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Our market summary
August was broadly positive for global markets with global equities up 2.0% in US dollar terms. However, the strength of the pound against the dollar saw this reduce to 0.4% for sterling-based investors. Investor sentiment was supported by strong corporate earnings alongside a more dovish stance from the US Federal Reserve (the Fed) in the face of weakening US labour market data. Trade tensions also eased slightly, with the US extending tariff pauses with China and reaching agreements with other countries. Elsewhere, equity valuations are still elevated, especially in the US, suggesting limited room for disappointment. Therefore, diversification across regions and asset classes remains key to managing risks from inflation and trade-related slowdowns.
US
US equities were also up by 2.0% in US dollar terms, driven by strong Q2 earnings and expectations of Fed rate cuts. However, this equated to a loss of 0.1% for sterling-based investors due to the weakness of the dollar. Alongside positive earnings, business surveys improved. Materials and healthcare outperformed, while technology lagged due to concerns over measurable financial returns from AI implementation.
Europe
European equities saw small gains and ended the month up by 1.2%. Returns were driven by strong economic data, which showed a pick-up in business activity and signs of economic expansion. Energy and consumer discretionary sectors led the way, while IT and industrials underperformed. French political uncertainty weighed on European equity returns, with the main French index down following the announcement of a no confidence vote in the government.
UK
UK equities gained 1.1%, supported by energy, telecoms, and basic materials. Technology declined, mirroring global trends. Inflation rose to 3.8% prompting increased caution from the Bank of England around the pace of future rate cuts, after cutting its policy rate by 25 basis points. There were further signs of internal dissent (four members of the Monetary Policy Committee voted for no change) with signs of a weakening UK jobs market complicating the backdrop.
Emerging markets
Emerging market equity returns were again affected by the weaker US dollar, with a 1.6% gain in US dollar terms equating to a 0.6% loss for sterling-based investors. Returns were driven by Latin America and China. Brazil shrugged off US tariffs, supported by currency strength and easing inflation, while China, up 2.8%, benefited from extended tariff pauses and chip supply expansion plans. Taiwan and Korea underperformed due to tech weakness and tax concerns.
Fixed income
Fixed income markets were mixed in August. US Treasuries gained 1.0%, driven by Fed rate cut expectations and weaker labour data, and the yield curve steepened amid concerns over the independence of the Fed. In the UK, gilts were down 1.1% with inflation surprises and fiscal worries pushing yields higher. Meanwhile, global corporate bonds, up 0.7%, outperformed global government bonds (up 0.3%), supported by strong earnings and tightening spreads.
Performance review
The Cirilium Portfolios generated modest positive returns over the month, ranging from 0.4% for the Conservative Portfolio through to 0.6% for the Adventurous Portfolio. All of the portfolios outperformed their IA (Investment Association) performance comparators.
Our equity holdings were the dominant contributor to returns. After an initial fall on concerns about the implementation of US tariffs, stock markets recovered over the month as expectations increased for rate cuts from the Fed. Lower interest rates more broadly meant that our fixed income holdings were also positive contributors to returns.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance. The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.
Performance summary
Portfolio activity
In the three lower-risk profiles, we added the AXA US Short Duration High Yield fund as a way to add defensive yield exposure, where we have less volatility than the index, to the portfolios. The AXA strategy invests conservatively in the higher yielding part of the corporate bond market.
We also moved part of our global investment-grade credit exposure from the Wellington Global Credit ESG Fund to the newly added Schroder Strategic Bond Fund. The Schroder fund tends to carry similar amounts of credit risk to investment-grade credit over time but also has flexibility to allocate to different parts of the fixed income universe. We think this increases the outperformance potential in the portfolio while not adding meaningfully to risk.
Investment outlook
For one of the often discussed ‘quiet summer months’, August felt rather more eventful. Shifting expectations around monetary policy and political manoeuvres from President Trump have set up markets for an interesting run into the end of the year. A holistic assessment of markets – not just a focus on valuation or politics – will be particularly important in navigating these markets.
Rate cuts now looking likely…
Weak employment data at the start of the month set the mood and increased market expectations for a September rate cut from the Fed. Comments from the Fed Chair, Jerome Powell, also helped accelerate this view with markets now expecting five interest rate cuts over the next year (up from expectations at the end of July of three). There is now meaningful room for disappointment should these cuts not materialise.
…while Trump kept politicking…
There was focus on the Fed through August as President Trump sought to fire Governor Lisa Cook. Trump’s decision was due to alleged mortgage fraud committed by Cook but the market has refocused on the possibility of a non-independent central bank. Should President Trump manage to gain control of the Fed, markets will need to grapple with the uncertainty of President Trump’s decision making versus his desire for lower rates and less regulation.
…and companies keep growing
Meanwhile, the end of August basically ended the earnings release cycle for this quarter with NVIDIA reporting sales and profit growth still in the high double digits. Strong performance across the US stock market is accompanied by high valuations, but in a world where growth is soft, these high growth pockets are desirable.
Ian Jensen-Humphreys
Portfolio Manager
Sacha Chorley
Portfolio Manager
CJ Cowan
Portfolio ManagerSolutions
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