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Our market summary
In the third quarter of 2026, geopolitical tensions in the Middle East pushed oil and gas prices higher, adding to inflation pressures and prompting many central banks to raise interest rates. Despite this backdrop, economic growth remained stronger than expected, while company earnings generally continued to improve.
Performance review
The Cirilium Passive Portfolios delivered mixed returns over the third quarter of 2026, with returns ranging from a 1.2% loss for the Conservative Portfolio to a 2.2% gain for the Adventurous Portfolio. The main market moves were sharp rises in bond yields as investors began to focus again on inflation risks, prompted by a re-escalation of hostilities in the Middle East and subsequent increases in energy prices. For the US, high levels of AI-driven growth also resulted in higher rate expectations, while France faced concerns around perceived fiscal credibility. This negatively impacted the lower-risk portfolios, which hold a greater allocation to bonds. Equity markets drifted slightly higher as they consolidated the strong gains from the prior quarter. However, the small moves at the index level masked some sector moves under the surface, with energy companies delivering strong returns while industrial companies and utilities struggled.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Equity
How our equity holdings performed
Japan continues to perform well
Japanese equities were the best performing region during the third quarter, and this was reflected by strong performance from the iShares Japan Equity Index Fund, which gained 4.9%. Japan’s economy is returning back to ’normal‘ following many years of deflation, and this is prompting increased interest in the stock market from retail investors, coupled with a number of shareholder-friendly corporate governance reforms.
Whilst Europe is weaker
European equities have been hit with a number of issues, from a dependence on high cost imported energy (impacting German industrial companies) to political uncertainty weighing on risk appetite (the French stock market is the only market in Europe with negative returns so far this year). As a result, fund performance was also underwhelming, with the iShares Continental European Equity Index Fund falling by 2.1%.
Emerging markets recover
Emerging market equities suffered losses of over 4% in July, amid a sharp reversal of the prior AI-driven rally. This volatility was exacerbated by large flows in Korea, home of two key AI-beneficiaries in Samsung and SK Hynix, whose memory chips are critical for AI data centres. These were believed to be due to large, forced selling from leveraged retail investors. However, markets staged a strong recovery in August and September to close out the quarter broadly unchanged.
Fixed income
How our fixed-income holdings performed
Bond markets struggle amid rising yields
The market backdrop of rising yields (10-year maturity gilt yields increased by 0.65% over the period) meant that all our bond holdings delivered negative returns over the quarter. Our new index-linked gilt fund was the best performing holding, helped by an increase in breakeven inflation levels as the Iran conflict started drive oil prices higher again.
Alternatives
How our alternatives holdings performed
Muted alternatives returns
Our alternatives holdings were marginal positive contributors with the State Street Global Alternative Beta Fund and the Goldman Sachs Absolute Return Tracker Portfolio delivering positive returns of 0.3% and 1.5%, respectively.
Cumulative returns over periods shown to 30 September 2026
| YTD | 1 year |
3 years |
5 years |
Since launch | |
| Cirilium Conservative Passive | 2.2 | 4.7 | 22.3 | 13.1 | 66.6 |
| IA Mixed 0-35% | 2.6 | 4.8 | 22.3 | 11.3 | 54.8 |
