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 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.

During 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 defensive stocks like Wallmart, and thus the increased return in this style of 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. Switzerland, the lowest yielding European country, was the lone exception. 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.

Outside investments that we hold or recommend, precious metals were marginally down for the month after a sharp rise in gold prices to start the year. Digital assets extended their downturn, with the S&P Bitcoin falling 22% in February, on the back of geopolitical uncertainty and Kevin Walsh’s nomination as Fed chair. This fall has now erased all gains since Trump’s election. Crude oil is starting to rise amid an intensifying US-Iran conflict.

All the portfolio series risk profiles were positive for February, as they were for January. Returns ranged from 1-2%.

The Future Themes model was down around –0.5%, on the back of the rotation from large AI related stocks, affecting several companies in the Digitalisation investment theme and ETF. The Equity Income model has had a great last twelve months, driven by strong returns from the NZ mid-cap stocks, notably Heartland, Freightways, Vector, and Chorus.