In the event, there was no explosion. Instead, there was a clean-up effort that lasted years and the undamaged reactor did not reopen until 1985. However, the public’s confidence in the safety of nuclear power had eroded and Three Mile Island was eventually closed in 2019.

Grow your own

Despite the energy source remaining shrouded in speculation, in September 2024, Constellation Energy announced that Three Mile Island would be reopening, with Microsoft as the sole purchaser of its energy on a 20-year contract. The motivation? Powering Microsoft’s data centres for the growing presence of AI.

Microsoft is far from the only company to anticipate the burgeoning need for energy in coming years and to take matters into its own hands. However, as investments in AI have shot up in recent years, investments in energy, and specifically renewable energy, have tanked.

See also: Aegon: Data centres are the new dividend drivers

By 2030, the US Electric Power Institute estimates the energy demands of data centres could account for more than 9% of all US energy consumption. Currently, this sits at 4%. Jim Wright, fund manager of the Premier Miton Global Listed Infrastructure fund, says the phenomenon could lead to “a land grab” for energy supply and generation, exemplified by the Microsoft deal.

“The requirement for additional electricity will stretch the system capacity, particularly at seasonal and daily demand peaks. The inevitable solution is more investment in generation capacity, which will include renewables, batteries, gas-fired generation and nuclear power,” Wright explains.

“The costs, lead times and technological and regulatory challenges make new nuclear, either in the form of Small Modular Reactors or large power plants, a longer-term solution. There is considerable momentum, as shown by Meta’s recent request for developers to provide between one and four gigawatts of new nuclear capacity in the US to power its AI data centres.

“The growth in electricity generation capacity will require significant capital expenditure and changes the long-held perception of electricity utilities, which may now be classed as ‘growth stocks’ for the next decade.”

Read the rest of this article in the January edition of Portfolio Adviser Magazine

From a style perspective, as growth stocks largely outperformed value since the global financial crisis, there are typically more growth-oriented strategies than value funds today, as the popularity of the former has grown over the years. That said, market sentiment has shifted towards value names more recently, and strategies with a growth style bias have suffered in terms of performance.

We have also seen a small but growing number of responsible funds emerge over the years. Some take a passive or active approach and may include a range of exclusions, such as tobacco and gambling, and/or solely focus on companies providing solutions to environmental or social issues.

Macro backdrop

The Asia Pacific region, excluding Japan, is characterised by rapid economic growth and technological advancement. Experts point to the benefits of investing in Asia, such as the favourable demographics in India, including a growing young and skilled population and a rising middle class, leading to increased productivity and spending.

In light of these factors, local economies have prioritised growth policies to attract investment. For example, there has been a notable expansion in technology and innovation during the past few decades, with the rise of global giants, such as Samsung and TSMC, that now play a significant role in the global race for AI technology and chip manufacturing.

While the region has experienced strong growth and development over the years, tensions between the US and China have created uncertainty that has had an impact on investor sentiment. Foreign investor sentiment was affected further by the weak post-pandemic economic growth in China and the property crisis.

However, in recent months China has introduced a stimulus package to boost economic growth. Interest rates were eased, for example, which has served as a catalyst for markets, alongside easing interest rates in the west.

Though these developments are seen as positive thus far, investor sentiment remains somewhat cautious. This is largely a result of the US election results, with many investors hesitant to increase exposure to the region until clear policies unfold post the inauguration of president Donald Trump.

Performance put to the test

A severely challenging period began for the Asia Pacific region in 2022, as most markets were heavily influenced by macroeconomic factors. The Russian invasion of Ukraine, fears of higher interest rates, global inflationary pressures, surging global commodity and energy prices, together with ongoing supply chain issues, including component shortages, all affected market sentiment.

Additionally, China’s property market woes and continued lockdowns contributed to the overall difficulties faced. As such, 2022 started with a risk-off period where there was a shift away from high-growth stocks, resulting in a heavy de-rating of valuations, particularly in the technology sector.

There was a wide dispersion of performance within the region’s markets over the course of the year. For instance, investor pessimism was high especially towards China, the largest market, which at one point was down 33% (at October end), but ended 2022 at -12%, thanks to the market rallying towards the end of the year on its recovery potential following pandemic lockdowns.

