MPS February Newsletter

Strategy Returns

The strong global equity market returns, coupled with a positive month for gilts and credit, meant all of our MPS strategies had a decent month.

• Notably, a broadening out of returns beyond large US technology companies. Recent earnings out of Europe, particularly luxury goods company Richemont who saw their sales grow 10% year-on-year despite weak expectations, led to the stock returning over 30% in January. This also sparked some improved sentiment for the other luxury goods companies in Europe like LVMH – these two companies make up 5% of our European Building Block in total.
• Therefore, the best returns were at the top end of the risk spectrum, just over 5% for the month, with medium-risk portfolios achieving 3%-3.5%, and lower-risk portfolios seeing 1.5%-2% returns.

Trading Activity

In January we rebalanced the MPS strategies to ensure all clients align with model allocations as our last rebalance was in August. We increased our allocation to fixed interest to secure higher yields and address the potential under-pricing of the likelihood of rate cuts from the Bank of England at the beginning of the year. We made slight adjustments to our equity allocations in anticipation of volatility during President Trump's initial weeks in office, incrementally trimming Asian and European exposures, and adding to cash to be prepared for potential opportunities.

• In the UK, we adjusted our property allocation, trimming industrial and logistics landlord SEGRO and initiating a new position in British Land, one of the UK's largest Real Estate Investment Trusts (REITs) with a portfolio that is focused on prime retail locations and Central London offices. This reflects our strategic preference for premium London spaces at attractive valuations amidst recent market weakness in the property sector.
• In Europe, we also added to our position in Gecina, a leading office real estate company, and increased our position in the JP Morgan European Smaller Company Fund, supporting our view of a broadening out of returns as small companies benefit in a rate reduction environment. This was funded by reducing our positions in pharmaceutical company, Novo Nordisk and Nestle.
• In the US, we reduced our exposure to Canadian Pacific Kansas City due to potential tariff impacts and also trimmed our holding in Microsoft. This funded an increase in Salesforce, which continues to show strong growth prospects and serves as a diversifier within the technology We also increased our exposure to the lower end of the market cap spectrum via the Artemis Smaller Companies Fund, which stands to benefit from Trump’s preference for domestic companies.

Outlook

January’s news has not significantly shifted our views. Despite the daily headlines from America and the volatility that comes with it, strong earnings have driven equity market returns so far this year. We are closely monitoring the technology market since the DeepSeek news but do not see it as an existential threat to our semiconductor investments in the short term. Some of that pricing for perfection has fallen away as there’s a longer-term risk, but in the meantime the large cap technology companies like Meta, Microsoft and Google are still investing billions of dollars of capital expenditure into their AI infrastructure and we don’t see that changing soon. Lastly, we remain optimistic about both equity and bond markets for 2025 and are hopeful for a series of rate cuts from the Bank of England.