| Cirilium Balanced Passive | 5.4 | 8.4 | 31.9 | 23.8 | 117.9 |
| IA Mixed 20-60% | 5.3 | 8.2 | 30.3 | 21.3 | 86.2 |
| Cirilium Moderate Passive | 8.8 | 12.7 | 43.8 | 41.5 | 177.4 |
| IA Mixed 40-85% | 8.4 | 12.1 | 39.4 | 31.7 | 140.5 |
| Cirilium Dynamic Passive | 11.9 | 16.5 | 55.1 | 59.3 | 240.6 |
| IA Flexible | 9.0 | 12.5 | 40.4 | 33.0 | 146.7 |
| Cirilium Adventurous Passive | 13.8 | 18.8 | 66.6 | 73.3 | 182.1 |
| IA Flexible | 9.0 | 12.5 | 40.4 | 33.0 | 74.3 |
Discrete annual returns over periods shown to 30 September
| 2026 | 2025 | 2024 | 2023 | 2022 | |
| Cirilium Conservative Passive | 4.7 | 5.7 | 10.5 | 2.6 | -9.9 |
| IA Mixed 0-35% | 4.8 | 5.4 | 10.7 | 2.7 | -11.3 |
| Cirilium Balanced Passive | 8.4 | 8.1 | 12.5 | 3.5 | -9.3 |
| IA Mixed 20-60% | 8.2 | 7.4 | 12.1 | 4.2 | -10.7 |
| Cirilium Moderate Passive | 12.7 | 11.1 | 14.9 | 5.3 | -6.5 |
| IA Mixed 40-85% | 12.1 | 9.3 | 13.8 | 5.3 | -10.3 |
| Cirilium Dynamic Passive | 16.5 | 13.9 | 16.9 | 6.9 | -4.0 |
| IA Flexible | 12.5 | 10.4 | 13.0 | 4.8 | -9.6 |
| Cirilium Adventurous Passive | 18.8 | 15.8 | 21.1 | 6.5 | -2.3 |
| IA Flexible | 12.5 | 10.4 | 13.0 | 4.8 | -9.6 |
| Holding name | Fund manager (where applicable) | Cirilium Conservative Passive | Cirilium Balanced Passive | Cirilium Moderate Passive | Cirilium Dynamic Passive | Cirilium Adventurous Passive |
| Global equity | 22.59 | 45.71 | 65.70 | 85.86 | 99.42 | |
| Asia Pacific equity | 3.05 | 6.04 | 8.81 | 11.30 | 13.11 | |
| HSBC MSCI Pacific ex Japan ETF | HSBC | 0.76 | 1.23 | 2.00 | 2.49 | 3.01 |
| iShares Japan Equity Index | BlackRock | 2.30 | 4.81 | 6.81 | 8.81 | 10.10 |
| Emerging markets equity | 3.24 | 6.42 | 9.15 | 12.18 | 14.19 | |
| Amundi Core MSCI Emerging Markets ETF | Amundi | 3.24 | 6.42 | 9.15 | 12.18 | 14.19 |
| European equity | 3.00 | 6.22 | 8.93 | 11.66 | 13.67 | |
| iShares Continental European Equity Index | BlackRock | 3.00 | 6.22 | 8.93 | 11.66 | 13.67 |
| North American equity | 7.52 | 15.51 | 22.27 | 29.28 | 33.79 | |
| Invesco MSCI North America Swap ETF | Invesco | 4.28 | 8.67 | 12.32 | 16.38 | 17.69 |
| iShares North American Equity Index | BlackRock | 3.24 | 6.84 | 9.95 | 12.91 | 15.50 |
| Vanguard FTSE North America ETF | Vanguard | 0.00 | 0.00 | 0.00 | 0.00 | 0.59 |
| UK equity | 5.77 | 11.52 | 16.54 | 21.44 | 24.67 | |
| iShares UK Equity Index | BlackRock | 5.77 | 11.52 | 16.54 | 21.44 | 24.67 |
| Fixed income | 72.15 | 48.72 | 28.75 | 10.91 | 0.00 | |
| Corporate bonds | 33.60 | 19.24 | 11.50 | 4.20 | 0.00 | |
| Vanguard Global Corporate Bond Index | Vanguard | 12.76 | 5.74 | 3.50 | 1.24 | 0.00 |
| Vanguard UK Investment Grade Bond Index | Vanguard | 20.85 | 13.51 | 8.00 | 2.96 | 0.00 |
| Government bonds | 38.54 | 29.48 | 17.25 | 6.71 | 0.00 | |
| Amundi UK Government Bond ETF | Amundi | 3.53 | 4.44 | 2.36 | 0.42 | 0.00 |
| Invesco Global Government Bond ETF | Invesco | 17.31 | 12.77 | 7.52 | 2.98 | 0.00 |
| iShares UK Gilts All Stocks Index | BlackRock | 12.75 | 9.07 | 5.39 | 2.58 | 0.00 |
| Vanguard UK Infl-Linked Gilt Index Fund | Vanguard | 4.96 | 3.20 | 1.98 | 0.73 | 0.00 |
| Alternatives | 5.05 | 5.03 | 4.98 | 2.48 | 0.00 | |
| Alternative equity | 3.53 | 3.77 | 3.37 | 2.48 | 0.00 | |
| State Street Global Alternative Beta | State Street | 3.53 | 3.77 | 3.37 | 2.48 | 0.00 |
| Alternative other | 1.52 | 1.26 | 1.61 | 0.00 | 0.00 | |
| Goldman Sachs Absolute Return Tracker | Goldman Sachs | 1.52 | 1.26 | 1.61 | 0.00 | 0.00 |
| Cash | 0.21 | 0.53 | 0.57 | 0.75 | 0.58 | |
| Cash | 0.21 | 0.53 | 0.57 | 0.75 | 0.58 | |
| BlackRock ICS Sterling Liquidity | BlackRock | 0.12 | 0.16 | 0.30 | 0.14 | 0.24 |
| Cash | 0.09 | 0.37 | 0.27 | 0.62 | 0.34 |