In the fourth quarter of the year, China announced the lifting of lockdown restrictions and the reopening of its economy. This led to an improvement in investor sentiment towards the region, and a more positive outlook.

Most of the region’s markets rebounded at the start of 2023, initially due to early optimism of China’s post-Covid economic reopening alongside lower growth expectations in the west. However, as the year progressed, market sentiment deteriorated and recession risk increased, primarily in developed markets.

Rising concerns over the state of the global banking sector and ongoing US-China tensions also had a negative impact. The poor pace of China’s consumption recovery weighed heavily on investor sentiment, with the country a key underperformer.

The Asia Pacific region began 2024 by underperforming the US and Europe during the first quarter, subsequently recovering and outperforming during the following quarters. This has been driven by rising optimism over the region’s strong potential and low valuations, alongside further expectations of rate cuts in developed markets and a soft landing in the US.

This was boosted in September by China’s announcements of stimulus across different areas of the economy.

However, investor uncertainty remains as to how the global geopolitical backdrop will unfold over the coming months.

Despite these challenges, fund managers continue to believe that China’s reopening presents numerous opportunities. They also predict Chinese consumer spending will increase over time driven by high consumer savings and an uptick in property sales. The outlook for the region remains cautiously optimistic, acknowledging both the potential for opportunities and the ongoing risks, with the latter namely geopolitical.

Overall, Asia fund managers remain positive on the long-term outlook, as they see significant opportunities, such as strong earnings growth for companies at attractive forward valuations.

Read the rest of this article, plus Amaya Assan’s funds to watch by assets under management, three-year performance and newcomers in December’s Portfolio Adviser magazine

Yet one piece of the States’ future seemed set in stone long before the next president was elected: US debt would rise. Under Trump, debt is expected to grow by more than £7.5bn. As of October, it had ballooned to over $35.85trn (£28.35trn), and in the past decade, US debt has grown by almost $18trn.

While mounting US debt has been a perennial topic of discussion, there has been little in the way of consequences so far. The country hit its debt ceiling in January 2023, and in June of that year, lawmakers opted to suspend the debt ceiling until January 2025. Raising or suspending the ceiling is far from an uncommon practice for the US government: since 1960, it has been increased 78 times.

Gradually, and then all at once

How long this trend can continue, and when consequences will arise, is unclear to most investors. Some believe the timeline could be around a decade. Rob Perrone, investment counsellor at Orbis Investments, says this is the nature of how debt issues occur on most scales: gradually, and then all at once.

“The way governments get into debt trouble is similar to bankruptcy,” he explains. “How do you go bankrupt? Gradually, then suddenly. Nobody rings a bell when you start to get into debt trouble, it builds up, and then things start to fall apart.”

By the end of the fiscal year 2023, the US-debt-to-GDP ratio was 97%, according to the Bureau of the Fiscal Service. It is now estimated to be around 100%, projected to grow to 120%. Perrone says the issue lies in how debt can spiral. This happens as governments issue additional bonds to “plug the gap” of the debt, but it grows as interest rates come into play.

See also: Macro matters: The Mexican wave

“At the moment, the US government is paying 3.3% interest service cost on the debt they have already. The entire treasury curve is above that. So, whatever they’re issuing – five- , 10-, or 30-year debt – just to roll over the existing stock of debt is going to attract a higher interest rate,” Perrone adds.

“You have the debt pile getting bigger and the interest rate on new debt is higher than the rate on old debt. The US is already in a position where net interest on the debt is consuming more than the entire defence budget. It’s already bigger than the primary deficits they’re running on actual spending, and it’s projected to get worse.

“As a result, debt power gets worse which means the interest expense gets higher. Interest expense chews up more of the budget, which makes it even harder to balance the book, so your deficits get worse. This means you have to issue more bonds, issue more debt, and now your debt gets worse, and so on.”

This year, debt interest alone is estimated to be 3% of the US GDP. According to research by Pictet, interest deficits will make up over 60% of the federal debt by 2028.

