Markets remained focused on inflationary pressures, geopolitical tensions and the implications of rising global defence spending for investors and asset allocation.
Despite ongoing concerns about potential trade escalations, particularly as President Trump continues to issue new tariff threats daily, financial markets have shown resilience, with performance over the last week remaining relatively stable.
We view tariffs as one element of increasing inflationary pressures that will likely define a very different decade ahead for investors. In this context, US inflation rose to 3% in January, surpassing economists' predictions and putting additional pressure on interest rates. The Federal Reserve, which has been cautious about rate cuts, now has even more reason to maintain its current stance, and fewer rate cuts are anticipated this year than previously thought.
Contrary to the prevalent "Make America Great Again" rhetoric, non-US equity markets have generally outperformed the US so far this year, which has been supportive for the equity positioning of the T. Bailey funds.
Indeed, contrary to earlier pessimistic forecasts, the UK economy demonstrated unexpected growth in the last quarter of 2024 – albeit marginally. This positive surprise, driven by stronger performance from services and construction sectors, strengthened the pound and injected a small dose of optimism into the UK equity market outlook.
However, the standout performer across major asset classes so far this year has been gold, which has continued to reach new record highs and is up 10% year to date in sterling terms. This has benefited the T. Bailey Multi-Asset Funds, each of which has a 4.5% allocation to the iShares Physical Gold ETC.
The 2025 Munich Security Conference held over the weekend highlighted another source of inflationary pressures alongside growing tensions between the US and European allies. European defence spending will have to rise as global defence policies and industrial strategies adjust to greater isolationism by the US. The First Trust Nasdaq Cybersecurity UCITS ETF, referred to in last week’s update, is one beneficiary of this transition to a multipolar world and we continue to look for suitable opportunities across industrial names for the T. Bailey portfolios around this theme.
