Wise Multi-Asset Income

The main market focus in February returned to trade policy as the US Supreme Court ruled that President Trump exceeded his authority in applying many of the tariffs last year and that approval from Congress should have been sought. The ruling did not opine on the legality of corporate refunds for tariffs already paid, however, it calls into question over $150bn of tariff revenue that’s already been paid and opens the door to corporate lawsuits to claw back historic tariff payments. The administration was quick to respond, imposing temporary blanket 10% tariffs that can last for 150 days without Congressional approval, however, the policy appears ill-considered as its impact looks set to punish more accommodative countries pressured into signing trade deals last year compared to countries, notably China, with higher trade deficits that were reluctant to come to the negotiating table. A report from the Federal Reserve (the US central bank) published over the month, however, showed that circa 90% of the tariff costs were borne either by US firms or consumers rather than international exporters which is starting to weigh on President Trump’s popularity as we head towards the mid-term elections later this year.  On the economic front, stronger payroll and employment data in the US as well as signals from the Federal Reserve that it remains concerned about inflation has kept expectations of further interest rate cuts in the near future at bay. However, weak consumer confidence and a slowdown in reported economic growth in the final quarter of the year provide some evidence that the outlook may be starting to slow. In the UK, the economy barely grew in the final quarter of last year (0.1%), however lower inflation than expected provides the Bank of England with more headroom to continue cutting rates over the course of the year. This will come as a welcome relief to the government that suffered a humiliating by-election defeat ahead of local elections and keeps the political pressure on Prime Minister Starmer. Finally, in contrast to the political fragility in the UK, Japan’s Prime Minister Sanae Takaichi won a landslide election driving equity markets to record highs as investors welcomed political stability and the promise of higher government spending and lower consumption taxes on food.

From a market perspective, the dominant theme throughout the period was the scale of investment in artificial intelligence (AI) infrastructure and growing investor unease about whether returns will justify the extraordinary levels of capital expenditure.

Major technology companies unveiled unprecedented spending plans and investor concerns grew over the extent to which this was now being funded out of debt rather than corporate profits. Nvidia, the central supplier of AI chips, remained the bellwether for the sector, reporting surging revenues but failing to fully reassure investors worried about the sustainability of the AI boom. The biggest shift investor sentiment, however, has been towards the software sector once seen as a reliable source of compounding revenues but now seen as vulnerable with AI model improvements threatening to replicate incumbent software programmes, particularly commoditised offerings with limited proprietary data that are not deeply embedded in the workflow of their customers.

In February, the IFSL Wise Multi-Asset Income Fund rose 3.2%, ahead of the IA Mixed Investment 40–85% sector, which gained 3.1%. February marks the end of the financial year of the fund over which time the fund has risen 27.2%, ahead of the peer group which rose 14.5%. The distribution per unit for the B Income share class has risen 10% (final dividend to be confirmed). Over the course of the year, we have rotated the exposure of the fund towards more defensive, higher yielding holdings which should see continued strong growth in the distribution. For the year ahead, we currently forecast a yield on the fund of 4.9%, which should provide a solid foundation to future performance over the medium term. Over the month, our infrastructure holdings were the strongest contributors to returns helped by falling government bond yields and a recognition that a key constraint to the pace of the rollout of AI capital expenditure plans will be power generation and electricity grid capacity. HICL Infrastructure, Ecofin Global Utilities and Infrastructure and International Public Partnerships were strong performers as was Bluefield Solar Income, where expectations that the formal sale process for the company remains on track. February saw strong performance from equity markets outside the US as investors continued to rotate towards less expensive, less technology dominated international markets. Our UK, Canadian, Emerging Market and Global Value equity holdings all performed strongly. Our commodity holdings also performed very strongly as gold rebounded following a sharp fall last month on the appointment of the next Chairman of the Federal Reserve whilst oil prices rose as tensions over Iran mounted. Our property holdings also performed well with Picton Property Income confirming takeover interest from LondonMetric whilst Helical announced funding for its Paddington development and the profitable forward sale of a student housing development. Our Private Equity holdings were the major detractors over the month as concerns around their software holdings led to discount widening.

Over the month, we continued to reduce our commodity exposure given the strength of recent performance. Similarly, we reduced our holding in Ecofin Golbal Utilities and Infrastructure. We added to our renewables holdings, Foresight Environmental Infrastructure and Renewables Infrastructure Group as well as increasing our equity holdings in Prusik Asian Equity Income, Man Income Fund and Brickwood Global Value. Our cash position remains relatively high at over 5%.