Read the rest of this article in the December issue of Portfolio Adviser magazine

James Carthew, head of investment companies, QuotedData

In a reversal of the pattern of the past couple of years, a trend towards lower interest rates should help rebuild confidence in the infrastructure sector. It came as a great surprise to many investors when listed infrastructure trusts started to trade on discounts to NAV rather than the premium ratings they had been used to.

It may have also caught some managers on the hop, as they had been accustomed to running up debts by buying assets with (then cheap) floating-rate debt and paying that back with the proceeds of new share issuance.

Unfortunately, the rise in rates coincided with a buyers’ strike by wealth managers and others on the back of misleading cost disclosure rules. That has created some real bargains.

One of the cheapest is Pantheon Infrastructure. The trust’s portfolio has a fairly strong bias to digital infrastructure. As such, it is a beneficiary of a boom in data centre construction, but it is also helping to fund the rollout of high-speed fibre and supporting the growth in mobile data. The portfolio also has exposure to renewables and energy efficiency projects, district heating and cooling, and a stake in the UK’s national gas grid.

Pantheon Infrastructure can be bought on a 29% discount to NAV, which is unjustified by its track record.

During a 12-month period it has delivered the highest total return on net assets (over 13.2%) of any London-listed infrastructure trust, ahead even of the mighty 3i Infrastructure (up 11.6%).

Those NAV returns reflect the nature of its investment approach, which – like 3i Infrastructure – is designed to deliver both income and capital gains, but at the cost of a lower dividend yield. This trust is overdue a re-rating.

The wealth manager’s view

Tom Hopkins, senior portfolio manager, BRI Wealth Management

Global listed infrastructure funds have tested the patience of most investors over the past three years in an environment clouded by interest rate uncertainties and concentrated returns within the artificial intelligence (AI)-hyped ‘magnificent seven’. However, the market seems to be on the cusp of a broadening out of equity returns and this could provide an interesting catalyst for global listed infrastructure funds.

As global uncertainty intensifies due to ongoing conflicts, ever-changing political polls and fragile growth equity valuations, one relatively stable factor to focus on is the start of rate-cutting cycles in most developed economies, which should create favourable conditions for infrastructure-type investments.

The macro outlook in late-2024 into 2025 is more supportive of listed infrastructure due to slower global growth, above-trend inflation and interest rate reductions. I would not be surprised to see more M&A activity in the sector now rate stability has returned.

Infrastructure equites tend to be lower-beta than most global equites due to the more defensive sector exposures – utilities, real estate assets, toll roads etc. These businesses are typically more predictable, and investors are getting paid to be patient via some generous and growing dividends.

In July and August, there were some stark reminders for investors of just how quickly volatility can pick up in ‘hyped’ areas of the market. With investors obsessing over the capabilities of AI technologies, it can often be forgotten that critical infrastructure is needed behind the scenes.

The need to provide large technology companies with state-of-the-art data centre facilities, which are adequately powered by renewable and sustainable power sources, requires major infrastructure investment.

On top of other powerful themes over the coming decade including renewable energy, clean transportation and sustainable water and waste management, all of the above topics feature within the global infrastructure sector.

Important structurally growing themes with generous dividends should compensate patience, while also providing defensive diversification benefits for portfolios.

The fund selector’s view

Juliet Schooling Latter, research director, FundCalibre

Infrastructure assets have long been favoured for their stable, inflation-adjusted returns. However, as interest rates rose, investors shifted their focus to higher-yielding cash and fixed-income options, dampening valuations across the sector.

If interest rates decline as markets are currently anticipating, we believe this asset class is poised to regain its appeal. Even if rates do not return to previous lows, the sector’s alignment with long-term structural growth trends, including urbanisation, technological advancements and climate change mitigation, underscore the enduring value of infrastructure investments. As a result, we expect strong returns from this sector going forward.

Governments worldwide are not just paying lip service; they are investing heavily in infrastructure development to stimulate economies and support energy transitions, creating new opportunities for investment in a variety of exciting asset classes. For example, in the US, the bipartisan infrastructure deal has allocated $90bn (£68.01bn) to upgrade the country’s transport system, $25bn for airports and $17bn for port infrastructure and waterways.

