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Macro & Market Update
Financial markets experienced another volatile month. Global equity markets fell in the first half of the month, driven by shifting interest-rate expectations and renewed concern over Artificial Intelligence related technology spending, was followed by a recovery into month-end. Equity volatility rose to levels last seen around the “liberation day” shocks earlier in the year when President Trump announced sweeping tariff measures.
In the US, the main question was whether the Federal Reserve (Fed), the US central bank, would cut rates again this year. Early in the month, expectations for a rate cut in December fell after minutes from the Fed’s October meeting were released highlighting a larger than expected group of members were more worried about persistently high inflation than the need to further reduce interest rates. When employment data, delayed because of the recent government shutdown, was released, it showed a firmer rebound in hiring than expected, reinforcing the case for patience. Towards the end the month, however, public remarks from influential policymakers signalled support for further action, increasingly the likelihood of another 0.25% rate cut in December and supporting markets in the process. In the UK, the Budget dominated sentiment. Comments in the run-up to the budget by the Chancellor around weaker productivity affecting future economic growth forecasts coupled with the need for higher welfare spending steered voters and investors to conclude the government was set to break manifesto promises and increase income tax. This was subsequently abandoned causing concern in bond markets over how the proposed increased government spending was to be funded. This uncertainty pushed government bond yields higher and weighed on the shares of domestically-focussed companies. In the end the Budget itself confirmed that the overall level of taxation will rise over the coming years to cover increased spending, although with much of the fiscal pain pushed into the later part of the parliamentary term. Across Europe, economic data were steady and expectations remain that interest rates are unlikely to reduce any more in the near future . A broader issue affecting markets was a reassessment of the artificial-intelligence (AI) investment cycle. Several large US technology companies announced further increases in AI-related capital expenditure. While this underlined the long-term structural story, it also raised questions about the pace of future cash flow generation and whether these investments would generate sufficient returns. This contributed to the mid-month pullback in growth-oriented parts of the market.
Against this backdrop, developed-market equities weakened into the middle of the period before recovering part of their losses as comments from the Fed and corporate earnings helped to stabilise confidence. Asia ex-Japan saw only a modest rebound, while Japan lagged more clearly given the upward pressure on local bond yields. Bond markets were comparatively stable, with small moves in US and Eurozone yields and a more pronounced rise in Japan. UK government bond yields finished broadly flat after an initial pre-Budget rise.
Fund Performance
Wise Multi-Asset Growth
In November, the IFSL Wise Multi-Asset Growth Fund was up 1.6%, ahead of both the CBOE UK All Companies (+0.7%) and its peer group, the IA Flexible Investment sector (-0.6%). Like last month, our top contributors were in the healthcare sector, with all three of our holdings (International Biotechnology, Worldwide Healthcare and RTW Biotech Opportunities) benefitting from strong net asset values (NAVs) growth and discount tightening as the sector gained traction from a broader range of investors. At a time when much attention is focused on AI, it is pleasing to see the exciting biotechnology sector recovering some of the ground it lost compared to technology companies. Since the start of the year, the smaller company biotechnology index delivered more than twice the returns of the Nasdaq index (the main index of technology companies in the US) at 44% vs 22%. And yet, since its previous peak in early 2021, the same biotechnology index is still down 31% vs the Nasdaq up 72%. This gives us reasons to think that we are in the early stages of the recovery in the sector and we continue to be encouraged by the attractive valuations, the increasing pace of innovation, and the accelerating level of acquisitions from larger pharmaceutical companies. Our position in precious metals via the Jupiter Gold & Silver Fund and BlackRock World Mining also contributed positively, benefitting from the increased volatility described above.
On the downside, our basket of renewables and infrastructure names weighed on returns, as did our emerging markets holdings. The former suffered from uncertainty over future government policies on subsidy pricing. Our emerging markets names were hurt by a combination of weakness in Asia related to global concerns about the valuations of AI names and, in the case of Mobius, a large uptake in their redemption facility which led to many investors deciding to exit their position.
