March MPS Update

Latest market activity

Global stocks extended their rally in February, with US equities continuing their strong recent outperformance of other markets. Large tech companies were at the forefront of this advance following a series of positive earnings updates. For example, Nvidia delivered a stellar set of results, and posted the largest daily increase in market capitalisation in history in response to become the third-most valuable US-listed company after Apple and Microsoft.

Outside the US, Japanese equities also performed well, with the Nikkei 225 surpassing its previous all-time high for the first time since 1989. Chinese equities also enjoyed a positive month, albeit after a protracted period of weakness, driven by a combination of positive economic data and government policy designed to bolster investor confidence.

UK stocks continued to lag both its US and European counterparts, posting a small gain in February. A higher representation of so-called value stocks and minimal exposure to the burgeoning tech sector has continued to weigh on the UK market, with the announcement that the economy entered a technical recession in the fourth quarter of last year doing little to bolster sentiment.

Strategy Returns

As in the previous month, there was a variety of outcomes with more risky strategies profiting from positive stock market returns, and the models with the most global exposure achieving the biggest increases. In contrast, we saw broadly flat to slightly negative returns down the lower end of the risk spectrum, with equity gains offset by bonds exhibiting further weakness.

Gilts have fallen around 3.5% in the first couple of months of the year, following the huge surge seen in Q4 of 2023. We remain optimistic about the outlook for high quality sovereign debt. We think that the market prices for the future path of interest rates are now more sensible, after being too extreme at the end of last year.

In addition, at the Building Block fund level, it’s pleasing to see strong relative performance from the North American Equity fund, with the allocation over 1% ahead of the wider market, driven overwhelmingly by stock selection.

Building Block Activity

North American Equity Fund:

• We adjusted our exposure to stocks within the Semiconductor industry, exiting our holding in Micron and allocating the proceeds to AMD and NVIDIA. We remain constructive on the outlook for both companies, but our larger ‘active position’ is to AMD, where we see the opportunity for further upside as the market reappraises its view on the company’s potential.
• We exited our position in railroad company Union Pacific, rotating the exposure to Canadian Pacific Kansas City as our preferred holding in the industry. Canadian Pacific owns and operates commercial rail roads, predominantly in Canada, the East coast of the United States and Mexico. Crucially, it is the only railroad to operate a single line across three countries, and we believe this offers exciting growth opportunities for the company. More broadly, we are positive on the investment thesis for railroad companies as a whole. We will go into further detail on the impact of recent geopolitical events on company supply chains on our upcoming ‘In The Loop’ vlog.

UK Equity Fund:

• We added a new position in the Janus Henderson UK Smaller Companies Fund within the UK allocation. We trimmed our allocation to the Vanguard FTSE 250 ETF position in the process, resulting in a tilting of exposure down the market cap, as opposed to a wholesale shift. Given the significantly unloved nature of this segment of the UK stock market, we think this is an opportune time to add to exposure for long-term investors.

You can find out more about our MPS strategies, and how we executed them this March, on our YouTube channel.