Private infrastructure investors are well-positioned to bridge the gap between government infrastructure targets and the challenging fiscal and monetary environment facing public sector finances. As populations grow, supply chains evolve and energy consumption increases, we can confidently anticipate that global infrastructure can continue its current growth trajectory – while delivering reliable dividends for years to come.

Among the funds we favour are the First Sentier Global Listed Infrastructure and M&G Global Listed Infrastructure funds, which invest in ‘hard’ infrastructure globally through listed companies that own these assets. Additionally, VT Gravis Clean Energy Income is capitalising on the widespread adoption of renewable energy by investing in a diversified portfolio of the best listed vehicles across developed markets, providing defensive stability and steady income.

Furthermore, just as power, water, and road infrastructure are essential to our society, digital infrastructure is becoming increasingly vital. With digital technologies now embedded in our everyday lives and the rapid advancement of AI, which demands substantial computing power and network connectivity, there are strong reasons for investors to consider thematic funds like Schroder Digital Infrastructure.

The fund manager’s view

James Davies, investment director and multi-asset fund manager, Close Brothers Asset Management

Infrastructure is an asset class often viewed as a ‘bond proxy’, in that it should deliver stable returns from predictable cashflows. It is for this reason that we use the bulk of our infrastructure exposure as a diversifier of our bond allocation, as opposed to our equity weighting.

In a perfect world, therefore, central banks commencing rate cuts should be positive for infrastructure and by extension the holdings within our funds. Like most things in the investment world, however, it isn’t quite as simple as that.

There are now so many different drivers that impact ‘infrastructure’ that it can be unhelpful to view it as one homogenous asset class. For example, the outlook for different renewables, with different power prices and regulatory regimes, will not be the same as for a portfolio of Canadian police stations.

All this being said, we are positive on the sector’s outlook for a number of reasons. First, as mentioned, many of the fundamental reasons for holding infrastructure are more aligned to its diversification qualities in respect to bonds, so falling rates should present a tailwind as investors who’ve been happy earning a return on cash and cash proxies look to reallocate to longer-dated forms of reliable income.

Second, the fact that in the UK many of the infrastructure investment trusts are still trading at a significant discount to their NAV presents an opportunity for share price appreciation.

Finally, and more broadly, I would argue that the need for additional spending on areas such as renewable energy and social infrastructure across the world presents opportunities for established infrastructure vehicles and teams to access what will be major growth sectors over the next decade.

This article originally appeared in the September issue of Portfolio Adviser magazine

But some managers who sold out of China have been reallocating to the region in recent weeks after a sizable shift in government policy that has gone largely unnoticed by the wider market.

See also: Macro matters: Made in Mexico

Dilemmas in the Chinese property market sent Fidelity Emerging Markets trust co-manager Chris Tennant running from China and into perceivably more stable markets such as India in recent years. However, following a hiatus from buying Chinese assets, he began upping his exposure in the past few weeks. He started the year with an 18.8% underweight (7.8 percentage points below the MSCI Emerging Market benchmark) but has increased that to 31.9% (a 5.2 percentage point overweight) since an invigorating announcement from president Xi Jinping in May.

Back off the ropes?

The beleaguered property market has been one of the primary hindrances driving investors away from China, but Jinping committed CN¥300bn (£32.6bn) to resolving the issue. This is a stark change in rhetoric, and now that the government is seeking to solve one of its biggest problems it could mark a potential turning point for China, according to Tennant.

“Everyone threw in the towel on China and international investors have abandoned that market, which is why you’ve seen those shares underperforming so dramatically over that time period. But year to date, there is a much better regulatory backdrop,” he says. “There’s more of a focus now on supportive regulatory measures, so the direction of travel is positive.

See also: Macro matters: Oil change

“We’re not massively positive on the property sector in China, but at least now the government is taking measures to try and stabilise it and bring some confidence back into the sector. It’s obviously a hugely important and massive component of Chinese GDP and drives a lot of consumption – when people are worried about what property prices are going to do, they don’t spend on discretionary items. So hopefully these measures put a floor in the property market and people start spending again.”

