Wise Multi-Asset Growth

Many of those are likely to be contested in court or inapplicable, but the message from Trump to his supporters is clear: he means business and is better prepared this time around than he was at the start of his first mandate in 2017. While his modus operandi of making exaggerated threats to force concessions from his counterparties is now well rehearsed and understood by market participants, such threats cannot be completely ignored thus creating market reactions and corrections on a regular basis. Tariffs are a case in point, being already used as a pretext to extract concessions from countries such as Canada, Mexico, Columbia, China and the Eurozone. Investors will have to try and ignore some of the noise over the next four years, but volatility will be inevitable.

The most volatile part of the market in January were government bond yields, particularly longer dated ones. Concerns about potential inflationary impacts from US tariffs and trade wars, as well as fears about government debts and deficits in the Western world have spooked investors since Q4 last year but intensified in the days leading up to Trump’s inauguration. While a broad-based phenomenon, the UK was seen as particularly vulnerable given that the Labour government has struggled to regain control of the political agenda since its poorly received budget last October. The fiscal rules self-imposed by the chancellor also imply little room for manoeuvre in a scenario where debt costs run out of control. The yield on UK 30-year bonds (the interest rate the government will have to pay investors to borrow new long-term money) rose to the highest level since 1998, even higher than during the aftermath of Lizz Truss’ “mini-budget” in 2022, a comparison no chancellor wants to be associated with. The main difference between early January and then, however, was the fact that the recent pressure on bond yields occurred gradually as opposed to suddenly and was not specific to the UK. Later in the month, however, yields reverted to where they started the year giving the government some breathing room and investors some relief. This was driven by weaker than expected inflation numbers at 2.5% and, in a perverse “bad-news-is-good-news” thought process, weaker growth and retail sales figures, all of which increase the odds that the Bank of England will cut rates more aggressively this year (there was no meeting in January with the next meeting on 6^th February). This helped push UK equities to a new all-time high.

In other macroeconomic news, the US employment numbers surprised, once again, on the upside, while inflation remained broadly stable. This, as well as uncertainty about the future Trump policies and their impact on the economy, led the US central bank to keep its interest rates on hold in January, to the annoyance of the president who is pushing for lower rates. In the Eurozone, the European Central Bank cut interest rates by 0.25% for the fifth consecutive time since last summer, as data showed the economy stagnated in Q4 while inflation rates keep on falling. By contrast, the Bank of Japan increased its base rate as deflation pressures that plagued the country since the 1990s appear defeated.

Finally, at the end of the month, the world of Artificial Intelligence (AI) was shaken by claims from Deepseek, an AI chatbot from China, that it achieved similar results to those displayed by the US market leaders but at a fraction of the cost and time those spent on their models. The veracity of this announcement is still being assessed and its implications digested, but it was enough to shed billions of dollars from the main AI-related stocks’ valuations. The chip manufacturer Nvidia, then the largest company in the world following tremendous growth in the past few years, fell some 20% on the news. This illustrates how vulnerable some of the large US technology companies can be due to their lofty valuations, no matter how strong their fundamentals are, especially in a still nascent and competitive market. This scare could lead investors to look for more diversification in their portfolios to avoid the concentration risk inherent in global equity markets at present.

In January, the IFSL Wise Multi-Asset Growth Fund was up 2.7%, behind both the CBOE UK All Companies Index (+5.8%) and its peer group, the IA Flexible Investment sector (+3.6%). In the main UK equities market, larger companies which tend to be the most sensitive to global macroeconomic factors lifted the benchmark higher while small and medium-sized companies languished. This detracted from our relative performance because small companies are where we find the most valuation upside and we think are the most likely to benefit from the revival in corporate activity (mergers and acquisitions or M&A) which is showing the first signs of emerging.

On the positive side, however, our strongest absolute performer was the Jupiter Gold and Silver Fund, helped by a new all-time high in the gold price driven by fears that it might be impacted by tariffs from the Trump administration. Our strongest contributors to performance were our healthcare names, to which we have been adding on weakness for the past few months. Robert F. Kennedy Jr’s appointment as the head of Health and Human Services is not yet confirmed but his hearing in front of the Senate committee was, at times, intense. He appears to have downplayed his most controversial views such as his past anti-vaccine stance and it looks increasingly likely that, if confirmed to the role, his main preoccupation will be on the food side of his mandate rather than drugs. This helped with the general sentiment in the healthcare sector but the key performance driver for our names over the month was positive specific news flow. International Biotechnology Trust had his top holding ITCI (7% of the portfolio) acquired by Johnson & Johnson at a 40% premium, illustrating not only the strength of the stock selection from the managers but also a restart of M&A activity after a hiatus pre-US election. RTW Biotech Opportunities also announced strong results from clinical trials in one of its obesity drugs as well as in a cirrhosis drug. We continue to expect that the strong level of innovation, the cheap valuations on offer, and a sector-wide appetite to acquire competitors will deliver further attractive returns from our holdings in healthcare and biotechnology.

In terms of portfolio activity, the only change of note was some profit taking in our position in European Smaller Companies Trust after a sharp tightening of its discount.