USA, a bit less exceptional
February saw a sharp change in tone for markets. Share markets sold-off, led by the US as investors grew concerned about a slowing in US economic growth. This also drove investors to buy bonds, sending bond prices sharply higher last month. Milford’s diversified funds fared well through this volatility, outperforming underlying markets.
Conventional wisdom had it that the Trump administration would be very pro stock market. However, recent policy announcements on cuts to government spending and tariffs on major trading partners could weigh on economic growth in the short term, both in the US and further afield.
Policy uncertainty is starting to weigh on sentiment in consumers and corporates and investors are also becoming jittery. This concern gathered steam last month, sending US shares lower and US bonds higher.
Our Funds navigated this shift in a number of ways. Firstly, we tilted our Funds away from shares and into bonds at the start of the month, helping capture the swings in these markets over the month. Secondly, the mix of shares we own is very different to those in broad share market indices. Our tilt to the UK/Europe has paid off recently and last month delivered positive performance against the backdrop of falling global shares. For example, banks like NatWest Group (+10.6%), and Bank of Ireland (+17.8%) continue to deliver. It was also encouraging to see BT Group (+12.6%) outperform. Strong performers were seen in other regions too, US insurance broker Arthur J Gallagher rallied 11.9% and in Australia, energy infrastructure company APA rallied 8.2%. These picks helped cushion what was also a soggy month for NZ and Australian shares (down 3.0% and 3.8% respectively).
A slowing in US economic growth relative to the rest of the world coincides with wide share market pricing gaps. This provides plenty of opportunities as demand increases for previously overlooked and better value shares in other parts of the world, upending the status quo of the last two years. Milford funds continue to be well placed to take advantage of these opportunities.
Words: Mark Riggall
Video: Stephanie Batchelor
