Wise Multi-Asset Growth

From a financial markets standpoint, November was thus dominated by investors trying to figure out the impact the re-election of Trump will have on assets. At the onset, it seems clear that caution should be used in copying the playbook from Trump 1.0. His victory in 2016 came as a surprise to most (probably him included) and led him to surround himself with experienced politicians who, in turn, tried to reign in on his most excessive plans. Trump 2.0 by contrast won a majority of the popular vote (from voters who know the character and ideas of the man they voted for), has a majority in Congress as well as a strong grip on the Republican party, and is much better prepared. As a result, President-Elect Trump has quickly made announcements on his nominees for top governmental roles, many chosen for their personal loyalty rather than their expertise, which means the new administration should be fully operational by 20^th January 2025 when he is officially sworn in. The key items on Trump’s agenda for his second term include tariffs –as a means of reducing trade deficit (the difference between goods and services imports and exports)-, corporate tax cuts –likely to come in the second half of 2025- and combating illegal immigration. The wars in Ukraine and the Middle East will also be top of his priorities, as will his desire to support the US fossil fuel producers. On all of those topics, however, it is very difficult to forecast exactly what policies will be articulated and how they will be implemented. The only certainty is that Trump is an unconventional President who likes to destabilize his interlocutors in order to negotiate deals, making it hard to discern between posturing and genuine convictions. Investors should thus brace themselves for another 4 years of headline-induced volatility and should be prepared to look through the inevitable noise.

Even with the uncertainty regarding his future plans, economists and market participants anticipate Trump’s policies to add to the US debt and deficit, as well as being potentially inflationary. This is likely to make work harder for the Fed (the US central bank) who cut interest rates by 0.25% immediately after the election. The inflation figures for October that came out later in the month were ahead of expectations and higher than in September, meaning that the Fed might pause its cuts shortly by fear of overstimulating the economy through easier financial conditions at a time when the economy remains robust. Worries about the growing government debt level and an unsustainable deficit also contributed to higher bond yields, from 3.6% mid-September to 4.5% post-election in the 10-year bonds.

Elsewhere, the UK continued to grapple with the aftermath of the Budget with an increasing number of businesses, mainly in the retail and hospitality sectors, raising concerns about the combined costs of the National Insurance and minimum wage increases. Like in the US, the Bank of England cut interest rates by 0.25% but, like in the US, its future actions are less certain as it predicted that the Budget will lead to a short-term increase in both inflation and growth. Meanwhile, the backward-looking inflation data released during the month showed an acceleration to 2.3% in October versus 1.7% in September due mainly to higher energy prices, although core inflation (inflation stripped out of energy and food costs) was also marginally higher.

The European political malaise deepened with the twin engine of Germany and France diving into crisis. In Germany, the Chancellor put an ended the coalition which will lead to new elections in the first quarter next year. Meanwhile, its car manufacturing industry, already struggling to compete with cheaper Chinese electric vehicles, is now facing the threat of tariffs on exports to the US. Representing 10% of manufacturing jobs in the Eurozone, the car industry is critical to the region. In France, the government remains at risk of collapsing too as the coalition faces opposition to its proposed budget.

Finally, the Chinese authorities announced more detail on their stimulus plans which failed to immediately excite investors, but it is likely that the government is keeping some powder dry ahead of tariffs negotiations with the upcoming Trump administration.

In November, the IFSL Wise Multi-Asset Growth Fund was up 0.5%, behind both the CBOE UK All Companies Index (+2.7%) and its peer group, the IA Flexible Investment Sector (+2.7%). The month was one of contrast between the perceived winners under the upcoming Trump regime and the losers. As such, US equities performed the strongest, which hurt us compared to our peer group because we are underweight the region due to its high valuation and concentration risk. Our holdings exposed to countries at risk of new tariffs suffered, mostly in Asia and Emerging Markets, as well as BlackRock World Mining due to concerns about China and the impact of tariffs on global growth. The Jupiter Gold & Silver Fund was also a detractor, following gold lower after the result of the US election. Finally, UK equities, particularly smaller companies, struggled in the aftermath of the Budget, hurting our positions in Aberforth Smaller Companies and Odyssean. It is worth noting that mergers and acquisitions (M&A) are accelerating in the UK though post-Budget as international and private buyers try to take advantage of attractive valuations. This should benefit our positions in the region over time.

It was a busy month in terms of portfolio activity. We added two new positions in misunderstood investment trusts which should eventually see their strong returns in Net Asset Value (NAV) complemented by a tightening of their wide discounts. Firstly, Pershing Square, a concentrated portfolio of quality, predictable and attractively valued large US companies trading at 35% discount despite an exceptional 21-year track record. The idiosyncratic drivers of the portfolio, away from the expensive technology companies driving the US market, and the wide discount create an interesting means of adding to our US equity exposure with some margin of safety. The second new position is RIT Capital Partners, a portfolio of global public and private companies combined with some downside protection strategies. The trust suffered in the past from a lack of transparency and concerns about valuations of its private portfolio but we believe changes in management over recent months should reassure investors and lead to a normalisation of the discount to reflect the consistent NAV performance.