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Our market summary
July was mixed for investors. Market leadership shifted away from high-growth technology and AI stocks towards better-valued areas such as energy and financials.
Rising oil prices added inflation concerns, weighing on bonds, while resilient company
earnings helped support sentiment. Find out more by reading our market summary.
Performance review
In July, the Monthly Income and Monthly Income and Growth portfolios delivered a 0.2% loss and a 0.3% gain, respectively with both of the portfolios ahead of their performance comparators. Re-escalation in the US-Iran conflict sent oil prices higher, while semiconductor stocks that performed so strongly last quarter experienced a sharp reversal. Consequently, energy was the best performing global sector while tech was the worst. This benefitted the UK market and the portfolios, given our UK overweight versus the performance comparators. Bonds struggled, primarily due to the inflationary impact of higher oil prices, but the US Federal Reserve (the Fed) did not help either. Interest rates remained on hold despite speculation of an increase, but Treasury yields still rose as the new Fed Chair, Kevin Warsh, gave little away regarding the Fed’s next move. This increases uncertainty so investors demand higher yields for holding US debt, contributing to the negative returns from our traditional bond holdings.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Portfolio activity
We added two new investment trusts to the portfolios in July. Firstly, the TwentyFour Income Fund, an investment trust that invests in European asset-backed securities. This trust is managed by an experienced team and has dividend yield approaching double digits. The other new addition, the Sequioa Economic Infrastructure Income Fund, offers an interesting and higher yielding way to access the infrastructure asset class. It does this by investing in senior secured bonds backed by operational assets as opposed to the more common approach of taking an equity stake. These new additions were funded by selling out of the Ardea Global Alpha Fund and reducing exposure to the Quilter Investors Dynamic Bond Fund (managed by TwentyFour) and the AXA US Short Duration High Yield Bond Fund.
Investment outlook
Much like last year, 2026 has been a bit of a wild ride, but global equities were up more than 10% by the end of July. The conflict in the Middle East has buffeted markets, but the AI-driven growth theme is winning out overall, albeit with some hiccups. However, the ‘AI trade’ has morphed from backing the US mega caps into a broader consideration of the entire supply chain as mammoth investment spending comes up against supply bottlenecks, be that in raw materials, chips, or energy generation.
Equities: prices are high, but for a reason
When markets are riding high it is natural (and healthy) to be a little nervous. However, returns are typically strong when earnings are growing quickly, as is the case now. Despite this positive corporate backdrop, something that gives us pause for thought is the extent to which earnings growth is already priced in, it would not take much to underdeliver on these lofty expectations. It is the mismatch between expectations and reality that drives stock prices rather than the earnings themselves.
Bonds: the hikes that may never come
Bond markets expect roughly two interest rate increases from each of the Fed, ECB, and BoE over the next year. This is in response to the potential inflationary impact of conflict in the Middle East. Hiking rates would be an unusual response to a supply shock as it will do nothing to help tankers transit the Strait of Hormuz, although it might restrict inflation by imposing pain on the rest of the economy. Although the corporate picture looks strong, job markets are weaker, so it would not surprise us if these hikes are not fully delivered.
Income: more of the same
Dividends should remain solid, with the most growth expected to come from Japan. Despite this, dividend yields have been compressed by share price gains. While cash rates are elevated compared to the past decade or so, yield curves are not particularly steep and corporate bond spreads are tight. This means the additional compensation from holding government or corporate bonds rather than cash is not that high. So, the overall picture is one of reasonable income but with yields some way below their peaks.
Helen Bradshaw
Portfolio Manager
CJ Cowan
Portfolio ManagerApprover: Quilter August 2026
QIP 23843/29/18242