Tennant adds: “House prices are still declining today, so when you do see that trough in the housing market, that will drive a lot of consumer spending again.”

A turning tide

Yet Jinping’s shift in policy was largely met with pessimism – people rightly pointed out that CN¥300bn is a drop in the ocean when it comes to fixing arguably the biggest detractor to the Chinese economy in recent years.

Read the rest of this article in the July/August issue of Portfolio Adviser magazine

Currently, the sector holds 67 active and 36 passive funds. However, investment into passives has continued apace and, by assets under management, passives dominate, accounting for around 60% of the sector and seven of the top 10 largest strategies.

Interest in the Japanese sector has improved more recently, helped in part by the weaker currency but also due to the country moving into an inflationary environment.

Macro backdrop

The country’s deflationary problem looks to be behind it as inflation reaches a high of 4.2%, a level not seen since 1981. While the Bank of Japan’s monetary policy remained essentially unchanged, predominantly due to its view that supply constraints drove inflation, it has been tweaked, with its negative interest rate policy being removed after eight years.

Due to the higher inflation and faster response from the west, Japan’s currency has continued to suffer, as the USD/JPY carry trade remains attractive and has weakened to its lowest level in 30 years. Should inflation remain sticky, this could kick-start sleepy corporate Japan, as the region’s companies have the highest net cash position relative to other developed markets, which is a less favourable position to be in when facing inflation.

Given the currency weakness, interest has risen as investors expect a reversal at some point, which would boost returns for sterling investors. However, while not a domestic issue, Japan’s closest neighbour, China, hasn’t recovered post-pandemic as many expected, therefore as its largest trading partner this uncertainty remains a risk.

How it’s performed

Year to date, to the end of April, the Topix gained 16.8% in local currency terms. However, due to yen weakness against sterling, this translated into a 6.7% return in sterling terms. Over the period, the IA sector marginally underperformed the index, returning 5.5%.

Value has continued to drive the market following a strong 2023. While elsewhere growth generally dominated with the increased interest in artificial intelligence (AI), the country bucked the global trend during 2023 for a couple of reasons.

First, following decades of deflation, the move to mild inflation wasn’t met with rising interest rates, due to the generally lower inflation levels. This led to a rate differential with the US causing Japan’s currency to weaken sharply. Japan’s large and mega-cap companies, which are for the most part overseas earners, benefited from the weaker yen, as their overseas profits were boosted when translated back into yen.

In addition, Warren Buffett heavily added to his positions in Japan’s largest trading companies, and the Tokyo Stock Exchange announced an initiative targeting companies with low price-to-book ratios to disclose plans to improve this metric. This was enough of a catalyst for the market to favour value companies, while the rest of the world focused heavily on the growth prospects of AI.

While Japan has a couple of companies that benefitted, they are smaller market constituents. For 2023, the Topix rose 28.3%, in local currency terms, and 13.3% in sterling terms, while the IA peer group marginally lagged behind (11.7%).

Read Ajay Vaid’s funds to watch by assets under management, three-year performance and newcomers in June’s Portfolio Adviser magazine

Even bottom-up stockpickers such as Nedgroup’s Mark Landecker have to take macro factors into account when making investment decisions to ensure they are not walking into any traps unwittingly. “We think of ourselves as macro aware,” he said. “It’s not so much that we specifically are making macro forecasts, but we don’t want to step on mine fields that we should have known existed.”

Despite still being focused on the fundamentals of companies, Landecker said ignoring macro can be a dangerous game. Many bottom-up fund managers will claim that watching such data points will distract investors from their long-term goals, but being aware of the macro world has steered his Nedgroup Contrarian Value Equity fund clear of hazards that crippled other asset managers.

“Many value investors were in housing stocks around 2007 and 2008,” Landecker said. “They looked really cheap and had mid-single digit earnings multiples, so what could go wrong? The manager at the time Steven Romek was aware that it seemed a little hot and frothy at the time so decided not to play there

“I’d say be aware of where the potential pockets of weakness in an economy are and steer clear of those. If we feel like there’s an industry that’s overheating – or that it’s running above trend and above average – we want to be mindful of that and incorporate those thoughts into our models.”

