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 largest constituents of the sector (Alphabet and Meta) are both heavily exposed to AI and to digital advertising. Performance in both these areas is strong, however the sector continues to see an increase in capital intensity accompanied by as yet unknown returns. Anecdotal examples of AI supporting greater advertising monetisation are encouraging, however with where valuations still sit, we remain underweight given the sector’s greater exposure to the uncertainty surrounding AI capex. |
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Consumer Discretionary |
The sector has been mixed, with consumer spending resilient but uneven. Higher-income households continue to support areas such as travel and online retail, while weaker real income growth and higher financing costs are putting greater pressure on lower- and middle-income consumers. We maintain an overweight position, focusing on businesses where demand remains resilient and earnings growth is visible, while remaining selective given the sector’s sensitivity to consumer confidence. |
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Consumer Staples |
The sector offers defensive characteristics and resilient cash flows, although the outlook has become more challenging. Consumers remain focused on value, while higher input and logistics costs and growing competition from private label products are putting pressure on margins. We retain a neutral stance, recognising the sector’s stability and dependable demand, while balancing these qualities against softer volume growth and more limited pricing power. |
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Energy |
Energy has lost some of its earlier gains as the geopolitical risk premium in oil prices has eased and the supply-demand outlook has become more balanced. Nevertheless, inventories remain low and geopolitical risks support commodity prices, while the sector generates strong free cash flow. We remain neutral due to the sector’s cash generation and capital discipline, while acknowledging that limited demand growth and the potential for further normalisation in Middle Eastern supply could constrain current growth. |
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Financials - Banks |
Banks have performed well. Recent results show robust performance in investment banking as mega-IPOs have supported equity-related business. Banks demonstrate robust credit quality and improving loan growth. Concerns around private credit have eased. However, valuation multiples have continued to expand to reflect this improved performance. The UK presents a regulatory overhang amid speculation about additional bank taxes. In light of this we remain neutral. |
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| Health Care |
Health care is recovering from poorer sentiment in 2025. The regulatory picture has been more stable of late and the results of several trials in obesity, Alzheimer’s and oncology have served to stimulate renewed interest in the sector. Earnings growth in 2026 has been sluggish, however expectations for 2027 are more positive. Whilst policy risk has not completely disappeared, given the sector valuations continue to screen cheaply, we are happy to retain our overweight recommendation. |
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| Industrials |
We have seen a broadening out of performance across the Industrials sector beyond businesses exposed to electrification and data centre investment of late. Industrial production growth remains reasonably tepid, but the Purchasing Managers’ Index has risen and order growth has been robust. Having said that, industrial valuations which previously appeared rich, appreciated further. This warrants a continuation of our underweight view. |
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| Information Technology |
The sector is dominated by AI. Investors question whether investments in AI will yield adequate returns, leading to softening in some valuations. Earnings are strong, with estimates for earnings growth revised higher throughout the year. The large cloud infrastructure providers have increased their spending plans – a tailwind for semiconductor companies. The risk that AI monetisation is below expectations exists, however with lower valuations and performance above expectations, we upgrade to neutral. |
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| Materials |
Materials equities have paused for breath of late following a strong start to the year. Copper is appreciating amid strong demand and constrained supply. Iron ore prices have moderated as a result of increases in supply and already high inventories, which has been a headwind in combination with higher fuel prices. Ex-Uk, materials is closely tied to industrial production growth which is tepid in key regions. We remain neutral but appreciate opportunities in mining-exposed equities. |
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| Real Estate |
Real estate markets have continued to recover. The sector is interest-rate sensitive, as changes in rates affect property portfolio valuations. As we look ahead to 2026, there are grounds for measured optimism, incorporating a modest recovery in housing, strong rental growth, and the broader residential investment market. We retain a neutral stance, balancing improving fundamentals against financing costs and valuation sensitivity. |
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| Utilities |
Whilst we appreciate the role of power utilities in supporting the ever-increasing need for additional power supply over the coming years, we believe this is well reflected in valuations, which could dominate the usually defensive nature of such businesses somewhat. Performance in UK water has been a mixed bag year to date; however, we continue to view the sector as structurally challenged in the long term. With these considerations in mind, we move to underweight. |
ASSET ALLOCATION
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UK |
The investment case for UK equities remains solid. Valuations remain attractive relative to global peers, while generous dividend yields offer an appealing source of returns. Significant exposure to financials, energy and industrials provides diversification away from the higher-valued growth sectors dominating US indices. UK performance has broadened beyond large caps, with the FTSE 250 benefiting from improving domestic confidence and growing investor interest in undervalued UK assets. |
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North America |
The US economy demonstrates resilience, supported by healthy private sector balance sheets, fiscal support and investment in artificial intelligence infrastructure and data centres. Inflation remains above target – likely to keep the Federal Reserve cautious and the prospect of rate cuts off the table for now. Although valuations are high relative to many international markets and fiscal imbalances persist, the combination of strong earnings delivery and economic resilience and innovation supports a neutral stance. |
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Europe |
Eurozone equities remain supported by reasonable economic growth, a pickup in corporate earnings and relatively undemanding valuations. However, higher energy prices are feeding into inflation and prompting the European central bank to hike its key policy rate by 0.25%. This is particularly relevant for energy intensive sectors, where margins can come under pressure if costs cannot be fully passed through. More broadly, the bloc’s reliance on imported energy leaves it exposed to external shocks. As a result, the recovery is likely to remain gradual. |
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Japan |
Corporate governance reforms are increasing shareholder returns and profitability. Japan has emerged from decades of deflation and is operating in a healthier environment characterised by positive wage growth, moderate inflation and improving domestic demand. It also stands to benefit from ongoing investment in automation, advanced manufacturing and semiconductor supply chains. Despite strong recent performance, valuations remain reasonable and international investor participation remains below previous peaks, offering scope for further gains. |
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Asia Pacific |
Asia is a key driver of global economic growth and innovation. Strength in the technology cycle supports several key markets, while supply chain diversification is attracting investment into manufacturing hubs. The prospects for a softer US dollar should provide a supportive backdrop for regional currencies and capital flows, while policymakers in several countries retain flexibility to support domestic demand. Combined with generally attractive valuations and favourable long-term growth prospects, this underpins our positive outlook. |
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Emerging Markets |
The outlook across emerging markets remains mixed. Many economies are benefiting from stronger domestic demand, favourable demographic trends and deeper integration into global supply chains. A potentially weaker US dollar and more stable global interest rate backdrop should provide additional support for many countries, although higher resource costs may weigh on some importers. Political risk, policy uncertainty and uneven economic performance continue to create significant divergence between markets. We maintain a neutral overall allocation while favouring specific markets. |
