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Our market summary
May proved to be a strong month for global markets, as easing geopolitical tensions fed through to lower energy prices and improved sentiment. Hopes of progress in the Middle East drove a sharp fall in oil, helping to reduce inflation concerns. Together with a strong end to first quarter earnings season, this provided support to risk assets. Against this backdrop, global equities moved higher, with the MSCI AC World Index rising 6.1% in sterling terms. Bonds were more volatile, with yields rising earlier in the month before falling back as inflation expectations eased, leaving returns modestly positive overall.
US
US equities delivered solid gains, supported by continued strength in growth sectors. The MSCI USA Index rose 6.1% in sterling terms, with technology and AI‑related companies once again leading the market, although with clear selectivity and questions remaining over capital expenditure plans. Economic data remained resilient, reinforcing expectations that growth can continue without triggering a material deterioration in inflation. As a result, investor confidence improved, despite some mid-month volatility in bond markets.
Europe
European equities also advanced, though performance was more moderate than in the US. The MSCI Europe ex UK Index returned 4.5% over the month. Markets benefited from the global risk-on backdrop and easing inflation concerns, although gains were tempered by ongoing uncertainty around growth momentum and interest rates. Within the region, growth stocks outperformed, reflecting a broader global trend.
UK
The UK lagged other developed markets, with the MSCI UK Index delivering a more modest return of 0.5%. The market’s heavier exposure to energy and healthcare stocks weighed on performance. Domestic factors also remained in focus, including political uncertainty and sensitivity to interest rate expectations. However, returns remained positive, supported by the consumer and basic materials sectors.
Japan
Japanese equities continued their strong run, rising 5.8% in sterling terms. As an energy importer, the market benefited from signs of the Middle East conflict easing, as well as signs of improving economic momentum and positive earnings announcements. Japan’s exposure to global growth and cyclical sectors positioned it well to take advantage of improving sentiment.
Emerging markets
Emerging markets were among the best performers in May, with the MSCI Emerging Markets Index gaining 10.6%. Strength was driven largely by Korea and Taiwan, technology-focused markets that benefited from the continued enthusiasm around artificial intelligence and related hardware. However elsewhere performance was weaker, as a slow Chinese consumer economy continued to provide headwinds.
Fixed income
Fixed income markets experienced a mixed but ultimately positive month. Yields rose to multi-year highs earlier in May before declining as oil prices fell and inflation concerns moderated. UK gilts delivered a return of around 2.0%, while sterling corporate bonds also gained close to 2.0%. Global bonds were more subdued, with the Bloomberg Global Aggregate (GBP hedged) returning 0.6%. Credit markets held up well, supported by the improved risk backdrop and ongoing demand for income.
Source: Quilter as at 31 May 2026. Total return, percentage growth over period 30 April 2026 to 31 May 2026. Equities are represented by the appropriate MSCI index, the Magnificent Seven is represented by the Roundhill Magnificent Seven ETF, UK gilts is represented by the ICE BofA UK Gilt Index, US Treasuries is represented by the ICE BofA US Treasury (GBP Hedged) Index, global government bonds is represented by the Bloomberg Global Aggregate Government - Treasuries (GBP Hedged) Index, and global corporate bonds is represented by the Bloomberg Global Aggregate - Corporate (GBP Hedged) Index.
Performance review
The Cirilium portfolios delivered returns ranging from 2.3% for Conservative up to 5.3% for Adventurous, with all portfolios beating their IA performance comparators.
The ‘will they won’t they’ between the US and Iran continued but equity markets took little notice as semiconductor stocks helped drive a strong rally. Meanwhile, relatively hot US inflation data pushed bond yields higher, although they retraced as a deal with Iran looked more likely by month-end. A poor showing for Labour in the local elections put Kier Starmer’s position as prime minister in jeopardy and drove sterling weakness, which benefits returns from foreign assets. All this meant it was a positive month for most holdings, but Asian and emerging market equities were particularly strong, driven by South Korean memory companies SK Hynix and Samsung.