Yet global markets have become even more volatile and difficult to predict since the global financial crisis. Sensing the growing influence of geopolitics on markets after conflict began in Ukraine, Amundi, one of Europe’s largest asset managers, created a dedicated role to analyse it.

Anna Rosenberg was appointed head of geopolitics in 2022 to advise its fund managers – who run €2.1trn in assets – on how it could impact their portfolios. And given how tensions across the globe are only growing, Rosenberg expects geopolitics to play an increasingly important role in investment decision making over the next decade.

But some fund managers might be slow to pick up on this. Many have been taught over their whole career to analyse individual companies without being influenced by the sectors or regions they sit in – an approach that is slightly hypocritical when they use some forms of risk mitigation and ignore others, according to Rosenberg.

“You care about a company’s ESG ranking but you don’t care about a company’s geopolitical exposure? That’s madness,” she said. “You need to understand if a company is at risk because of geopolitics, so it’s as much bottom up as it is top down.

“I think we are seeing that everyone – economists, forecasters, portfolio managers – all have to better learn how to deal with geopolitics and understand what it means and how it affects them.”

Nevertheless, most fund managers now understand the growing importance of geopolitics in investing, following several years in which macro factors have dictated markets. Rosenberg even said the monotonous use of it in reports and earnings calls has turned geopolitics into “a buzzword” in the industry. “Sometimes for fun during calls I write down how often my colleagues say it,” she joked, “but it shows you how it is informing the backdrop against which decision makers are making decisions.”

Yet while many asset managers are factoring in geopolitics, most lack the knowledge to do so in a sophisticated way. “Geopolitics is so central these days to every portfolio manager, but you don’t have anyone who actually has the qualifications,” Rosenberg explained. “There’s a lot of opinion sharing, but not necessarily analysis, and I think there is a need to have a common level of understanding so that you have a discussion based on a factual basis.

“People have realised this is here to stay, but they don’t know how to deal with it. Some of them are trying to figure it out and create trading models and tools, but we’re talking about economists and people who have studied economics here – they think they will find the answers in the data, but the reality is that the data is very often not predictive, it’s usually retrospective. So the data can be supportive, but it doesn’t tell you what’s going to happen. That’s why you really need political analysis.”

But how are portfolio managers themselves implementing this? Francesco Sandrini, who manages Amundi’s multi-asset strategies and is advised by Rosenberg on macro matters, said he has made investment decisions that were influenced by geopolitics. He noted that it is often mentioned in the context of avoiding risk – just as it stops Landecker “stepping on mine fields” – but it is equally about finding new opportunities.

Like with any change, it brings opportunities. Nearshoring, for example, is a theme that has come about due to the shifting geopolitical landscape. Sandrini has upped exposure to places such as Mexico and Indonesia in order to “play the new political equilibrium”. So while factoring in macro movements and geopolitics into investment decision making can help avoid risks, it shouldn’t be framed purely as that.

“The universe of opportunities is much more scattered than it was a few years ago, but geopolitics is not just a risk,” Sandrini said. “Because we’re in this change of equilibrium where we are moving away from a purely US-centric multilateralism to a more multipolar world, geopolitics is creating interesting investing opportunities. You have to see it with this double metric in order to take advantage.”

The positioning has led to a slew of American companies setting up shop throughout Latin America, including ‘magnificent seven’ member Tesla announcing plans to build a factory in Mexico. Latin America has also benefited in the opposite direction, with Chinese companies manufacturing in the region in order to sell products to the US.

Global power shifts

Sam Vecht, co-manager of the BlackRock Latin American investment trust, sees the world splitting into three groups as economic and political power shifts.

“In this new regime, countries appear to align with either the US or China, depending on where their economic and military interests lie. This is likely to shape trading patterns and economic partnerships over the next decade,” Vecht says.

“There is, however, a third group. These are countries not aligned with either side and, in our view, are in a far better position to forge trading links, to gather foreign direct investment and to source precious materials necessary for infrastructure building. Many Latin American countries recognise the advantages in steering a neutral path.”

