Wise Multi-Asset Growth

We ended the month with the tariffs back on the table, however, and due to be put in place at the beginning of March. Whether this is the case or not remains to be seen. Meanwhile, a first round of tariffs on China were applied as the latter chose some modest and controlled retaliation against the US rather than negotiations. A second wave of tariffs is planned for March. The EU is now also in Trump’s sight and is likely to be next. So far, helped by a visit of Prime Minister Starmer to the White House, only the UK seems to be spared. Then again, in Trump’s world, it is hard to fully understand the exact rationale for his attacks and impossible to be confident on which direction the wind will blow next. Depending on the US counterparties’ reactions, a full-on global trade war cannot be ruled out. On Ukraine, after some initial support for President Zelensky, Trump did a U-turn, started unilateral negotiations with Putin, sided with Russia on UN resolutions refusing to condemn Moscow’s actions, made clear his intention to pull support from Ukraine and started transactional proposals about a mineral deal with Kyiv. Whether or not this is a negotiating tactic to bring Putin to the table and extract concessions from Zelensky, the clear consequence has been the realisation from EU countries that more needs to be done to ensure their own defence and reduce the reliance on America. This became even more obvious on the last day of the month after a disastrous press conference between Trump and Zelensky in the Oval Office ending with the precipitous departure of the latter. The geopolitical landscape is rapidly shifting, which will impact future alliances and budgets over the years to come. Elections in Germany brought a new relatively unknown actor to the play, adding even more uncertainty, and the new Chancellor will quickly have to form a new coalition and make his mark on the EU stage.

While some noise was expected from financial markets which initially displayed resilience, it appears that the past few weeks have been more intense than anticipated with the high level of uncertainty with regard to Trump’s policies starting to impact investor and consumer sentiment. US consumer spending remain strong but consumer confidence disappointed in February and recorded its steepest decline in 3.5 years. Meanwhile, inflation which, at 3% year-over-year in the US is higher than last month and, in the words of the chairman of the central bank after they left interest rates unchanged, “remains somewhat elevated”, might start raising concerns again. With Trump having won the election on a mandate to quash inflation but pursuing policies such as tariffs and immigration controls which are likely to be inflationary, it could be that sentiment keeps turning less positive in the months ahead. For now, this seems to be translating into a broadening of risk asset performance, away from the one-way bet that was the US exceptionalism trade and benefitting less overvalued regions such as the EU and China, which both displayed strong performance in absolute terms and relative to US equities. Illustrative of that broadening out of returns was the poor performance of the US technology index which, in the recent past, performed both as a risk-on and a risk-off trade. Some flows out of US equities also found their way into bonds, as a more defensive play, pushing yields lower.

In February, the IFSL Wise Multi-Asset Growth Fund was down 0.4%, behind the CBOE UK All Companies Index (+1.3%) but ahead of its peer group, the IA Flexible Investment sector (-1.6%). For our financial year ending in February, our Fund returned 11.5%, behind the CBOE UK All Companies Index helped by large companies (+18.6%) and ahead of its peer group (+9.7%). Over the 5-year period we consider reasonable to be measured against, the Fund returned 55%, in the top quartile of funds in its universe.

The main contributors to performance in February were in the regions we mentioned earlier, namely China and Europe. Fidelity China Special Situations continued its strong run since the start of the year, adding another 10% in February thanks to strong net asset value (NAV) underlying performance as well as discount narrowing, thanks to an increasing number of investors keen not to miss a rebound in the region. There is still a long way to go to return to the 2021 highs (i.e. before the crisis in the Chinese property market created a debt and negative sentiment spiral), but the current signs could be indicating that a valuation floor is being set. Similarly, after years of tepid growth and structural issues, European equities performed well despite the geopolitical noise, helping the Lightman European Fund. More defensive holdings such as the Jupiter Gold & Silver and the TwentyFour Income funds also performed well.

Our main detractors were in the healthcare sector which continues to struggle to attract the interest we believe its fundamentals and valuations deserve, as well as in UK smaller companies for the same reasons.

In terms of portfolio activity, we added a new position in the newly launched Achilles Investment Company. This small investment trust (£54m) will target other investment trusts in the alternatives space (property, infrastructure, private equity) which trade at wide discounts and where an activist strategy could help maximise value for shareholders. The managers are well known in the industry and to us, being part of a joint venture with Odyssean Capital we own. We believe that Achilles’ approach to working alongside existing investors to realise value in a small number of investment trusts without a hidden agenda should benefit our shareholders. They have proven the worth of the strategy in a few high-profile cases in the past couple of years and we trust they can replicate previous successes in this new vehicle.

This new position was financed by exiting Fulcrum Diversified Core Absolute Return. We also continued to tilt the portfolio towards the most attractive risk-returns by switching some Pantheon International into Oakley Capital, and some Caledonia into RIT Capital.