Wise Multi-Asset Income

The shift in investor sentiment around tariffs is best seen in the latest acronym, TACO (Trump Always Chickens Out), that has been coined on Wall Street to describe his trade policy negotiations. Whilst the initial Liberation Day position always looked likely to be a negotiating position from which to try and solicit trade deals more advantageous to the US, such a strong recovery in equity markets and the rapid shift in sentiment suggests an element of complacency might now have returned to markets. May also saw the announcement of a comprehensive US legislative package (the One Bill Beautiful Bill Act), which extends many of the 2017 tax cuts and provided further tax breaks, reduced Medicaid funding and increased spending on border security. Having seen the US stripped of its AAA rating (a score which signifies the highest level of credit reliability for a country) earlier in the month over concerns around the rising level of government deficit, the bill is unlikely to calm nerves as the likely impact will be to see the US budget deficit increase further. Elon Musk criticised the bill saying it undermined the work done by DOGE (Department of Government Efficiency) and stepped down from his role. Interest rates in the US were kept on hold with the US central bank highlighting risks both of higher unemployment and inflation had increased and that whilst sentiment was weak, economic activity remains strong.

In the UK, the Bank of England cut rates by 0.25% but stressed future interest cuts were less certain. Economic data has remained stronger than feared with consumer spending, average earnings, GDP growth and inflation all proving surprisingly resilient over the month. There was a raft of political announcements in May: a trade deal with both India and the US; a reset of the relationship with the EU post Brexit; and a U-turn over pensioner winter fuel payments. Whilst the trade deals arguably should boost the UK economy over the medium term, the increased spending associated with the winter fuel payments constrains the Chancellor’s room for manoeuvre and puts further pressure on her to raise taxes at the next budget. In the Eurozone, economic data came in stronger than expected helped by a one-off surge in exports to the US in anticipation of upcoming tariffs. In China, interest rates were cut and the amount of reserves needed to be held by banks were reduced in an attempt to support the economy.

In May, the IFSL Wise Multi-Asset Income Fund rose 4.0% ahead of its peer group, the IA Mixed Investment 40-85% sector, which rose 3.3%. Global equity markets all saw a strong relief rally in May as the fog of uncertainty around trade tariffs appeared to clear somewhat. This was reflected across our global equity funds with notably strong performance coming from our UK focussed equity managers with a bias towards more domestic mid- and small-sized companies. We also saw strong performance from our direct equity holdings, Legal & General and Paragon. Middlefield Canadian Income was particularly strong as underlying strong performance at the net asset value (NAV) level was compounded by a narrowing of its discount. As a result of an activist shareholder attracted by the persistently wide discount, the board has offered investors the opportunity to exit their holding close to NAV or rollover into a new vehicle that should trade much closer to NAV. The thawing of relationships between the US and China also boosted our commodity holdings, Blackrock World Mining and Blackrock Energy & Resources. Property holding, Urban Logistics, received a formal offer from London Metric and performed strongly benefitting from solid full year results from London Metric themselves. The terms of the offer mean that the majority of our holding will be rolled into London Metric shares so it is encouraging to see them deliver continued strong operational performance. The only significant detractor to performance came from the International Biotechnology Trust as the Trump administration focusses on trying to reduce prescription drug pricing and personnel changes at the Food & Drug Administration, the pharmaceutical regulatory body, caused some concern around the economics of new drug development. Increased innovation, patent cliffs at large pharmaceutical companies and historically low valuations in the sector, however, provide a more supportive backdrop for the sector.

We initiated two new holdings in the month. Workspace is a property company focussed on flexible office space in central London. The company has suffered from a cyclical downturn as a number of tenants have vacated larger units in their estate. As a result, earnings have fallen, however, a covered yield of 7% appears to offer an attractive point into the company that should be well-placed to see its earnings recover over the next couple of years as these larger units are sub-divided and re-let at higher rents. We also added the Odyssean Investment Trust to the portfolio. The trust holds a concentrated portfolio of small companies where it believes there is an opportunity to unlock value through operational improvements and strategic focus. The trust has a skew towards high quality global, industrial companies which have experienced some cyclical weakness as well as a derating around tariffs. However, historically low valuations suggest now is an attractive entry point as many of the near-term headwinds appear to have already been discounted by investors. We funded these purchases by trimming holdings that have performed strongly, namely Ecofin Global Utilities & Infrastructure, Fidelity Special Values, Helical, Paragon and Urban Logistics.