Wise Multi-Asset Income
In November, the IFSL Wise Multi-Asset Income Fund rose 0.2%, ahead of the IA Mixed Investment 40–85% sector, which fell -0.5%. Portfolio performance showed wide dispersion. Biotechnology, commodities, private equity and certain of our UK equity holdings contributed positively while infrastructure, renewables and some property exposures detracted. Biotechnology was the clearest positive, with International Biotechnology Trust extending its recent strong performance as sentiment towards the sector continued to recover. Our commodity and private-equity holdings also performed well, driven mainly by underlying net asset value (NAV) gains. Industrial-metals, such as copper, benefited from higher prices later in the month reflecting supply constraints, whilst the gold price moved higher after a pull-back at the end of last month. CT Private Equity’s well-received results helped its discount to narrow whilst ICG Enterprise Trust delivered another portfolio realisation. Within listed equities, our UK holdings (notably domestically focussed companies and financials) were supported by attractive valuations, solid company updates and a modest improvement in sentiment once the Budget removed some uncertainty. By contrast, the renewables sector was one of the weakest performers. The main pressure came from the government’s consultation on changing how older renewable projects are allowed to increase their subsidy revenues with inflation. Many of these assets operate under long-standing support schemes designed to provide inflation-linked income. At present, those payments rise each year in line with the Retail Price Index (RPI), which has grown faster than the Consumer Price Index (CPI). The consultation proposed switching from RPI to CPI—or freezing increases until CPI “catches up” with RPI. Whilst these proposals would permanently reduce the expected long-term inflation-linked income from existing projects for these companies and reduce the net asset values, longer term they also undermine investor confidence in the subsidy support needed to fund future investment.
At the same time, the sector was grappling with strategic setbacks. Bluefield Solar’s proposal to internalise its management and pivot towards a more growth-oriented model, funded in part by changes to its dividend policy, was met with strong shareholder resistance. The board withdrew the plan and instead launched a formal sale process, but not before the shares had fallen sharply. Soon afterwards, the proposed merger between HICL Infrastructure and The Renewables Infrastructure Group (TRIG) also met investor opposition. Although presented as a way to create a larger, more diversified platform, the terms were widely viewed as favouring TRIG shareholders and the manager. HICL investors raised concerns around valuation, strategy and governance, and the deal was ultimately abandoned. Performance from our property holdings was mixed. Flexible office operator, Workspace, detracted as the market focused on a NAV reduction in its half-year results. However, underlying operational trends were more encouraging, with improving enquiry conversion and better tenant retention offering early signs that occupancy may be nearing a trough whilst further disposals of non-core assets at prices in line with book value. Given the deep discount at which the shares trade, we see these operational improvements as more important for long-term value than a single valuation adjustment. Elsewhere, Picton Property Income delivered steady interim results with modest NAV growth supported by buybacks and reversion potential.
All data is in a total return format
Past performance is not a guide to future performance
Portfolio Changes
Wise Multi-Asset Growth
In terms of portfolio activity, we took some profit across our healthcare names despite confidence in their medium-term outlook, as well as in private equity (Pantheon International, Oakley Capital), Ecofin Global Utilities and Infrastructure, and Templeton Emerging Markets. We redeployed part of the proceeds into Mobius Investment where we believe the redemption event provides an attractive entry point. We also increased TR Property after the Budget. The remainder of the profits was kept in cash, ready for deployment when further opportunities arise.
Wise Multi-Asset Income
During the month, we initiated a new holding in Picton Property Income, a diversified UK property company with a strong bias to industrial assets. The company is looking to drive value by increasing rental income as vacant space is let up and underlying rents increase. We added also to more domestic UK businesses, such as Workspace, London Metric, LifeScience Reit and Aberforth Smaller Companies. Given the recent strength in performance, we reduced our holding in International Biotechnology Trust, which has nearly doubled since its lows in April.
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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 your 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.