News of a trade deal between the US and China reduced the odds of a recession, sparking a rally in risk assets. The S&P 500 rose 5.4% in sterling terms, supported by another strong earnings season, with year-over-year earnings in Q1 growing 12.9%, beating the market’s expectation of just 6%.
European equities continued their strong performance year-to-date, rising 4.1% last month. Our allocation to the iShares European Value fund outperformed, returning 5.1%. In the UK, improving economic data and a further 25bp rate cut from the Bank of England – bringing interest rates to 4.25% – contributed to another strong month for domestic companies. Our allocation to the Vanguard FTSE 250 fund rose 6.4%.
Whilst equities performed well, it was another challenging period for bond investors, as concerns around government fiscal largesse and spending policies were back in the spotlight. The announcement of the ‘Big Beautiful Bill’ in the US – best described as ‘Front loaded tax cuts and back loaded spending cuts’ pushed US Treasury yields higher, with the 10yr yield climbing above 4.5%. We maintain an underweight position in fixed income, and, though short dated corporate bonds once again demonstrated their resilience. Our position in the iShares Ultrashort Bond fund helped offset some of the volatility in Government Bonds.
Within our Alternatives allocation, the iShares UK Property fund benefited from an improving UK outlook, rising 3.1%. Meanwhile, our rate focused strategies within Diversifying Assets performed well in a challenging environment. Our momentum focused strategy – which seeks to capitalise on rising price trends – was up 2.3%, while our carry strategy – which goes long on high yield and short on lower yielding ones was up 1.3%.
