Markets were volatile over the course of the month, as they sought to price the evolving odds of the two US presidential candidates.. Within the macro data, US inflation came in slightly higher than expected – at 2.4% on a year-on-year basis. Core inflation remains elevated at 3.3%, leading to some Fed speakers to strike a more conservative tone on the pace of future rate cuts. In the UK however, inflation data was better than expected, leading to a sell-off in sterling, which benefitted overseas, unhedged exposures in equities. The Chancellor Rachel Reeves also announced her budget plans at the end of the month, which can be characterised as a ‘higher tax, higher spend’ budget, which led some to worry about the UK’s room to expand its fiscal deficit.
Equities returns were boosted by weakness in Sterling, with US equities continuing their outperformance, up 3.3% in sterling terms. Our holding in S&P 500 ETFs was therefore a strong contributor to returns. Developed market equity returns outside of the US were negative over the month whilst Emerging markets were flat in October. Our exposure to Emerging Markets, via the Pacific North of South Funds as well as an ETF invested in Chinese technology stocks added value.
Fixed income markets fell over the course of the month as markets started to price the pro-growth, pro-inflation policies of a Trump victory. Holdings in UK and US inflation linked bonds outperformed their conventional counterparts.
Alternatives lagged over the month, as the small allocation to UK-listed real estate struggled in October due to higher bond yields and the expectations of fewer and slower interest rate cuts from the Bank of England.
