Wise Multi-Asset Income

Whilst this flurry of activity was significant, the two key areas markets are focussed on are what level of tariffs will be imposed on the US trading partners and how the Federal budget deficit will evolve over this presidential term. Over the month investors were encouraged that threats made to impose blanket 60% tariffs on Chinese imports during the election campaign were scaled back to 10% and took heart that perhaps the threat of a full-scale global trade war was merely a means to extract concessions, such as Canadian and Mexican military personnel to protect the US border. Uncertainty, however, prevails over the question of tariffs with the month ending with threats of 25% tariffs on Mexican and Canadian imports and 10% on those from China.

The US continues to perform strongly with the economy delivering GDP growth in 2024 just shy of that delivered in 2023 (2.8% vs 2.9%). This was far stronger than expected at the start of the year driven by healthy labour markets and strong consumer spending. Payroll figures at the start of the month did not show any sign of weakness and with inflation sitting well above the Federal Reserve’s target rate of 2%, it came as little surprise that the central bank kept rates on hold and signalled rates would remain so until they had had time to assess the potential inflationary impact of raising trade barriers, cutting taxes and limiting immigration. This was a marked contrast to both the Eurozone and the UK. The Eurozone economy stagnated in the fourth quarter of 2024 and, despite some stickier than expect inflation data, drove the ECB to cut interest rate by a further 0.25%, their 5^th cut since last summer. The situation facing the Bank of England is somewhat trickier. Despite clear signs the UK economy is weakening, persistently high levels of inflation are restricting the Bank of England’s ability to inject a boost to the economy by cutting interest rates whilst higher levels of government borrowing than expected are pushing up yields on longer-dated government debt. GDP figures announced showed the UK economy barely grew (0.1%) in November and payrolled employment fell whilst retail sales unexpectedly contracted in December. The prospect of imported inflation from US tariffs and higher UK borrowing than expected in December pushed up long-term borrowing costs with 30-year government bond yields surpassing the level seen in the aftermath of the Liz Truss budget. There was, however, some respite towards the end of the month as inflation data for December came in slightly below expectations and provided some optimism that the Bank of England will be able to cut rates at its upcoming meeting. Elsewhere, Japan increased interest rates as economic activity, inflation and wage growth no longer justified abnormally loose monetary policy. China announced that it had hit its target of 5% GDP growth in 2024, however, subdued price growth both for consumers and manufacturers points to an economy struggling to grow.

Beyond economic news, a ceasefire was agreed between Israel and Palestine. In addition, from a corporate standpoint investors were surprised by an announcement from Chinese Artificial Intelligence company, Deepseek, that its AI model was able to deliver comparable results to US rivals, OpenAI and Meta, but at a fraction of the cost. This spooked investors given the narrowness of recent market performance and saw many AI-exposed names fall significantly as the validity of the company’s claims are interrogated.

In January, the IFSL Wise Multi-Asset Income Fund rose 2.5%, behind its peer group, the IA Mixed Investment 40-85% sector, which rose 3.3%. Hopes that Trump’s bark was going to be worse than his bite when it came to tariffs as well as more confidence that the European Central Bank and the Bank of England were in a position to cut interest rates buoyed global equities. Our financial holdings were notably strong helped by a more optimistic assessment for the outlook for global growth as well as positive trading update from Paragon, a specialist lending company, which pointed to healthy new business volumes and better than expected margins and arrears. This positive sentiment was shared more broadly by our equity, private equity and commodity funds. Sentiment, however, towards UK smaller companies remains weak given the economic pressures faced by domestic companies, notwithstanding a pick-up in mergers and acquisitions seen in recent months. We received positive news from our specialist biotech holding, International Biotechnology Trust, which announced a bid for its largest holding, Intra-cellular Therapies, at a 40% premium. This is the third time in recent years the trust has seen its largest holding subject to a takeover and reflects the pressure faced by large pharmaceutical companies to replenish their pipelines as existing drugs face the expiry of patent protection. Similarly, Pantheon Infrastructure announced its first portfolio disposal of electricity generator, Calpine, at a healthy premium to net asset value. The main drag on performance over the month came from our core infrastructure holdings where intra-month volatility in 30-year bonds saw shares in the sector fall but not recover despite bonds having recovered all their losses by the month end.  

Over the month we trimmed a number of holdings which have performed strongly. Notably we trimmed abrdn Asian Income, CT Private Equity, Blackrock Energy & Resources, Middlefield Canadian Income and Polar Capital Global Financials.