Within Latin America, Mexico stands out as a particular beneficiary, according to Laurence Bensafi, portfolio manager, emerging market value equity strategy at RBC BlueBay Asset Management. “If you look at the rise of nearshoring and deglobalisation, Mexico is one of the best-positioned countries in the world. It is close to the US, and is relatively friendly with them,” Bensafi says.

“It is a democracy, and the cost of labour is extremely low compared with other countries. Labour in Mexico costs less than half of what it costs in China and is obviously a fraction of what it is in the US. In fact, Chinese companies are now turning to Mexico to produce goods, on top of other [countries]. Business is therefore booming in Mexico; there are companies from the US, China and Europe all wanting to increase their capacity in Mexico – we have seen that on the ground.”

Read the rest of this article in the June issue of Portfolio Adviser magazine

The Middle East presents a unique set of circumstances for investors. Conflicts have plagued the region and civil rights issues have deterred some investors. Until 2017, women were not allowed to drive in Saudi Arabia.

See also: Macro matters: What does the future hold for money markets?

In 2018, US-based journalist Jamal Khashoggi was murdered in the Saudi consulate in Istanbul. While Saudi officials said it was a ‘rogue operation’, an intelligence report from the US government concluded the assassination was directly approved by crown prince Mohammed bin Salman.

Some investors say the Middle East has been in the heat of reform in recent years, however, and its appealing high levels of wealth sweetens the pot.

In addition, Saudi Arabia’s Vision 2030 project has worked to draw in further investment and diversify the economy, resulting this year in the setup of a $100bn (£80bn) tech fund.

Diversifying the economy

Dominic Bokor-Ingram, senior portfolio manager of emerging and frontier markets for Fiera Capital, identifies the reform in Saudi Arabia as the fastest he has seen “since the fall of the Berlin Wall”.

“The Saudi Vision 2030, which was announced in 2015, has been instrumental in driving this rapid economic reform at every level, but has also supported the cultural and political reform taking place simultaneously,” Bokor-Ingram says.

See also: Macro matters: The trouble with Trump

“Saudi Arabia is successfully channelling its oil profits back into the economy to develop non-oil economic development in order to create a sustainable long-term economy and ensure its ongoing global relevance. Sectors including construction, entertainment, tourism and hospitality have all been large benefactors of this fast-paced domestic investment and growth.

Compared with some of its neighbours, Saudi is a large country in the region so there are both more investable companies as well as greater opportunity for economies of scale to supercharge growth.”

Read the rest of this article in the May issue of Portfolio Adviser magazine

However, the sector suffered its largest outflow since June 2023 in February, as investors pulled a net £923m from cash funds. With central banks expected to begin reversing the rate hiking cycle at some point later in the year, what are the prospects for MMFs going forward?

Looking back over the past 18 months, Alastair Sewell, Aviva Investors liquidity investment strategist, says the combination of volatility pushing investors to lower-risk allocations coupled with the speed that interest rate hikes fed through to money market yields upped the attraction of cash-like products.

See also: Macro matters: The trouble with Trump

“Despite its current attractions, the asset class appears under-utilised in the UK. While flows have certainly been positive in the UK in 2023, the total share of MMFs in overall fund asset remains low,” he says.

“Contrast this with the US where money market products are a mainstay of fund allocations and have received significant new assets. US MMF assets increased by over $1trn (£794.9bn) in 2023 – to around $6trn –with the retail share of that total rising to about 40% from 20%.”

Likewise, some investors have found money markets appealing in comparison to weakened sentiment toward equities since 2022, according to Interactive Brokers senior economist José Torres.

“During the past few years, investors have had modest expectations for equities, despite them outperforming strongly, with many analysts expecting stocks to generate returns ranging from 7-9%. This expectation has made the risk-free yield of money market strategies attractive relative to equities.

Read the rest of this article in the April issue of Portfolio Adviser magazine

There is a high degree of uncertainty given the economic backdrop. Even among economists there’s uncertainty around the degree and the timings of a recession, for example. Therefore, it’s difficult to pick a strategy or sector that will do well in the short term. I prefer asset classes that are at historical extremes in terms of valuations, which means they’re more likely to normalise in the medium term. UK and European equities are looking very attractive, given the general outlook on earnings growth – especially relative to US equity valuations.

