Global equities moved higher last month with most major indices delivering positive returns. This marked the end of another strong quarter for risk assets as enthusiasm around AI gained momentum, trade tensions eased, and the Federal Reserve’s first rate cut since December last year.
US equities led developed markets, returning 4% (in sterling terms) supported by continued heavy investment into AI which Morgan Stanely estimates could exceed $3tn over the next three years. Chinese technology companies, which continue to trade at more attractive valuations than their US peers, also benefited from this AI optimism. Our position in the HSBC Hang Seng Tech ETF returned 12.6% over the month. This contributed to a broader rally across Emerging Markets, with China, Taiwan, and South Korea all posting strong returns.
Despite the excitement surrounding AI, gold climbed to $3,795 per ounce as investors sought safe-haven assets amid concerns over fiscal profligacy of Western Governments, political instability, and a weaker US Dollar. Our position in the iShares Gold Producers ETF rose over 20%, supported by both the higher gold price and a marked improvement in corporate balance sheets across the sector.
In fixed income markets, long-term US government bond yields fell more sharply than short-term yields, reflecting investor expectations of a cooling economy rather than renewed inflationary pressures – which edged up to 2.9% in August. While we continue to hold inflation-linked bonds as protection against a rise in inflation, we have reduced our allocation following their recent strong performance.
Our exposure to corporate bonds added positively to returns, with the Xtrackers USD Corporate Bond ETF up 2%. All in yields continue to remain attractive, and the balance sheets of higher-quality issuers continue to look robust.
Finally, our diversifying assets again delivered uncorrelated returns relative to equities and bonds. Both the AQR Managed Futures Fund and AQR Style Premia Fund, which invest across equities, fixed income, commodities, and FX, generated strong performance – up 5.2% and 3.3%, respectively.
