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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 Responsible Blend 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 income 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.
Resilience amid European weakness
European equities were the laggard over the period as higher energy prices, rising bond yields and fiscal concerns weighed on investor sentiment. Despite the challenging backdrop our holding in the EdenTree Sustainable European Equity 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
Healthcare stages a recovery
Within our global specialist allocation, AB International Health Care was a notable performer, returning 3.7%. Healthcare has faced a difficult few years as demand normalised following the pandemic and policy uncertainty weighed on sentiment. However, more recently, parts of the sector have recovered strongly, with healthcare also providing some resilience during periods of AI-related market volatility.
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 actively managed holdings generally lagged the broader market, largely due our underweight to these sectors. Our strongest performers were the L&G Future World ESG Tilted and Optimised UK Index and Janus Henderson UK Responsible Income funds, with the latter benefiting from the market taking a more considered view of companies previously seen as potential ‘AI losers’.
Emerging markets equity
How our emerging market holdings performed
Value leads in mixed emerging markets
Emerging market equities delivered mixed returns during the quarter. Our strongest holding was the Pzena Emerging Markets Focused Value Fund, which benefited from an underweight to information technology and positive stock selection across a range of sectors. The JPMorgan Emerging Markets Equity Fund 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 alternative holdings performed
Diversification proves its worth
Alternatives were broadly supportive during the quarter and were a relative bright spot compared to traditional fixed interest. The JP Morgan Global Macro Sustainable Fund was the strongest performer, returning 3.9%, 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) Fund struggled. Overall, our alternatives allocation helped cushion some of the weakness seen across fixed interest markets and provided valuable diversification benefits.
Responsible investment update
During the quarter, we initiated discussions with managers on several environmental and social risk topics. These included conversations on exposure to companies in the defence sector and several carbon-intensive businesses, where we sought to understand how managers assess the risks and encourage improvements through engagement. These discussions help us determine whether the holdings remain aligned with their responsible investment approach and provide evidence that material ESG risks are being considered. Some cases remain under active monitoring, while others no longer require immediate follow-up.
During the quarter, we also continued work associated with our Climate Action Plan through engagements with managers invested in several companies identified as significant contributors to climate risk, including major electricity and utility companies. These discussions explored how managers assess the credibility of transition plans, including commitments to reduce emissions, invest in renewable energy, and support the transition to a lower-carbon economy. While managers generally considered the transition pathways of energy companies such as RWE and SSE to be credible, discussions highlighted significant execution challenges, including planning approvals, grid infrastructure constraints, energy security considerations, and the pace of investment in emerging technologies.
We also engaged with managers on NextEra Energy after their decision to withdraw climate targets. While managers continue to view them as a significant developer of renewable energy, the tendency for US companies to remove formal targets in the current political environment has prompted discussion on how investors can monitor progress. Encouragingly, managers highlighted a range of alternative indicators, including growth in renewable capacity, energy storage deployment, and emissions trends, whilst continuing to engage for greater transparency around the company's long-term climate ambitions.
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.
Stuart Clark
Portfolio Manager
Helen Bradshaw
Portfolio Manager
Bethan Dixon
Portfolio ManagerApprover: Quilter October 2026
QIP 24020 /25/19226
