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 Focused Growth Fund returned 0.77% for February. The mega-cap stocks AI-related stocks were affected again by investor rotation. However, this was more than offset by strong returns from Schneider Electric 14.2%, Taiwan Semiconductors 14.2%, Procter & Gamble 11.0%, and Walmart 8.3%. During the month ServiceNow was replaced by Cisco Systems. We still see ServiceNow as a very attractive stock, the SaaS sub-sector is getting hit hard by the AI threats and competitive advantage. Cisco Systems is still a Technology sector stock, but it looks to take advantages in the data centre networking investment theme that we favour.

The High Growth Fund returned 1.55% for February. The main drivers of return for the fund were our 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%.

Australian stocks also performed well in February, with Woolworths up 19.3%, CBA 21.5%, Westpac 12.4%, QBE Insurance 12.9% and Telstra 11.1%. The NZ market was mixed up around 0.7%, with AIA up 10.9%, and F&P Healthcare 5.1% the standouts.

The Income Fund returned 1.13% for February. Falling yields both globally and domestically was positive for the fund, with the longer-term bond funds returning 1.3% and the NZ manager Harbour returning 1.4%. The shorter duration managers and term deposits 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 Cash Fund returned +0.18% for the month, similar to the previous month, as short term interest rates have stabilised.

The Lifestages investment profiles across all the Age bands, were positive for February, on the back of positive returns from all four underlying asset classes. Returns ranged from 1-1½% for February.