Additionally, the portfolios’ equity overweight boosted returns, as did tactical tilts towards Japanese equities and towards US growth stocks compared to value stocks. However, active managers had a tough time compared to passive index trackers, not helped by the market rally being concentrated in a relatively small number of AI related stocks.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Performance summary
Portfolio activity
We initiated a tactical overweight to emerging market equities during the middle of the month. In Asia, this is primarily an AI-driven trade, but commodity exporting Latin America countries add another complementary angle at a time when commodity and energy security is front of mind.
Shortly before the UK local elections we bought a put option on sterling versus the US dollar as an indirect hedge for our gilt exposure. We expected a bad result for Labour to be a negative for UK assets as Kier Starmer would likely be replaced as PM by someone less market-friendly. Meanwhile, sterling had performed well in April but gilts had not, so we believed selling sterling was a better expression of our view. Sterling duly weakened and we removed half of our position for a profit, leaving ourselves with what was now a ‘free option’ on further GBP weakness in early June.
On the manager side, we added Brevan Howard Macro, an investment trust that combines the best ideas of one of the biggest names in hedge fund investing. This was funded by trimming other alternatives holdings. We also added Jupiter UK Growth, following the removal of Ninety One’s UK Franchise strategy earlier in the year. Finally, we sold out of Miton US Opportunities fund after losing confidence in the manager, replacing it with small cap US equity index options, and we are actively searching for a new US smaller companies manager.
Investment outlook
Considering the geopolitical significance of events in the Middle East and subsequent market moves, it is tempting to react, but at times like this, leaning on our process can help mitigate any emotion-driven decision making. What follows are some of the thoughts we have about the key factors in our VTEC (valuation, technical, economics, and corporate) process and questions we are asking ourselves to help frame our views on markets in the months ahead.
Economics
Arguably, the economic factor is the most impacted in the near term. We have been focused on understanding the magnitude, speed, and length of the immediate inflationary impact and what this really means for the path of interest rates. Central bankers may be able to look through one-off shocks but if inflation proves more persistent, any policy response will need to consider the adverse effects on growth too.
Valuations/corporate
The unwind in AI/tech stocks in the first quarter took some of the top off the US stock market, but the bounce back has been very strong. Although most markets are not wildly expensive, they remain above historical averages. Set against this, earnings expectations remain optimistic. AI spending will continue, but to what extent have analysts incorporated (or ignored!) any adverse impacts from the energy price shock? US earnings season was positive and the big AI players are still making a lot of money, so they are tough to bet against.
Technicals
Being on the wrong side of positioning can turn a winning trade into a losing one so it is worth understanding whether we may expect any significant positioning changes from both retail and institutional investors. We will be on the lookout to see if corporate share buybacks continue as well as looking for stresses such as those that may arise from the slowdown in demand in the private credit market. We are also keeping an eye on the increase in equity supply coming from the splurge of US tech IPOs, although we are inclined to think that this doesn’t mean the end of the bull market.
Ian Jensen-Humphreys
Portfolio Manager
Sacha Chorley
Portfolio Manager
CJ Cowan
Portfolio ManagerSolutions
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Important Information
The value of investments can fall as well as rise. You might get back less than you invested.
This communication is issued by Quilter, a trading name of Quilter Investment Platform Limited
The Quilter Investors Cirilium Conservative Portfolio, Quilter Investors Cirilium Balanced Portfolio, Quilter Investors Cirilium Moderate Portfolio, Quilter Investors Cirilium Dynamic Portfolio, and Quilter Investors Cirilium Adventurous Portfolio are sub-funds of Quilter Investors Cirilium OEIC, an investment company with variable capital incorporated in England and Wales. Quilter Investors Cirilium OEIC is authorised by the Financial Conduct Authority as a non-UCITS retail scheme and can be distributed to the public in the United Kingdom.
Approver: Quilter June 2026
QIP 23856/29/17198
