In order to aid your understanding, the underlined terms are hyperlinked to definitions in our online investment glossary.
Our market summary
July saw improved investor sentiment as political uncertainty eased, and clarity emerged around US trade and fiscal policy. Key US trade agreements with Vietnam, Japan, and the EU helped reduce fears of an escalating global trade war. Equity markets responded positively, with global equities up 5.0% over the month. Meanwhile, bond markets faced pressure from rising yields reflecting both a better outlook for growth and concerns around US fiscal policy. Overall, markets reflected the cautiously optimistic sentiment of investors although concerns remain around high valuations in some regions and sectors.
US
US equities were up by 5.9% over the month, led by technology stocks, with the Magnificent Seven companies such as Meta, Microsoft, and Alphabet reporting strong Q2 results, driven by high demand for cloud computing and renewed enthusiasm around artificial intelligence (AI). Defensive sectors including healthcare and consumer staples lagged. Meanwhile, the passing of the ′Big Beautiful Bill′ added fiscal stimulus, providing support for cyclical and growth stocks.
Europe
European equities posted mixed results resulting in a 0.1% loss in local currency terms. However, the weakness of the pound versus the euro in July saw this equate to a 1.0% gain for sterling-based investors. The tariff settlement with the US was generally seen as a capitulation, but there was a sense of relief as the threat of even higher tariffs was averted. Strong earnings in healthcare and financials supported returns, but technology stocks underperformed due to the negative impact of US trade policy. Elsewhere, real estate and utilities struggled due to their interest rate sensitivity, with the European Central Bank (ECB) having signalled it is nearing the end of its rate cutting cycle.
UK
UK equities delivered positive returns ending the month up by 3.8%. This was led by energy, consumer staples, telecoms, and healthcare – which was supported by strong earnings updates from some large pharmaceutical companies. Real estate and technology were the laggards over the month. Elsewhere, government borrowing exceeded expectations amid rising debt costs, and political developments, including welfare concessions, raised concerns over fiscal discipline.
Emerging markets
Emerging markets were up 5.6% in July, driven by strength in Taiwan, China, Korea, and Thailand. AI optimism and trade progress supported sentiment. China showed economic resilience, with better-than-expected growth and industrial output, and Korea benefited from a favourable US trade deal. Meanwhile India and Brazil posted losses as they were impacted by US tariff-related risks. They face US tariffs of 25% and 50%, respectively.
Fixed income
Fixed income markets faced headwinds from rising yields and fiscal concerns. US Treasury yields climbed (meaning prices fell) due to the combination of inflation concerns, better than expected economic data, and deficit worries. The US Federal Reserve held rates in the US, but political pressure is mounting. Eurozone yields rose as the ECB maintained rates and signalled limited appetite for future cuts. UK gilts saw a sell-off after higher-than-expected inflation numbers.
Performance review
The Cirilium Portfolios delivered positive returns in July, starting at 0.7% for the Conservative Portfolio and steadily increasing to 3.7% for the Adventurous Portfolio.
US equities were the main positive driver of performance as corporate earnings reports were robust, and congress passed the ′Big Beautiful Bill′ with its various tax cuts and spending measures. Several trade deals also buoyed investor sentiment. Our emerging markets equity holdings were also strong contributors.
Our fixed income holdings were a modest drag as government bond yields ended the month slightly higher, although corporate bonds performed a little better. Meanwhile, our alternatives holdings generally eked out modest positive returns.
Performance summary
Portfolio activity
During July we completed the switch out of the Quilter Investors US Equity Growth Fund and into the JPMorgan US Growth Equity Active ETF. This switch increases our exposure to US large-cap companies. We also moved our US yield curve steepening position into bonds with longer maturities as we retain conviction in the theme, but the holding cost of the original trade was becoming punitive.
Elsewhere, we rotated some capital between our infrastructure investment trust holdings selling half of Pantheon Infrastructure, which has performed exceptionally well over the past year, and adding to the Renewables Infrastructure Group, which has lagged. We also sold out of Pollen Street, a legacy holding in a private equity operating company, and topped up our holding in the iShares Physical Gold ETC.
Finally, we bought some call options on the US dollar versus sterling. The dollar has been very weak so far this year, even against currencies whose economies are struggling (like the UK). While a significant reversal in fortunes is not our base case, these options were very cheap and offer substantial potential upside.
Investment outlook
A long-term investor who checked their portfolio infrequently might look back over the year so far and conclude that it had been quite uneventful. Equity returns were positive across all regions, when measured in pounds sterling, and bond returns were positive yet muted. This was not the whole story, but markets seem to have concluded that prospects for growth and investment returns have not changed that much.
Trump remains the centre of attention...
We still do not really know where we will end up with tariffs given all the conflicting announcements and negotiations, but we think they will be more onerous than we (or the market) had assumed at the start of the year. In addition, the sharp increase in general policy uncertainty can itself act as a brake on economic activity, which is a headwind for corporate profit growth.
...while UK politics impact gilt pricing...
The short-lived rumours of Rachael Reeves’s removal as chancellor led to a sharp sell-off in gilts as investors feared the potential alternatives. We expect to see tension in bond yields due to weak UK growth (normally leading to a lower policy rate and lower yields) and widening government spending deficits (normally leading to a greater gilt supply and higher yields). This feels a hard one to call at this stage and the failed attempt to curb welfare spending makes growth stifling tax rises at the next budget more likely.
....and US companies keep growing
For all the talk about ′the end of US exceptionalism′, we would note that US companies are still delivering robust earnings growth. This strong performance is accompanied by high valuations, but in a world where growth is soft, these high growth pockets are more desirable. Another complication is the weakening US dollar, which brings currency hedges under consideration.
Ian Jensen-Humphreys
Portfolio Manager
Sacha Chorley
Portfolio Manager
CJ Cowan
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