Following a strong start to the year, equities gave back some of their gains in February. Growing uncertainty regarding US trade policy and weakening consumer sentiment contributed to the S&P 500 falling 1.3% in US Dollars last month. Meanwhile, the Dollar was also under pressure as the market reassessed the probability of further rate cuts from the Federal Reserve.
Looking outside of the US, we saw European equities outperform – up 3.5% last month – on a combination of cheap valuations and improving sentiment. Our allocation to European equities was a positive contributor to performance. We also benefited from the relative outperformance in European value stocks, with our holding in the iShares Edge MSCI Europe Value Factor fund which returned 5.4% last month as investors looked for opportunities beyond the US and richly valued, growth-focused equities.
Fresh stimulus plans from policymakers in China, with a focus on the Chinese consumer, saw equities rally 10%, and this positive momentum contributed to another strong month for our allocation to Chinese Technology companies. Despite being up 17% last month, these companies still trade at a discount to their US peers.
In Fixed Income, our allocation to US TIPS benefited from investor concerns over US growth last month. Within credit markets, whilst we had some moderate widening in spreads, all-in yields remain high and our allocation to Investment Grade corporate bonds were additive to performance.
Finally, our diversifying assets once again generated positive returns that are uncorrelated to equities and bonds. Both the AQR Style Premia and Managed Futures funds, which invest across equites, fixed income, Commodities and FX, were up 6.1% and 3.4% respectively.
