic Income and Urban Logistics) which have held up well and where there is less near-term upside.