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What We’re Thinking About Markets Right Now
As we move into the new year, markets are adjusting to an important transition. Inflation is easing, interest rates have likely peaked, and attention is turning to how quickly policy makers can begin cutting rates without reigniting price pressures.
Rather than trying to predict short-term market moves, our focus remains on building portfolios that can navigate a range of outcomes - participating in growth where it is sensibly priced, while remaining resilient if volatility returns.
What We Reviewed and Agreed at the Latest Investment Committee
At our most recent Investment Committee meeting, we reviewed portfolio performance, market conditions and positioning in detail. The key outcomes were:
- Fund performance is ahead of benchmark once fully invested
Both the Growth and Defensive funds are outperforming their benchmarks from the point at which capital was fully invested.- Early reported underperformance is explained by a short cash period at launch and does not reflect client experience.
- No changes to asset allocation at this stage
- The Growth fund is currently around 75% equities / 25% bonds, slightly below its long-term 80/20 target.
- We agreed this is appropriate for now given market conditions and the limited performance history of the funds.
- Asset allocation will be reviewed again once more data is available.
- Short-duration bonds remain preferred
- We expect further interest rate cuts, but primarily at the short end of the yield curve.
- Short-dated bonds offer attractive income and are best positioned to benefit from falling rates.
- No increase to high-yield bond exposure
- Credit spreads are currently tight, meaning investors are not being well compensated for taking extra risk.
- Existing holdings remain in place for income, but we are not adding at these levels.
- Equity risk kept broadly neutral
- US equities are slightly expensive, but not to an extent that justifies materially reducing exposure.
- Other markets - particularly Japan and parts of Europe - offer better value and diversification benefits.
- Costs remain a focus
- We are reviewing opportunities to reduce fund charges further by switching to lower-cost ETFs where appropriate, without compromising diversification or liquidity.
What This Means for You
- Portfolios remain fully invested and diversified
- Risk is being taken deliberately, not aggressively
- Income remains attractive in fixed income without stretching for yield
- Equity exposure is maintained, but spread globally rather than concentrated
This is a measured, long-term approach designed to support your financial plan - not to chase headlines or short-term market noise.
As always, we will continue to review positioning and make changes where the balance of risk and reward justifies it.