MPS December Newsletter

Strategy Returns

The strategies delivered positive returns in November, led by exposure to US equity markets.

• This trend ensured the largest gains were seen at the higher end of the risk spectrum, where allocations are more pronounced – while sterling investors also benefited from the strength shown by the US dollar, which further bolstered headline index returns.
• Although absolute returns were strong, from a relative perspective the US equity allocation lagged over the period, in large part due to not owning Tesla – which has surged given its perception as a key beneficiary from higher China tariffs and Elon Musk’s increasing influence – but also off the back of weakness across names such as chipmaker AMD, pharmaceuticals giant Pfizer and life sciences tools and diagnostics manufacturer, Thermo Fisher.
• Elsewhere, the UK equity sleeve finished up broadly in line with the index. Bonds rallied in the wake of Central Bank cuts, while positive returns were posted by the strategies’ alternative investment holdings.

Activity

While we’re happy with our headline asset allocation positioning, with no desire to implement sweeping changes in this transition period ahead of January’s Inauguration, we did make some stock-specific adjustments throughout November.

• We trimmed Apple and added to our position in NVIDIA. We also adjusted preferences in the US energy allocation, trimming Chevron in favour of Exxon Mobil.
• In the UK we adjusted our mining exposure, adding to Anglo American at the expense of Rio Tinto, while in Europe we added to Kerry Group, the global supplier of food ingredients and solutions.
• Another area that has featured heavily in our thinking in recent years has been aerospace & defence, and regardless of the new administration's foreign policy intentions, which remain uncertain, our view is that global defence budgets are expected to grow. We therefore added to BAE Systems in the UK.
• Ashtead – which rents equipment to industrial and commercial customers and possesses a large US presence, was another name we topped up as a likely beneficiary of the new US administration’s core areas of focus.

Outlook

As we approach the end of a rewarding year for investors, much energy is being expended on anticipating the implications of a Trump 2.0 presidency. Fluctuating assessments of the impact the new administration will have on the global economic and geopolitical landscape – which pledges can be placed firmly in the campaign rhetoric category, and which will translate into highly influential policy – will doubtless lead to some market volatility into, and beyond, January’s Inauguration Day.

Clearly, initial conclusions drawn have been positive for US equities, although much depends on whether the benefits of tax reductions and a lightening of companies’ regulatory loads are overwhelmed by the negatives of a tariff-induced trade war, or the possibility of renewed inflationary pressures.

At the same time, it’s worth remembering that financial markets are inherently unemotional, and that political developments have historically been far less important than companies’ performance. We continue to see a reasonable backdrop for ongoing earnings growth, and attractive thematic and individual stock opportunities in which to invest. While cognisant of valuations, we believe that equities continue to offer attractive future returns, and therefore retain our tactical overweight to equity markets.

Fixed income – and specifically government bonds – have once again proved to be a more challenging segment of an investors’ portfolio this year. Small positive returns from the strategies’ allocations in 2024 mask strong gains from corporate bond holdings when compared to their sovereign counterparts, although the latter served investors well amid Q3’s wobbles regarding economic growth.

From a UK perspective, the Budget and US election could have offsetting impacts. The higher borrowing announced in the Budget, and potentially stickier-than-expected inflation, would suggest the Bank of England may need to pursue a slower path of rate cuts. However, the imposition of sizeable US tariffs and the adverse impact that would have on UK growth suggests a potentially faster rate cutting trajectory. At the headline level we remain modestly overweight fixed interest, with a bias towards sovereign debt given the historically tight spreads offered by corporate credit. Investors are being paid a relatively attractive return for owning developed government bonds, while we see them offering protection against both the prospect of a sharp recessionary environment or an unforeseen flare up in global tensions.

To summarise, we see the active management of clients’ portfolios playing an increasingly important role in 2025. While there has historically been very little discernible correlation between the political party of the president and returns on US equities — headline indices show remarkably similar returns under the previous Trump administration and the current Biden one – what does change is the composition of these returns. It is here – and indeed across other areas’ of a client’s portfolio – where our in-house research capability, coupled with our ability to implement change across our MPS portfolios in a granular, dynamic fashion, leave us confident in our ability to navigate the challenges – and identify the opportunities – that will undoubtedly emerge throughout the year.

May we take this opportunity to thank you for your ongoing support. We wish you a Merry Christmas, a very happy festive period, and a prosperous year ahead.