As part of our focus on providing a high quality, personalised investment service, our Investment Office look to support our investment managers in their decision making when it comes to constructing client portfolios.
Our asset allocation committee is one example of this, via their monthly output showcasing their views on a global basis; this is then complemented by a sectoral view from the stock selection committee. The combination of these top down and bottom up opinions is an important resource for our investment managers to validate their own investment theses or to generate new investment ideas.
These committees, which consist of members of our research team and a number of investment managers, aim to provide a view that seems most suitable in the current climate. The output of the monthly meetings remains a suggested stance and it is important to note, that the views expressed are those of the committees and may not necessarily be those of your individual investment manager.
Here we present a snapshot of the current views.
SECTOR FOCUS
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Communications |
The communications sector is concentrated around names that are exposed to the AI theme and thus valuations look stretched. Whilst we continue to like the sector structurally, we believe that lots of optimism is currently baked into share prices and therefore we retain our underweight recommendation. The sector has some less expensive parts such as telecoms, however none are large enough to offset the weightings in a handful of very large companies. |
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Consumer Discretionary |
The sector benefits from strong labour markets and sustained demand in areas such as online retail. However, global growth concerns and trade tensions are beginning to weigh on investor sentiment. Consumer confidence is mixed. Despite this, long-term structural trends remain supportive. We maintain an overweight position, focusing on areas with resilient demand and attractive valuations, while remaining selective given the sector’s sensitivity to economic cycles. |
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Consumer Staples |
The sector is under pressure from persistent inflation and high interest rates. While pricing has held firm in some regions, consumers are increasingly shifting towards value options. As inflation eases, volume growth is becoming more important than pricing. Regulatory and trade-related uncertainty continues to cloud the outlook. Rising promotional activity and narrowing margins suggest a more competitive environment, requiring companies to adapt quickly to preserve profitability. |
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Energy |
Oil had a volatile quarter. In June Brent rose from $60 per barrel to $81 due to the US bombing Iran. When the world realised that the Strait of Hormuz would not close, the price fell to its current $66. While forward oil prices used to trade at a large discount to the spot market, both prices are now closer – a sign that the supply and demand is returning to normal. With the renewable agenda fading under Trump’s “Drill baby drill” mantra, we remain neutral as we see increasing demand well met by supply. |
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Financials - Banks |
The sector’s quarterly performance was middling. In the UK, financials outperformed, driven by strong momentum in earnings due to growth and provisions being lower than anticipated at the end of 2024. It’s now a case of back to basics and trying to work out what happens to interest rates. Banks tend to do better when interest rates are rising because their net interest margins tend to widen. We think rates are drifting down and hence adopt a neutral stance on the sector. |
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| Health Care |
Health care has performed poorly due to headwinds generated by the US administration. The combination of tariffs, the potential for drug pricing regulation in the US and the pressure on vaccines has led health care share prices to underperform and valuations look undemanding when viewed with a long time horizon. We are sceptical around the likelihood of US drug pricing regulation, but believe tariffs can be managed. We are optimistic about the long-term structural drivers of the sector and remain overweight. |
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| Industrials |
The earnings delivery of industrials through the recent reporting period was a little mixed, with the market rewarding companies that delivered against expectations positively and punishing those who missed expectations heavy handedly. This has resulted in some rich valuations for companies delivering robust growth, against a tepid industrial production growth backdrop. All points considered, we retain our neutral position. |
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| Information Technology |
Tech once again dominates equity market performance due to persistent optimism around AI. Recent earnings have shown continued rapid growth for AI-exposed companies, with cloud service providers growing faster than already lofty expectations. With all this optimism though, valuations look demanding. The structural long-term drivers are impressive, albeit this is often fully reflected in share prices now. While we continue to want exposure to the sector, we retain an underweight exposure given where valuations sit. |
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| Materials |
Whilst we echo our view about the importance of Chinese demand, the last quarter saw a focus on the effect of Trump tariffs. At the end of May, copper in the USA was trading at 4.7c per lb. It peaked at 5.8c per lb on the back of Trump’s proposal to slap tariffs on copper bars coming into America. After Trump reversed out of that tariff, the price collapsed back to 4.5c. Like other cyclical sectors, we look to the medium-term macro outlook and conclude that a neutral stance is probably the correct positioning. |
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| Real Estate |
Global real estate markets are showing signs of recovery, supported by improved financial conditions and increased investor interest. Office leasing activity is picking up, while retail remains stable despite cautious consumer behaviour. Industrial demand has softened as businesses seek more flexible arrangements. Residential investment continues to grow. Although risks tied to interest rates and policy remain, sentiment is improving, and capital flows are gradually returning. |
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| Utilities |
As we had expected given the regulatory backdrop, power utilities have outperformed water utilities in 2025 thus far. We continue to have preference for power over water and appreciate the defensive qualities of utilities through a period of increased global uncertainty, but balance this against a lack of further positive catalysts for the sector. We retain our neutral position. |
ASSET ALLOCATION
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UK |
UK economic growth has been solid so far this year, reflecting the global trend of front-loading activity ahead of the implementation of tariffs. However, economic momentum should wane as the tariff effect unwinds, the labour market continues to ease, and households and businesses anticipate fiscal tightening in the Autumn Budget. With inflation easing in the latter stages of 2025 into 2026, we anticipate further Bank of England rate cuts. Whilst valuations are attractive, the risk of more aggressive fiscal consolidation supports a neutral rating. |
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North America |
Despite the impact of the tariffs on confidence, economic activity has held up better than expected. However, a drag on growth is expected and there has been a deceleration in hiring. Markets are looking ahead to the prospects of a less independent Federal Reserve under pressure to deliver rate cuts with inflation above its target. This reflationary policy combination should boost equities, but could prove a source of financial market instability and US dollar weakness. Due to these factors and the high premium of US equity market valuation, we retain an underweight rating. |
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Europe |
The growth outlook appears brighter, amid considerable defence and industrial spending, with low inflation having cleared the path for a substantial easing cycle from the European Central Bank. It is, however, too early to say whether we are entering an environment of ‘European exceptionalism’, but policy is tilting in a strongly reflationary direction, which should be an offsetting positive to the negative impact of US trade policy and competition from Chinese electric vehicles. With scope for more fiscal and financial integration and relatively attractive valuations we have an overweight rating. |
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Japan |
This year is likely to see solid economic growth, though earlier optimism is somewhat tempered by US tariff policy which will weigh on external demand. We anticipate positive real wage growth, the definitive end to corrosive disinflation, and ongoing corporate sector reforms. These factors provide clear tailwinds to the growth outlook. Unlike other major central banks, we expect the Bank of Japan to moderately raise interest rates over the year. With the prospects for further shareholder friendly reform and solid corporate earnings delivery, we have an overweight rating. |
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Asia Pacific |
Front loading of activity, further policy easing by the People’s Bank of China, and measures to support consumption have delivered stronger than expected economic growth. However, a trade deal with the US has so far proved elusive, so there remains a tariff threat to China's export and industrial sectors. Elsewhere in the Asia Pacific region, with solid regional growth and the potential for further central bank easing, we remain optimistic about the regional growth and earnings outlook and have an overweight rating. |
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Emerging Markets |
The prospect of a weaker dollar is a helpful market backdrop. However, Mexico will remain adversely affected by the drag from trade and slowdown in cross border activity with the US and while there are bright spots – notably Argentina – the trade narrative makes the broader outlook somewhat uncertain, and reflecting this we have a neutral rating. |
