After a strong start to 2025, February saw some of the shine come off the US exceptionalism story. Growing uncertainty about the impact of the US administration’s policy agenda weighed on both corporate and consumer sentiment, and concerns about growth started to re-emerge. Weak US performance dragged on developed market equities, which delivered a -0.7% total return over the month (in USD).
European equities outperformed the US in February to end the month as the top performing major equity index. The MSCI Europe ex-UK Index rose 3.4% as investors increasingly factored in the likelihood of a ceasefire in Ukraine. European financials maintained their strong run and were the top performing European sector with returns on equity that continue to outstrip their US counterparts. European defence stocks also benefitted from a renewed focus on domestic production, delivering returns of 9.3%.
The Martello Global Equity Fund outperformed its benchmark by 2.1% over the month, to increase this to +4.2% since the start of 2025. The contributors to the strong performance included many of our European holdings, but also US stocks in sectors such as staples, insurance and energy, areas which are attracting renewed interest as market leadership broadens. Key winners included: Coca Cola (+12%), Berkshire Hathaway (+9.6%), HSBC (+11.9%) and Rolls Royce (+24.4%). Detractors during February were Alphabet (-16%), Amazon (-10%) and United Health (-12%).
The latter stock was sold in full during the period, as was Microsoft as we further reduced our US tech weighting. Profits were taken in Berkshire and HSBC as their weightings had increased substantially after a period of strong returns. Four new holdings were added to the portfolio: Stryker (medical equipment/devices), KLA (chip design/inspection) and two collective funds to give exposure to Japan (iShares Japan Value ETF and JP Morgan Japanese IT). We like the appealing valuations in many of the Japanese ‘value’ sectors, coinciding with rising bond yields and a gradually strengthening yen.
Our weighting to the US equity market is currently c. 58%, with 40% exposure to non-US developed markets (now including Japan). It has yet to be seen if Trump’s tariffs will be implemented in full, or if they will succeed in making the USA ‘great again’, but currently both the bond and forex markets suggest the pain could be felt more acutely by their economy and may well serve to kick-start higher investment and spending in Europe, further supporting the strong start to the year from this region.
Disclaimer: The views, thoughts and opinions expressed within the article are those of the author. Information in this article does not constitute investment advice or an offer or an invitation to buy or sell any product or security or to make a bank deposit. Any reference to past performance is not necessarily a guide to the future. The value of investments may go down as well as up and may be adversely affected by currency fluctuations. Opinions constitute views as at the date of publication and are subject to change.
Capital International (Jersey) Limited is regulated by the Jersey Financial Services Commission and is authorised as a Financial Services Provider by the South African Financial Sector Conduct Authority (FSP No. 51164).
