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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 third quarter of 2026 was a more challenging period for both portfolios. The Monthly Income Portfolio fell by 0.6%, while the Monthly Income and Growth Portfolio delivered a positive return of 0.3%, with both slightly lagging their performance comparators. The Monthly Income and Growth Portfolio benefited from its higher equity weighting, as equities proved more resilient than bonds. Fixed income was a notable headwind as stronger US economic data and higher energy prices reignited inflation concerns and pushed bond yields higher. Meanwhile, the largest US technology companies once again outperformed the broader market as investors rotated back towards hyperscalers and AI beneficiaries. While we have exposure to this theme, our income objective leads to an underweight position which weighed on relative returns.
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 sets the pace
Japan was the standout region during the quarter, and this was reflected in the performance of our holding in M&G Japan Fund which gained 5.9%. The market continues to benefit from a more supportive economic backdrop, improving corporate profitability, and ongoing corporate governance reforms aimed at enhancing shareholder value.
UK mid-caps move higher
UK mid-cap equities were another strong contributor, with the Vanguard FTSE 250 ETF returning 7.5% during the quarter. The asset class benefited from resilient UK economic data, attractive valuations following a prolonged period of underperformance, and strong stock-specific performance across the index. This supportive backdrop also benefited some of our other active UK equity funds such as the J O Hambro UK Dynamic Fund.
Europe proves resilient
European equities were the laggard during the third quarter, as higher energy prices, rising bond yields, and fiscal concerns weighed on investor sentiment. Despite the challenging backdrop, our holding in the Quilter Investors Europe (ex-UK) Equity Income Fund proved relatively resilient. The fund's bias towards attractively valued companies with resilient earnings and strong cash generation provided some insulation from the broader market weakness.
Fixed income
How our fixed-income holdings performed
Bond yields rise
Rising bond yields created a difficult backdrop for fixed income during the quarter. Stronger economic data and renewed inflation concerns pushed yields higher, weighing on both government and corporate bond returns. One notable exception was BioPharma Credit, benefiting from its specialist lending approach and lower exposure to interest-rate risk than traditional bond investments.
Alternatives
How our alternatives holdings performed
A mixed quarter for alternatives
Alternatives delivered mixed returns during the quarter. Our allocation to the Schroder ISF Alternative Securitised Income Fund was one of the stronger performers, gaining 1.2%, supported by its focus on asset-backed lending and lower sensitivity to rising government bond yields. In contrast, FTF ClearBridge Global Infrastructure Income was weaker, falling 7.8%, as higher bond yields weighed on the valuation of infrastructure assets.
Portfolio activity