Please note due to rounding of figures they may not add up to 100%. Asset allocation may include derivative exposure which may be offset against cash exposure.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Source: Quilter and Morningstar as at 30 September 2026. Total return, percentage growth, net of fees of the R (GBP) accumulation shares over periods shown. The performance of other share classes may differ. The Cirilium Conservative Portfolio launched on 30 March 2012, the Cirilium Balanced Portfolio, the Cirilium Moderate Portfolio, and the Cirilium Dynamic Portfolio launched on 2 June 2008, and the Cirilium Adventurous Portfolio launched on 1 June 2017.
Portfolio changes
The only asset allocation change over the quarter was the annual strategic asset allocation (SAA) update at the start of the quarter. This introduced index-linked gilts as a new asset class within fixed income, as we looked to increase the resilience of the portfolios in the event of inflation shocks in the future. This was funded by a reduction in the global bond allocation, with a reduction in weight of both global government bonds and global corporate bonds. Within equities, the SAA exposure to Japanese equities increased, largely at the expense of North American and UK equities. The alternatives allocation remained unchanged.
New holdings
- Vanguard UK Inflation-Linked Gilt Index Fund
This is a physically replicated passive fund that tracks the index used in our SAA to represent UK inflation-linked government bond exposure.
Removed holdings
- Amundi Core Global Government Bond ETF
We replaced this holding with the Invesco Global Government Bond ETF that better matches the index used in our SAA to represent UK global government bond exposure. In particular, this ETF did not offer any exposure to Chinese government bonds.
Investment outlook
As we head into the final quarter of the year, markets are sending mixed signals, amid ongoing geopolitical uncertainty and inflationary concerns centred around petrol prices and related energy shortages. Government spending and persistent deficits have been in focus on both sides of the Atlantic. US mid-term elections are likely to be more noisy than genuinely relevant for the equity markets, where we expect AI build-out to remain the centre of attention.
Government bond markets showing signs of distress…
Government bond yields have risen sharply over the quarter, despite the best efforts of politicians to talk them lower. These increases have been driven by both higher real yields and increases in expected inflation and are partly a consequence of better-than-expected growth but also driven by concerns around fiscal credibility – namely the inability of governments to control budgets. Levels are starting to look attractive, but we are somewhat wary of adding until we have some confidence that they are stabilising.
…while equities remain focussed on AI
Interest-rate sensitive parts of the equity market (such as utilities and small caps) have struggled, but overall the large-cap technology companies have reasserted their dominance. Interestingly, their strong recent earnings and relatively muted price performance has meant that valuation multiples based on expected earnings have receded somewhat from their highs late last year. One concerning aspect is poor market breadth, with only a few companies driving markets near all-time highs – this bears watching closely.
Continued earnings growth will likely be critical
We are moving into a ’show me‘ phase of AI, with investors starting to probe whether continued extravagant spending will result in future revenue and earnings growth. To that end, we will be carefully watching the upcoming earnings announcements to see if the hyperscalers can start to show specific AI-related profits as proof of concept. If they struggle to convince, then one of the key pillars of equity market strength will start to come into question, which could drive consolidation, or alternatively weakness, into year end.
Approver: Quilter October 2026
QIP 24004/25/19214
