Wise Multi-Asset Growth

That meeting largely alleviated worries that the Federal Reserve (or the Fed, the US central bank) had fallen behind the curve by keeping interest rates too high for too long, however. Its decision to cut rates by 0.50% boosted risk appetite and led investors to look on the bright side again. Compared with its traditional moves in 0.25% increments, it was an aggressive move by the Fed which they have only used three times in the past (in 2001 during the burst of the technology bubble, during the great Financial Crisis of 2008 and during the Covid pandemic). New jobs creation is indeed in a downtrend but an unemployment rate of 4.2% remains historically low and is, by no means, in recessionary territory, unlike in those previous three instances. The Fed’s chairman, Jerome Powell, said as much by stating that “the US economy is in a good place and our decision today is designed to keep it there”. The 0.50% cut can thus be seen as a clear signal the Fed wants to stay on a strong footing. With US inflation also continuing to fall in August, hopes rose again that a soft landing, by which the economy slows down sufficiently to control inflation but without falling into recession, might indeed be on the cards. While the elections in November remain a large source of uncertainty which may alter the economic landscape, the rate cut from the Fed marks the end of the relentless hiking cycle post-Covid engineered to combat rampant inflation, and allows investors to focus on the next chapter which is centred around growth.

Meanwhile, the European Central Bank took comfort from inflation at a 3-year low to cut its interest rates for the second time since June, in an effort to boost its flagging economy. Its English counterpart, however, held off cutting rates despite an unexpected second month of flat economic growth and a sharp fall in consumer confidence which might impact future growth negatively. Services inflation remains stubbornly high in the UK explaining the Bank of England’s reluctance to cut rates too aggressively before that problem is more firmly under control. It nonetheless hinted that, all else being equal, another rate cut should come at its next meeting in November.

Finally, another chapter also started in China where a raft of stimulus measures clearly indicates a shift towards growth stimulation after months of poor economic momentum. These measures announced a few days before the Golden Week, a week-long bank holiday from the start of October, ranged from monetary actions to financial markets support and constituted the most aggressive stimulus package since the Covid pandemic. The woes of the property market which have weighed on domestic sentiment and consumption for the past couple of years still need to be addressed, but the recent announcements show a willingness from the government to finally take action. It is thus not unreasonable to expect targeted fiscal measures further down the line. Investors reacted aggressively to the stimulus announcement with Chinese equities recording one of their best weeks ever.

In September, the IFSL Wise Multi-Asset Growth Fund was up 0.6%, ahead of the CBOE UK All Companies Index (-1.2%) and in line with its peer group, the IA Flexible Investment Sector (+0.5%). For the third quarter, the Fund returned 3% beating both the CBOE UK All Companies Index (2.7%) and its peer group (+1.1%).

Unsurprisingly given the movement in Chinese equities mentioned earlier, our position in the Fidelity China Special Situations trust was the Fund’s top contributor. This position has been a difficult one to hold over the recent months, but we have always been fully aware of how volatile it could be and thus adjusted its weighting accordingly. While we think that the current price can show further upside from here given how depressed valuations remain despite the recent strong performance, it is also a position that we have actively traded and will continue to do so. Another strong contributor to performance was our position in the Jupiter Gold & Silver fund which continued to benefit from the strength in precious metals and consolidation in the mining sector.

On the negative side, UK equities showed some weakness after a strong run, hurting our UK equity funds. Another detractor was Worldwide Healthcare trust which suffered from a moderation of expectations with regards to sales of obesity drugs.  

Over the month, we booked some profits in Jupiter Gold & Silver, Ecofin Global Utilities & Infrastructure, TR Property and TwentyFour Strategic Income Fund, all of which having benefitted from lower interest rates expectations in the past few weeks. We also reduced our allocation to JO Hambro UK Equity Income and ManGLG Undervalued Assets in the UK after a strong 12-month performance. We used some of these proceeds to top up BlackRock World Mining trust which fell to an abnormally wide discount after Chinese-inflicted weakness in the industrial metals complex. The attractive valuation and the correlation with Chinese growth where negative sentiment was extreme, led us to take a contrarian view and increase our position. This was before the announcement of the stimulus measures from China and the trust rebounded strongly subsequently.