Q: What asset classes should investors be thinking about beyond equities and bonds?

Alternatives have always been a consideration in our portfolios, especially when rates remain extremely low. However, traditional assets such as equities and bonds are in a good shape right now amid a normalised rate environment. Diversification benefits from alternatives should be considered alongside the opportunity cost of not holding traditional sources of diversification such as government bonds. Investors should assess the premium they can expect from balancing their allocation to different asset classes.

See also: Generation Next with Imogen Millington: A pathway to value

Q: How do you see sustainable and ESG-oriented investing evolving from here?

I believe investors will come to think of it less as a trade-off between the investment returns and doing the right thing, but rather something that is very much integrated into the investment process. With the guidelines becoming stricter around what label investors can use for sustainable or ESG-oriented products, I expect that what people think of today as sustainable or ESG-oriented products will be at the core of what most companies will integrate into their portfolios.

Q: What will be different about the investment sector a decade from now?

I think we will see an improved understanding around the nature of active and passive investing. Rather than favouring one or the other the industry will evolve to understand in what environment the respective strategies work well, and therefore choose the right strategy at the right time. It is going to be interesting because passives are offered at a much lower price point and active managers will have to prove they can add value to be considered.

Read the rest of this article in the April issue of Portfolio Adviser magazine

The sector was pushed to the top by leading performances from Matthews China Small Companies, returning 14.4%, Redwheel China Equity, at 13%, SVS Aubrey China, at 12.99%.

Other funds among the top 10 for performance in February included Vontobel China A Shares Leaders, T Rowe Price China Evolution Equity, NB China Equity and Barings China A Share all returning above 11.4%.

Ben Yearsley, director of Fairview Investing, said: “There was only one game in town in February, China funds. Seven of the top 10 were China invested and most of the top 20 were likewise.

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“Matthews China Small Companies topped the pops with a gain of 14.41% last month. The only other fund of note worth mentioning in the top 10 was the Nikko ARK Disruptive Innovation fund gaining over 12% on the back of a strong showing from Nasdaq and stellar returns from Nvidia.

The dominant performance from China was preceded by technology and technology innovation at 5%, global emerging markets at 4.8%, and North America and healthcare tying at 4.7%. Struggling sectors included Property Other, dropping 1.87% on average, followed by UK Smaller Companies, UK Gilts, Eur Government Bond, and UK Index Linked Gilts, which all had negative returns over 1%.

“Looking at property and the big story in February was undoubtedly L&G turning their physical property fund into a hybrid of property shares and physical. The writing for physical property funds has been on the wall for many years and with the FCA too timid to make any kind of judgement on the sector it’s been left to fund managers to kill the sector,” Yearsley said.

“It was a toss-up between property and gold which had the most funds near the bottom. While gold is near an all-time high, gold funds have been languishing for a while now and other metals, such as lithium have really been in the doldrums.”

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Individually, the Aviva European Property fund dropped furthest, falling 12%. Baker Steel Gold & Precious Metals followed closely, dropping 11.38%, with Charteris Gold & Precious Metals rounding out the group with negative returns over 10%, with -10.5%.

Across investment trusts, highest-performer SDCL Energy Efficiency Income Trust returned 19.4%, however, its share price sits at 65p, down from the 12-month peak of 94.9p.

The Alpha Real Trust brought in a 17.6% return with a share price of 140.5p at close on 29 February according to the AIC, while the third-ranked Weiss Korea Opportunity trust returned 13.9% with a share price of 176.5p.

“There has been more drama especially with the newer, more specialist trusts,” Yearsley noted, referencing Digital 9’s decision to wind down and ongoing issues at Hipgnosis Songs.

“In performance terms it was the four trust Country Specialist sector that topped the tables gaining 8.2%. This sector has three Vietnam trusts and a Korea one – Korea has been vying with China for the title of the cheapest market for a while now. It was an Asia dominated top five with China, Japan and Asia Pacific Income also featuring.”