The Month in a Minute
📰 Overall: February was a mixed month for markets, as caution around the US and its trade policy proved favourable for bonds. Despite US equities dropping, European shares continue to perform as the potential for peace in Ukraine increases.
💪 Benchmark Performance: Wealthify's low risk Original Plans outperformed their benchmark this month. Higher risk Original Plans and Ethical Plans struggled.
📈 Market Movers: Europe (+4.2%), UK (2.6%).
🗒️ Plan Summary: Original and Ethical Plans with a higher allocation to bonds, performed better than those with a higher allocation to shares.
🌍 Original Plans: Shares (-2.8%) decreased and bonds (+1.3%) increased.
🌱 Ethical Plans: Shares (-4.0%) decreased and bonds (+1.1%) increased.
🕰️ Going Forward: Bonds outperformed shares this month, benefitting our relatively cautious positioning. We’re optimistic that the diverse set of opportunities we’ve selected will continue to have a positive effect on Plans as we move through 2025, providing protection if economic conditions deteriorate.
European shares continue to be the main region for equity growth so far in 2025, as the US pulls back amid tariff worries.
February was a tougher month for global shares, something that proved favourable for bonds, as money moved from equity markets to more defensive assets.
Although starting strongly and breaking into all-time highs, concerns around the potential impacts of the new administration’s policy agenda worried investors. This caused a mid -month decline for US markets, as they finished with slight losses.
Many are concerned that tariffs on US trade partners will be inflationary, meaning the Federal Reserve (the Fed) may be slower to cut interest rates. Federal Reserve Chairman, Jerome Powell, has indicated that further interest rate cuts are unlikely any time soon.
Fresh US inflation figures were released in February and came in higher than expected, showing a slight increase. With two to three interest rate cuts currently priced in for 2025, the full impact of tariffs is yet to be seen.
Bonds, however, once again resumed their role as diversifiers against equity losses, as all major fixed income sectors gained during the month.
Weaker US sentiment data and growth concerns caused the US 10-year yield to fall throughout the month, increasing bond prices. Business and consumer sentiment weakened in February, with the release of jobs numbers showing some weakness beginning to form in the US labour market.
Gold also saw all-time highs, as the volatility of equity markets caused investors to seek security in this classic ‘safe haven’ asset.
European shares continued to outperform their US counterparts in 2025. One of February’s strongest performers, they retained their place as this year’s best performer.
Despite the uncertainty about tariffs, investors are becoming increasingly confident that a ceasefire in Ukraine could be imminent.
UK markets performed favourably as well, reacting positively to their third interest rate cut, with some positive Gross Domestic Product (GDP) data coming in higher than expected. The Bank of England (BoE) confirmed they expect to be able to cut rates further if inflation continues to slow — but they are taking a gradual and careful approach.
The release of inflation figures did show a slight increase, aligning with the Bank’s prediction that they could rise again later this year before falling. This rise would be driven by gas prices increasing, due to the need to fill drained storage facilities after a cold winter.
Forecasts say inflation is predicted to come down to the Bank’s 2% target towards the end of 2027 (six months later than previously thought).
Markets
Chinese markets (+11.5%) saw the strongest return this month, due to continuing momentum from their Tech stock following the release of DeepSeek, as well as expectations of further economic stimulus.
This boosted the Asia-Pacific (+2.2%) region and Emerging Markets (+2.2%), in what was otherwise a tough month, with the likes of India (-5.9%) and Australia (-4.2%) both declining.
European markets (+4.2%) saw strong returns, with the UK’s FTSE 100 (+2.6%) close behind.
Elsewhere, the UK’s FTSE 250 (-1.9%) and markets (-0.7%) struggled; Japanese markets (-1.5%) also fell, as a strengthening yen hurt many of Japan’s export-orientated companies.
Currency
February saw a strong month for the pound, as it strengthened against most major currencies — including the US Dollar by +1.0% and Euro by +0.7%.
The pound did decline against the Japanese yen by -1.7% (which itself had a strong month, closing higher against the US dollar by +2.7%).
The US dollar declined against most major currencies due to worries around the impact of tariff concerns. This added a further tailwind to the likes of Emerging Market equities, boosting the returns of dollar-denominated global indices.
Investment type performance breakdown
This month proved difficult for Wealthify Plans, as the volatility of equity markets affected returns.
While our cautious stance favouring bonds provided protection for lower risk Original Plans, higher risk Plans underperformed their benchmark. Ethical Plans also struggled, underperforming their benchmark, as growth stocks underperformed.
Shares underperformed bonds, finishing negative for our Original (-2.8%) and Ethical (-4.0%) Plans. Bonds did deliver a positive return for both Original (+0.7%) and Ethical (+0.7%) Plans, however.
Our recent upweighting of Europe in Plans helped us take advantage of its recent outperformance, as our European funds delivered the strongest returns for both Ethical and Original Plans.
This should continue as we move into 2025, as at the current valuations, we believe there is great potential for growth. There are still potential challenges ahead though, as the full impact of the US’s foreign trade policies are still unknown.
The money market also continues to benefit from high interest rates, providing positive returns for both Ethical (+0.4%) and Original Plans (+0.3%).
This wasn’t enough to overcome the negative returns seen from our US funds in February. Whilst we are currently underweight on the US, it is a large part of our portfolio — and essential to any globally diversified portfolio looking to deliver long-term growth.
Despite the current US sell-off, it’s important to remain focussed on the long term, with changes in direction like this completely normal (and necessary to help markets to break into all-time highs).
Summary with Plan details
This month benefitted our more cautious approach, as bonds provided protection against losses in equity markets.
The US economy and valuations of its companies present an uncertain future, with the impacts of President Trump’s tariff policy yet to be fully realised.
Should inflation reignite (and the Fed being slower to cut interest rates), then we’re well positioned to take advantage of this — with appropriate protection thanks to our allocation to bonds.
Our Investment Team continues to actively monitor the financial markets and their impact on Plans — and are always ready to act in your best interest as events unfold. We’re constantly evaluating new market information and key drivers, to help keep your Investment Plan on track.
It’s important to remember that it’s normal for markets to go up and down, with periods of volatility to be expected when you invest.
As always, we continue to look for opportunities to best position your investments, with the goal of protecting your money and achieving your long-term objectives.
With investing, your capital is at risk. Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
