MPS November Newsletter

MPS Strategy Performance

The MPS strategies delivered a mixed set of returns over October, particularly in the medium to low-risk portfolios.

• Our equity allocations produced varied returns, with the UK and Europe experiencing difficulties, while our US allocation performed strongly for a sterling-based investor, generating 2.5% return for our highest risk strategy.
• Bond weakness led to minor losses for the lowest risk portfolios over the month, while medium-risk strategies remained stable, posting very slight gains of less than half a percent.
• Our alternatives allocation had a generally neutral return this month, leading to subdued returns for medium risk strategies.

Trading Activity

We made several changes to the strategies in October.

• In the UK, we have exited our holding in DS Smith, which is soon to finalise its merger with International Paper, the US-based paper and packaging firm. We redirected the funds from this sale to increase our investment in Segro, a UK industrial landlord that owns various distribution centres, data centres, and industrial warehouses across the UK and Europe. Segro is expanding and has been able to achieve close to 8% rental yields on their new projects. With the macro-economic conditions for property improving, yields decreasing, and property values stabilizing, Segro appears to be well-positioned to benefit.
• In Europe we added to one of our existing financial holdings, Partners Group, the asset manager that is primarily involved in private markets, private equity, private real estate and infrastructure, and private debt. These are profitable channels that attract performance fees when markets are strong, and typically have longer lock in periods with clients which helps with retention during difficult markets. After facing challenges in 2022 and showing partial recovery in 2023, the stock has now stabilised. We believe their strong profitability and growth prospects make them a compelling investment within the asset management sector.
• In the US, we reduced our TSMC holding from 3% to 2% due to overlapping exposure in our Asian and Emerging Market Equity funds. We remain confident in the stock, bolstered by strong earnings growth driven by data centre and AI demand, but are careful to manage concentration risk. Most of the proceeds were allocated to increase our Nvidia position and other existing holdings.
• Lastly, we sold some of our 2028 gilts and bought 2034 gilts in our Conservative Fixed Interest fund to increase the gilt duration to the high 4s. We did this in late October to secure better yields of around 4.5%, as yields rose due to the Budget.

Outlook

Given the outcome of the US presidential election there may be some new policies for markets to digest over the coming months. Overall, we’re comfortable with how the portfolios are positioned –overweight equities and bonds, capturing the earnings growth that equity markets are delivering whilst also protecting from a possible economic slowdown and generating income yield for our medium and lower-risk clients with that bond overweight.

Despite some inflationary political policies in the UK and US, inflation is continuing to fall, and we expect central banks to keep lowering interest rates over the next 12 months as they seek out a neutral non-restrictive level that facilitates economic growth without reigniting inflation. If we get to that soft-landing, we should see investment portfolios perform well across the board.