The most significant portfolio changes during the quarter were the additions of the TwentyFour Income and Sequoia Economic Infrastructure Income (SEQI) funds, funded in part through the sale of Ardea Global Alpha. While Ardea has historically provided valuable diversification, we felt the increasingly volatile macro environment was becoming more challenging for its relative-value approach. In addition, the income generated by the strategy had fallen significantly while the new holdings offer attractive yields and diversified sources of return. The TwentyFour Income Fund provides exposure to asset-backed securities, while SEQI invests in a diversified portfolio of infrastructure debt backed by long-term contractual cash flows. We believe both holdings are well positioned to support the portfolios' income objectives while enhancing diversification.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Cumulative returns over periods shown to 30 September 2026
| YTD | 1 year |
3 years |
5 years |
Since launch | |
| Monthly Income | 5.7 | 8.6 | 30.5 | 21.6 | 34.5 |
| IA Mixed 20-60% | 5.3 | 8.2 | 30.3 | 21.3 | 35.8 |
| Monthly Income and Growth | 8.8 | 12.8 | 39.6 | 34.0 | 54.8 |
| IA Mixed 40-85% | 8.4 | 12.1 | 39.4 | 31.7 | 57.0 |
Discrete annual returns over periods shown to 30 September
| 2026 | 2025 | 2024 | 2023 | 2022 | |
| Monthly Income | 8.6 | 6.6 | 12.6 | 4.1 | -10.5 |
| IA Mixed 20-60% | 8.2 | 7.4 | 12.1 | 4.2 | -10.7 |
| Monthly Income and Growth | 12.8 | 8.6 | 13.9 | 5.4 | -8.9 |
| IA Mixed 40-85% | 12.1 | 9.3 | 13.8 | 5.3 | -10.3 |
| Holding name | Fund manager (where applicable) | Monthly Income | Monthly Income and Growth |
| Global equity | 46.56 | 68.05 | |
| Asia Pacific equity | 5.79 | 7.40 | |
| M&G Japan | M&G | 3.03 | 3.53 |
| Schroder Asian Income | Schroders | 2.35 | 3.31 |
| Schroder Oriental Income | Schroders | 0.41 | 0.57 |
| Emerging markets equity | 2.49 | 4.31 | |
| Allspring Emerging Markets Equity Advantage | Allspring | 2.49 | 4.31 |
| European equity | 6.86 | 9.16 | |
| Montanaro European Income | Montanaro | 1.70 | 2.30 |
| Quilter Investors Europe ex-UK Equity Income | Schroders | 1.73 | 2.32 |
| Vanguard FTSE Developed Europe ex UK | Vanguard | 3.43 | 4.53 |
| Global equity | 4.62 | 6.76 | |
| Fidelity Global Quality Income ETF | Fidelity | 1.17 | 1.72 |
| Quilter Investors Global Equity Value | Redwheel | 3.44 | 5.04 |
| North American equity | 13.82 | 20.13 | |
| BNY Mellon US Equity Income Fund | BNY Mellon | 2.05 | 2.99 |
| Fidelity US Quality Income ETF | Fidelity | 3.42 | 5.03 |
| iShares Core S&P 500 ETF | BlackRock | 4.32 | 6.18 |
| Schroder US Equity Income Maximiser | Schroders | 2.08 | 3.08 |
| SPDR S&P US Dividend Aristocrats ETF | State Street | 1.96 | 2.86 |
| Private equity | 0.58 | 0.86 | |
| Neuberger Private Equity Partners | Neuberger Berman | 0.58 | 0.86 |
| UK equity | 12.40 | 19.42 | |
| Finsbury Growth & Income Trust | Lindsell Train | 0.51 | 0.81 |
| iShares Core FTSE 100 ETF | BlackRock | 0.59 | 0.94 |
| iShares UK Dividend ETF | BlackRock | 0.94 | 1.41 |
| J O Hambro UK Dynamic | J O Hambro | 2.32 | 3.63 |
| Quilter Investors UK Equity Large-Cap | Artemis | 3.03 | 4.77 |
| Schroder US Equity Income Maximiser | Schroders | 3.11 | 4.91 |
| Vanguard FTSE 250 ETF | Vanguard | 1.30 | 2.03 |
| The City of London Investment Trust | Janus Henderson | 0.60 | 0.94 |
| Fixed income | 47.18 | 26.64 | |
| Alternative fixed income | 2.01 | 1.41 | |
| Sequoia Economic Infras. Income Fund | Sequoia | 1.03 | 0.72 |
| TwentyFour Income Fund | TwentyFour | 0.98 | 0.69 |
| Corporate bonds | 20.37 | 12.18 | |
| BNY Mellon Global Credit | BNY Mellon | 1.45 | 0.87 |
| iShares $ Corp Bond UCITS ETF | BlackRock | 2.15 | 1.28 |
| iShares Core £ Corp Bond ETF | BlackRock | 2.40 | 1.44 |
| Premier Miton Corporate Bond Monthly Income | Premier Miton | 4.91 | 2.92 |
| Quilter Investors Bond 3 | J.P. Morgan | 0.04 | 0.01 |
| Quilter Investors Dynamic Bond | TwentyFour | 4.33 | 2.60 |
| Quilter Investors Sterling Corp Bond | Fidelity | 2.95 | 1.76 |
| Vanguard USD Corporate Bond ETF | Vanguard | 2.15 | 1.30 |
