Investment Commentary - February 2025

February was another month where the headline returns didn’t really convey the whole story. On the face of it, most asset classes had a reasonably good month, continuing their good start to the year, with many equity markets hitting new highs by mid-month. However, there was a significant degree of turbulence for markets to navigate during the period as President Trump’s new administration flexed its muscles, beginning with the threat of tariffs, primarily on Canada, Mexico and China. Some of these threats were subject to last-minute extensions, however, the uncertainty created by these tactics did create a risk-off tone towards the end of the month, especially for tariff-sensitive countries and sectors.

In addition, there were also further concerns over sticky inflation, with the latest US CPI reading surprising to the upside. US economic data also started to point to a slowdown, with a significant fall in consumer confidence readings. Elsewhere, the German elections produced a result that was largely in line with the polls, with the CDU/CSU bloc expected to form a coalition with the SPD. With an increasingly fractious NATO alliance, the country’s likely Chancellor, Friedrich Merz, wasted no time in proposing to reform the country’s ‘debt brake’ provision, with a special fund for defence and infrastructure spending of around EUR 500m.

Given the risk-off tone towards the end of the month, safe haven assets such as sovereign bonds and gold had a positive quarter. US Treasuries were especially strong, with the yield on the 10-year US Treasury falling by around 30bps over the period, resulting in a return of +2.2% for Treasuries on aggregate. Gilts and Eurozone sovereign bonds also performed solidly, with returns of +0.9% and +0.7% respectively.

For equities, it was another month of European outperformance versus the US, boosted by the huge fiscal stimulus proposals coming out of Germany and the increased possibility of a ceasefire in Ukraine. The MSCI Europe Ex-UK Index managed a return of +3.4% over the period, with defence stocks and financials the best performers. The US, on the other hand, was dragged down by a slump in tech stocks, with the S&P returning -1.3%. The recent weakness in the technology sector was exemplified by the Magnificent 7 Index, which was down -8.7% in February (largest monthly decline since December 2022), now firmly in correction territory. The FTSE 100 couldn’t keep up with Europe, but managed to return a respectable +1.1%, as did Asian equities, with a similar return. Continued optimism around the DeepSeek AI model and similar offering from some of the large tech names, sustained the momentum for Chinese equities, which produced double digit returns over the period. From a style perspective, global value stocks significantly outperformed global growth stocks, with returns of +1.6% and -2.8% respectively. Global small caps suffered, with a return of -3.3% versus developed market equities, in the form of the MSCI World, which produced a return of -0.7%.

It was a mixed bag for commodities during the period. Gold was in demand during the risk-off trend towards the end of the month, returning +2.1% and hitting a new all-time high of $2,952. Industrial metals also had a strong month, with copper up +5.5%. With the possibility of a ceasefire in Ukraine, oil was a significant negative returner, with Brent and WTI returning -4.7% and -3.8% respectively. Overall, the broad CRB Commodity Index returned -0.5%.

Within currencies, the US Dollar Index returned -0.7% during February. The Dollar was weak versus the Yen and also Sterling, falling by approximately -2.9% and -1.6% respectively. The Euro was relatively flat against the Dollar.

 

 

All figures quoted are local currency returns (and USD returns for commodities).