Despite more challenging events during the month, the FTSE All-Share Index made further progress during February with a total return of +1.3%.
Markets largely shrugged off the fast-evolving US approach to international tariffs. Initially, tariffs were imposed at 25% for Mexico and Canada, then these were deferred for a month, and a 10% tariff was imposed on products from China. The apparently arbitrary and rapidly shifting grounds of the tariffs has perhaps led investors to underestimate their seriousness and potential economic impact. Without knowing the size of the tariffs, on what products they will be levied and how long the tariffs will be in place, it’s impossible to estimate their impact.
Elsewhere, the US is trying to lay the groundwork for its proposal to stop the war in Ukraine, notably without any representatives from either Ukraine or Europe. The common theme of these two developments is that the US is looking to break long-established alliances and ways of operating. The long-term outcome of this is very uncertain and it is a widely held belief that markets dislike uncertainty.
In the UK, the Bank of England’s Monetary Policy Committee voted for a cut in the base rate by 0.25% to 4.5%. This was notable in that all the members of the committee voted for a cut as the weakness of the economy, and its likely depressing impact on future inflation, was ruled to be more of a threat than the current level of inflation. Consumer Price Inflation (CPI) in the UK was reported in the month at 3.0%, a little higher than expected, and well ahead of the 2% target.
A particular challenge to our portfolio was the very considerable divergence in performance between the FTSE 100 (the largest 100 companies listed in the UK) and the FTSE 250 (the next largest 250 companies). During the month, the total returns of the FTSE 100 and FTSE 250 were +2.0% and -2.9% respectively. We have actively chosen to invest a greater proportion of the portfolio in companies that are constituents of the FTSE 250 in preference to the FTSE 100, believing these companies have the potential in the long-term to produce greater returns and growth.
Investment risks
The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Gearing is used for investment purposes to obtain, increase or reduce exposure to an asset, index or investment.
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