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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 WealthSelect Managed Active Portfolios delivered mixed returns during the third quarter, with the lower-risk portfolios recording modest declines while mid- and higher-risk portfolios generated small positive returns. The differing outcomes were largely driven by asset allocation, with portfolios holding higher allocations to equities benefiting from the relative resilience of equity markets, while those with greater fixed income exposure were more affected by rising bond yields. Fixed income was a notable detractor as higher bond yields and renewed inflation concerns weighed on returns. However, our long-standing preference for liquid alternatives over fixed interest helped cushion some of this weakness.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Developed markets (ex UK) equity
How our developed market 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 the Quilter Investors Japanese Equity Fund (managed by M&G), which gained 5.7%. The market continues to benefit from a more supportive economic backdrop, improving corporate profitability, and ongoing corporate governance reforms aimed at enhancing shareholder value.
Gold shines
Our precious metals allocation delivered another strong quarter, with the Quilter Investors Precious Metals Equity Fund (BlackRock) up by 20.2%. The asset class benefited from renewed concerns around inflation and fiscal sustainability, with investors increasingly attracted to gold's role as a store of value amid rising government debt levels and persistent macro uncertainty. The allocation also continued to provide valuable diversification.
Resilience amid European weakness
European equities were the laggard over the 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.
UK Equity
How our equity holdings performed
Energy lifts the UK market
UK equities delivered positive returns during the quarter, supported by resilient economic data, attractive valuations, and a strong contribution from the energy and commodity sectors as oil prices moved higher. Our holdings generally lagged the broader market, largely due to our underweights in these sectors. The strongest performer was the Quilter Investors UK Equity Opportunities Fund (Artemis), which benefited from strong stock selection, particularly within the mid-cap segment of the market where improving sentiment towards domestically focused businesses supported returns.
Emerging markets equity
How our emerging market holdings performed
China leads mixed emerging markets
Emerging market equities delivered mixed returns during the quarter. Our strongest holding was the Quilter Investors China Equity Fund (M&G), which benefited from improving sentiment towards Chinese equities. The Quilter Investors Emerging Markets Equity Growth (JP Morgan) was the weakest performer. The fund was held back by weakness across parts of the Asian tech and semiconductor supply chain, particularly in Korea and Taiwan.
Fixed interest
How our fixed-interest holdings performed
Rising yields weigh on bonds
Fixed interest faced a challenging quarter as rising bond yields weighed on returns across government and corporate bond markets. Stronger US economic data, higher energy prices, and renewed inflation concerns led investors to reassess the outlook for interest rates, resulting in a broad sell-off in bond markets. Against this backdrop, all of our fixed interest holdings delivered negative returns, although the Quilter Investors Diversified Bond Fund (Premier Miton) proved relatively resilient. The fund’s active duration management helped mitigate some of the impact of rising yields, showing the value of a flexible approach in a difficult market environment.
Alternatives
How our alternatives holdings performed
Diversification proves its worth
Alternatives were broadly supportive during the quarter and were a relative bright spot compared to traditional fixed income. The Quilter Investors Global Equity Absolute Return Fund (Jupiter) was the strongest performer, up 5.0%, demonstrating the benefits of a diversified return stream that is less reliant on the direction of traditional equity and bonds. In contrast, the Quilter Investors Long-Short Equity (JP Morgan) and PIMCO Dynamic Bond funds struggled, with the latter impacted by its duration exposure as bond yields moved higher. Overall, our alternatives cushioned some of the weakness seen across fixed income markets and provided valuable diversification.
Investment outlook
Throughout the third quarter, markets increasingly shifted their attention back to inflation and central bank policy. The key question now is not how long rates remain restrictive, but whether further increases will be required to bring inflation back under control.
Energy adds to inflation concerns
Higher energy prices resulting from tensions in the Middle East are an obvious source of concern, but they are not the only risk. Resilient economic activity, particularly in the US, ongoing supply-side pressures, and the potential for wage inflation to remain elevated could all contribute to inflation proving more persistent than expected.
Higher rates test market valuations
With several developed market central banks already raising rates during the quarter, investors will be watching closely for signs of whether further policy tightening is required, and what impact this may have on both economic growth and financial markets. Higher interest rates can also act as a headwind to asset valuations, particularly in areas where expectations are already elevated.
Navigating political uncertainty
Alongside inflation and central bank policy, investors must also navigate an increasingly busy political calendar. The upcoming UK Budget and US midterm elections could have important implications for fiscal policy, taxation, and government borrowing. As recent quarters have shown, market narratives can shift quickly, so we remain focused on maintaining diversified portfolios and a pragmatic, flexible approach as risks and opportunities evolve.
The latest WealthSelect quarterly reports covering Q3 2026
Portfolio managers
Stuart Clark
Portfolio Manager
Helen Bradshaw
Portfolio Manager
Bethan Dixon
Portfolio ManagerApprover: Quilter October 2026
QIP 23844/29/18225
