Wise Multi-Asset Income

Inflation came in somewhat stronger than expected and GDP growth in February of 0.1% suggests we are emerging from a short technical recession (two quarters of negative economic growth) at the end of last year. However, Andrew Bailey, Governor of the Bank of England, remained relaxed declaring efforts to tame inflation were pretty much on track with their central forecast. His optimism stems from the belief that inflation in Europe has been driven more by supply chain shocks that should normalise rather from the strong demand experienced in the US. The impact of the stronger US data was to see nearly two anticipated US interest rate cuts this year removed from investor forecasts compared to one in the UK and Eurozone. As a result of anticipated higher interest rates, the month saw the strongest weekly strengthening of the US dollar for nearly two years. Elsewhere, China delivered better GDP growth than feared although consumer price inflation of 0.1% and negative growth in producer prices show that the economy is now grappling with outright deflation, in stark contrast to the rest of the world.   

US equity markets, which have got off to a strong start to the year, finally succumbed to the more cautious expectation for monetary policy. Whereas previously investors were happy to focus on the fact the economy looked set to avoid the recession such steep interest rate rises normally deliver, over the month equity markets fell to reflect the higher cost of money. With the exception of Japan, equity markets elsewhere made progress. Asian emerging markets and China were lifted by better-than-expected economic growth in the region and bounced off cheap valuations. Similarly, signs that a period of economic weakness in the UK was behind us, positive company earnings announcements and continued corporate takeover activity delivered strong performance from UK equity markets over the month. Bond markets were weak, extending their negative performance year-to-date, as the quantum and timing of interest cuts were pushed back. Commodity markets were strong over the month with constrained supply and robust demand lifting the price of copper. Meanwhile, gold asserted its safe-haven status and was buoyed by retail demand and central bank purchasing.

In April, the IFSL Wise Multi-Asset Income Fund rose 2.7%, ahead of the IA Mixed Investment 40-85% Sector, which fell 0.7%. Our commodity holdings were the strongest performers over the month reversing some of the weakness they have experienced over the last year. Strong net asset value performance, a proposed mega merger in the sector between BHP and Anglo American coupled with a narrowing of wide discounts saw Blackrock World Mining and Blackrock Energy & Resources deliver strong returns. Our equity funds delivered strong performance reflecting the strength of their relative markets, mergers and acquisitions (M&A) and the outperformance of managers with a value style over the month.  Aberforth Smaller Companies, Fidelity Special Values and Man GLG Income in UK produced strong returns, as did Abrdn Asian Income and Murray International. All of the investment trusts saw their abnormally wide discounts to NAV narrow, further boosting returns.

Our infrastructure holdings were a source of positive returns. Ecofin Global Utilities & Infrastructure delivered good underlying Net Asset Value growth in the month whilst the appearance of an activist shareholder on the share register led to its anomalously wide discount narrowing. GCP Infrastructure performed strongly as it announced the disposal of its interest in the Blackcraig Wind Farm at a 6% premium to the latest valuation. Having started the month trading at a 34% discount to net asset value, this transaction helps demonstrate the underlying value in the portfolio and marks the start of the recently announced capital policy to dispose of £150m of assets (15% of the portfolio), to pay down debt and return at least £50m to shareholders. Despite this positive news, the discount at the month end remained at a highly attractive 29% There was a similarly positive annual results update from Pantheon Infrastructure detailing how the underlying portfolio of privately held infrastructure assets are performing ahead of initial expectations. In both cases, the implied returns that these portfolios should deliver to shareholders over their life are over three times higher than that currently available from 10-year UK government bonds. Performance from our property holdings was positive although not uniform. News flow, however, from the property companies themselves remains supportive. In the industrials subsector, Urban Logistics reported increased occupational activity with significant rises in rental rates as well as evidence that valuations are stabilising. Abrdn Property Income disposed of two properties at a premium to book value and confirmed that a vote would be tabled this month to approve the orderly wind-down of the company. Helical, a London focussed office specialist, reported on continued lettings momentum at rental values exceeding those used by its valuer. Good interest is being shown in its remaining vacant space and on the development side they anticipate signing a joint venture partner for a best-in-class office development at 100 New Bridge Street. The average discount of over 30% on our property holdings coupled with a positive outlook for rental growth should provide a significant margin of safety in the face of higher interest rates.

Over the month, we sold our holding in TR Property, which has performed strongly and seen its discount narrow, as well as trimmed some of our UK equity holdings, which have seen strong recent performance.