Wise Multi-Asset Income

The Bank of England kept rates on hold despite economic growth which flatlined in the third quarter and also unexpectedly contracted in October. UK inflation accelerated in November to 2.6% whilst wage growth of 5.4% came in well above the Bank of England’s forecast, highlighting the challenge faced by the Central Bank as it grapples with persistent price pressures and a stagnating economy. A similar problem faces the Chancellor whose recent tax and spend budget, with its focus of increased National Insurance and a higher Minimum Wage for business, has been blamed for the sharpest drop in manufacturing confidence since Covid. With government spending committed, reduced tax receipts from a slower than forecast economic growth is likely to see budget deficits deteriorate and increase pressure on the government either to reduce spending plans or increase taxes further. The Eurozone is suffering similarly weak economic growth, however, inflationary pressures remain more benign, affording the European Central Bank the opportunity to cut interest rates by a further 0.25%. This relative divergence in interest rates saw sterling reach its highest level against the Euro since the Brexit referendum. Elsewhere, China changed its stance on monetary policy to “moderately loose” from “prudent” for the first time in 14 years, sending stocks and bond prices higher as investor confidence grew that policymakers were taking the weak economic situation more seriously.

The unpredictable nature of global politics was clearly evident over the month and highlights how fragile and uncertain a consideration this remains for investors as we enter 2025. In December, the French prime minister was replaced, Germany is headed for elections after Chancellor Scholz lost a vote of confidence whilst the resignation of Canada’s finance minister looks set to topple prime minister, Justin Trudeau. The President of South Korea was removed following a short-lived declaration of martial law whilst the rapid collapse of the Al-Assad regime in Syria looks set to reframe the political landscape in the Middle East.

In December, the IFSL Wise Multi-Asset Income Fund was down 1.5%, behind its peer group, the IA Mixed Investment 40-85% sector, which fell 1.1%. The biggest detractors to performance came from our most interest rate sensitive sectors, property and infrastructure. Company specific news flow was limited but where companies updated the market, the news was generally positive. HICL Infrastructure’s largest holding, Affinity Water, received a positive final regulatory determination from the OFWAT, the Water Regulator. A higher allowable return as well as total allowed expenditure over its next regulatory period should allow both for an uplift in net asset value as well as improved coverage of its dividend. Pantheon Infrastructure announced a positive quarterly net asset value return, which means the company has exceeded the top end of its annual targeted return range within 9 months. Despite this, discounts to net asset values widened across our infrastructure and property holdings as the market responded to higher bond yields. Despite inherent inflation protection, International Public Partnerships, Ecofin Global Utilities and Infrastructure, Empiric Student Property, Urban Logistics and Helical all fell. The second area of weakness was our commodity holdings, Blackrock World Mining and Blackrock Energy & Resources, as markets digested weak economic growth in China and the prospect of a more uncertain global economic outlook as monetary policy remains more restrictive and the threat of tariffs looms. In general, our equity funds performed well as did our private equity holdings, CT Private Equity and ICG Enterprise. Paragon provided an excellent full year results update although its share price was relatively unchanged over the month.  There was, however, a notable widening in the discount at Middlefield Canadian Income as an activist investor who has been supporting the share price in recent months closed in on the natural limit of its allowable holding of close to 30% of the company. Whilst this removes the largest marginal buyer of the shares, we now wait to see how this situation develops and whether the intention is to force the board into a managed wind-down of the trust which has now returned to a greater than 10% discount to net asset value.

Over the month, we switched within our commodity fund holdings due to their relative recent performance as well as their relative discounts and liquidity. We trimmed our holding in Polar Capital Global Financials, following a strong period of performance for the Trust, notably in the aftermath of the US presidential election, whilst topping up our holdings in the Aberforth Smaller Companies and Urban Logistics where performance has been weak.