- Multi-Asset class funds and portfolios all deliver positive returns
- Decisive Trump victory pushes US stocks to strong November
- Fixed income markets mostly higher
All the Liontrust Multi-Asset class portfolios and funds delivered positive returns in November.1 Global markets ground higher overall, with the US stock market seeing its best monthly performance so far in 20242 as investors responded positively to the smooth and decisive election of president-elect Trump and the Republicans in Congress. But emerging markets, Europe ex-UK and Asia Pacific ex-Japan weighed. Fixed income and commodities were mostly positive, although gold dipped following the US elections.
Trump impacts
The ‘Trump trade’ helped make the US the best-performing equity region in November, with higher risk assets, including equities and bitcoin, rallying. The conventional wisdom is that deregulation and tax cuts will be good for the stock market. JPM US Equity Income and CT American Smaller Companies were all performance highlights over November.
However, Trump’s policies were also expected to be inflationary – thereby undermining the real value of bonds. His plans for higher tariffs would raise the cost of imports and immigration controls would raise the cost of labour, while he is also expected to exert pressure on the Federal Reserve to lower interest rates.
This put upward pressure on US bond yields, although treasuries and fixed income generally strengthened over November in a falling rate environment: both the Fed and the Bank of England cut interest rates by a quarter point, which followed a similar cut by the European Central Bank in October.
An anaemic eurozone economy increases the likelihood of several further cuts by the ECB, although the US economy remains strong, increasing the chances of the Fed slowing its rate cuts. Leading fixed income contributors to our funds and portfolios over the month included iShares Corporate Bond Index, Man GLG Sterling Corporate Bond Professional, Vanguard Global Bond Index and Barings Global High Yield Bond.
UK is undervalued
UK equities also saw solid gains in November, with IFSL Evenlode Income, JOHCM UK Dynamic and Invesco UK Opportunities among our positive contributors. We believe the UK remains significantly undervalued on the global stage and politically, it looks like a haven of stability compared with its neighbours on the continent. However, the new government has painted a relatively negative picture of the economy so far and the risk is that the nation could talk itself into a recession. Latest data also highlighted the uphill task faced by the new government: third quarter GDP rose just 0.1%, below expectations and the second quarter figure of 0.5%.3
Another rate hike expected in Japan
Although Japanese stocks fell in domestic currency terms, they were a positive contributor in UK sterling terms because of currency movements. Japan’s yen weakened steadily through most of November, driven partly by the stronger dollar brought about by the ‘Trump trade’. But the yen strengthened towards month-end as investors bet that inflation data that had come in higher than expected would spur a hike in interest rates by the Bank of Japan.4 M&G Japan was a significant performer.
European instability
Europe ex-UK equities fell in sterling terms over November as politics in Germany and France became increasingly fragile and data depicted the economy as stagnant. Snap elections have been arranged for February in Germany while France faces months of instability following a national budget crisis. France’s borrowing costs briefly rose above those of Greece in November amid jitters that Michel Barnier’s government would fail to pass its belt-tightening budget.5 Europe’s top central bankers sounded the alarm over the state of the bloc’s economy, warning that political paralysis was damaging the economy.6 BlackRock European Dynamic and Barings Europe Select were poor performers over the month.
‘America first’
Asia Pacific ex-Japan and emerging market equities fell in November, especially the latter. We remain positive on the regions, not least because of their strong economic and demographic fundamentals, but their short-term outlook was not helped by the dollar and treasury yields rising on expectations that Trump’s policies of tax cuts and tariffs would drive US inflation higher.7 US tariffs could also reduce demand for EM exports, weakening their currencies and debt investors’ returns in dollar terms. Our emerging market holdings were among the poorest performers over the month, with negative contributors including Polar Capital Emerging Markets Stars among our poorest performers overall. Federated Hermes Asia ex-Japan Equity also weighed, but Fidelity Asia-Pacific Opportunities was a positive.
American exceptionalism
The US stock market has already reached record highs dozens of times this year, mostly driven by the mega caps that have dominated global markets for the last two years. There is also widespread and growing faith in ‘American exceptionalism’, or the strength of US financial markets and the country’s capacity to keep outperforming all other economies.8
The impending return of President Trump has clearly added to the sentimental appeal of the US. But investors should remember that one of his characteristics in his first term was that his policy decisions were not necessarily in line with his talk. The US is a proud democracy with lots of checks and balances and the rule of law, and there is a degree of tendency towards centrist outcomes because of the political process. Our investment process focuses on fundamentals and as such, we doubt that political machinations will have a material impact on the long-term prospects of major asset classes.
1Source: Financial Express, 3 December 2024
2Source: Bloomberg, 3 December 2024
3Source: ONS, 15 November 2024
4Source: Financial Times, 29 November 2024
5Source: Financial Times, 28 November 2024
6Source: Financial Times, 22 November 2024
7Source: Financial Times, 12 November 2024
8Source: Financial Times, 2 December 2024
KEY RISKS
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
The Funds and Model Portfolios managed by the Multi-Asset Team may be exposed to the following risks:
Credit Risk: There is a risk that an investment will fail to make required payments and this may reduce the income paid to the fund, or its capital value. The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay; Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss; Liquidity Risk: If underlying funds suspend or defer the payment of redemption proceeds, the Fund's ability to meet redemption requests may also be affected; Interest Rate Risk: Fluctuations in interest rates may affect the value of the Fund and your investment. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; Derivatives Risk: Some of the underlying funds may invest in derivatives, which can, in some circumstances, create wider fluctuations in their prices over time; Emerging Markets: The Fund may invest in less economically developed markets (emerging markets) which can involve greater risks than well developed economies; Currency Risk: The Fund invests in overseas markets and the value of the Fund may fall or rise as a result of changes in exchange rates. Index Tracking Risk: The performance of any passive funds used may not exactly track that of their Indices. Any performance shown in respect of the Model Portfolios are periodically restructured and/or rebalanced. Actual returns may vary from the model returns.
The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
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