Before we get into the details of the February markets we would like to acknowledge the uncertainty coming from the conflict in Iran. Our thoughts are with the people impacted by the conflict either directly on the ground or indirectly in other ways. We've written a short piece on what we're doing to manage your money. If you would like to find out more please read the blog. 

Equity markets were positive again for February, with non-US equity markets outperforming the US. Leading the way were Japanese stocks, Emerging Markets, UK, listed infrastructure funds, and value factor style stocks. A landslide victory for the Liberal Democratic Party in the House of Representatives election boosted Japanese expectations for political stability and pro-growth policies. Real Estate, Materials, Utilities and Industrial stocks were the big winners, up 15-20%. Outside Japan, emerging market heavyweights Korea, Thailand and Taiwan led the way with double digit returns.

Durin the month investors started showing concerns at the significant spend on Artificial Intelligence by the mega and large cap technology stocks, and whether this was going to lead to an increase in revenue and thus increase in share price. This worry led several investors moving from these mega stocks to value stocks, and thus the increased return in that style stocks.

It was a positive month for global government bond markets, with yields falling across the board as geopolitics and AI-related news dominated markets. Credit markets underperformed as spreads widened across both investment grade and high yield markets. The European Central Bank maintained interest rates on hold at 2% and ECB President Christine Lagarde repeated the view that inflation is in a good place. The Bank of England also kept interest rates steady at 3.75% but signalled that a reduction could come in March. Japanese bonds stabilised as Takaichi calmed debt issuance fears, further supported by the US Supreme Court overturning Trump’s tariffs.

The escalating conflict in Iran began on 28 February after month end markets closed. This is making the early March performance a lot more volatile, due to short-term uncertainty.

The World Equity Fund returned 1.24% for February. The main drivers of return for the fund were our exposures to the value factor and small caps factor through the Dimensional Global Sustainability PIE. Small caps were up around 4%, considerably outperforming large and mega caps. Schroders Global Emerging Markets Fund also performed well, on the back of a large exposure to Korea and Taiwan. The strong performance in listed global infrastructure was captured by our holding in the Kernel Global Infrastructure PIE, which returned 9.8%, while the Munro Global Growth Climate PIE benefited from its exposure to clean energy and energy efficiency (in particular GE Vernova, Vertiv, and Siemens Energy) returning 10.7%. Other individual stocks to perform well were Schneider Electric 14.2%, Caterpillar 14% (now up 100% for the last twelve months), Pepsi 11.4%, Procter & Gamble 11%, and Johnson & Johnson 10.8%.

The Australasian Equity Fund returned 1.61% for February. The main driver for the return was a strong Australian dollar, which added about 2.5% return when converted back to NZD. Within the stockmarkets, the large cap stocks stood out, both in NZ and Australia. The standouts within the fund, were notably the finance sector (Commonwealth Bank 21.5%, Westpac Bank 12.4%, QBE Insurance 12.9%), Australian Materials, Consumer Staples (Woolworths 19.3%), Industrials (Auckland International Airport 10.9%, Transurban Group 5.5%), Telstra 11.1%, and F&P Healthcare 5.1%. Pulling the Fund back a bit were the Technology sector, Consumer Discretionary sector and Australian Healthcare stocks. The small-cap rally also took a breather in February.

The World Bond Fund returned 1.05%. Falling yields globally was positive for the fund, with the longer-term bond funds returning 1.3%. The shorter-term managers return was closer to 0.3% for the month. Slowly reducing inflation and stable short term cash rates are helping stabilise returns for this fund and asset class.

The New Zealand Bond Fund returned 1.34% for February. Falling yields domestically were positive for the fund, with the longer-term bond fund managed by Harbour returning 1.4%. The shorter duration term deposits through the banks, return was closer to 0.3% for the month. Slowly reducing inflation and stable short term cash rates are helping stabilise returns for this fund and asset class.

The Investment Strategies, on the back of positive returns from all four underlying asset classes, were positive for February, also ranging from 1-1½% for February.