| Emerging market debt | 1.17 | 0.73 | |
| iShares JPM $ EM Bond ETF | BlackRock | 1.17 | 0.73 |
| Government bonds | 14.62 | 6.96 | |
| iShares $ Tips 0-5 UCITS ETF GBP | BlackRock | 1.50 | 0.85 |
| iShares GBP Index-Linked Gilts ETF | BlackRock | 0.45 | 0.31 |
| iShares USD TIPS ETF | BlackRock | 1.44 | 0.82 |
| L&G Emerging Markets Govt Bond Index | L&G | 2.49 | 1.47 |
| Vanguard EUR Eurozone Government Bond | Vanguard | 3.28 | 1.76 |
| Vanguard UK Gilt ETF | Vanguard | 3.37 | 0.23 |
| 10Y T-Note Dec 26 Future | -2.67 | -2.01 | |
| Long Gilt Dec 26 Future | 4.77 | 3.52 | |
| Other fixed income | 9.00 | 5.38 | |
| AXA US Short Duration High Yield | AXA Investors | 6.41 | 3.96 |
| BioPharma Credit PLC | Pharmakon Advisors | 0.83 | 0.58 |
| CVC European Opportunities Limited | Cvc | 1.31 | 0.84 |
| Fair Oaks Income Limited | Fair Oaks | 0.45 | 0.00 |
| Alternatives | 6.39 | 5.49 | |
| Alternative equity | 1.60 | 1.40 | |
| FTF ClearBridge Global Infrastructure Income | Clearbridge | 1.60 | 1.40 |
| Alternative fixed income | 2.73 | 2.36 | |
| Janus Henderson Absolute Return Fixed Income | Janus Henderson | 1.50 | 1.31 |
| Schroder Alternative Securitised Income | Schroders | 1.23 | 1.06 |
| Alternative other | 2.06 | 1.73 | |
| International Public Partnerships Limited | Amber Infrastructure | 2.06 | 1.73 |
| Cash | -0.12 | -0.18 | |
| Cash | -0.12 | -0.18 | |
| BlackRock ICS Sterling Liquidity | BlackRock | 0.01 | 0.10 |
| Cash | -0.13 | -0.28 |
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 U1 (GBP) accumulation shares over periods shown. The performance of other share classes may differ. The Monthly Income Portfolios launched on 26 June 2019.
Investment outlook
The third quarter highlighted just how quickly market narratives can change. Coming into the period, investors were focused on resilient economic growth and strong corporate earnings. By quarter end, attention had shifted back towards inflation, driven by rising energy prices, strong US economic data, and renewed geopolitical tensions in the Middle East.
Strong growth brings inflation risks
While equity markets have continued to deliver strong gains this year, leadership remains concentrated in a relatively small number of large US technology companies. More broadly, resilient economic growth and healthy corporate earnings continue to underpin markets. However, stronger growth has also contributed to concerns that inflation could remain elevated for longer, which could put pressure on valuations if interest rates stay higher than currently expected.
Improved bond opportunities
The rise in bond yields during the quarter was painful in the short term but has improved the opportunity set for investors, with fixed income now offering attractive income levels. However, resilient growth, elevated energy prices, and recent interest rate increases from several developed market central banks suggest inflation risks remain. Further upside surprises could create additional pressure on both bond markets and interest-rate-sensitive areas of the equity market.
A positive outlook for income
The outlook for income remains positive. Whie rising share prices over recent years have compressed equity yields in some areas, corporate earnings continue to support dividend payments, and higher bond yields have improved the opportunity set within fixed income. As demonstrated by the changes to the portfolios this quarter, we continue to find new and interesting opportunities to enhance and diversify the income streams of the portfolios.
Helen Bradshaw
Portfolio Manager
CJ Cowan
Portfolio ManagerApprover: Quilter October 2026
QIP 24018/25/19216
