Global Markets Between Meetings

In a reversal of our last update, the period between our March and April Investment Committee meetings has been a positive one for markets.

The dominant market narrative has remained the Strait of Hormuz, and how likely it is to reopen. Sentiment shifted repeatedly through the period as the situation evolved. The opening weeks saw a clear deterioration, with shipping incidents in the Gulf and the breakdown of US-Iran talks in Islamabad, which led the US to impose a naval blockade. A brief window of optimism around a ceasefire framework was then closed off when Iran announced a fresh closure of the Strait in mid-April, with the Pentagon subsequently warning that fully clearing the waterway of mines could take up to six months. Despite all of this, markets steadily worked their way higher.

The rally in equities isn’t without justification however. A large contributor to the strength we’ve seen in markets is that US corporate earnings have been very strong through the period. With Q1 reporting season now well advanced, S&P 500 earnings growth is tracking at around 27%, the strongest pace since late 2021, and ahead of expectations heading into the quarter. AI spend as well as the One Big Beautiful Bill and a weaker dollar have all proved to be tailwinds.

As time went on, the market appeared to grow more comfortable with the prospect of the Strait remaining closed for some time, and all major equity indices posted strong returns. The standout performers were the regions hit hardest during March’s sell-off, namely Japan and Emerging Markets, both areas we modestly added to following the drawdown. Although they were considered the most exposed to any reduction in oil supply, the market has been willing to look through that risk for now.

Bond markets, by contrast, had a more uncomfortable period. With investors focused on the inflationary impact of sustained higher oil prices, yields generally drifted higher. Gilts were badly affected given the UK’s reliance on imported energy, with the 10-year yield reaching 5.10% during the period and volatility in shorter-dated gilts briefly approaching levels last seen during the Liz Truss episode in 2022. US Treasuries and European government bonds were more orderly, but also weaker on the month, while corporate credit spreads widened only modestly.

Despite the strength of the recovery in equities, we don’t believe we are out of the woods. The disruption has affected more than just oil, with aluminium, fertiliser and shipping costs all rising because of the closure, feeding into a broader pick-up in input costs. Importantly, even a swift diplomatic resolution would not see trade flows snap back immediately: mine-clearance is expected to take months, insurance markets will be slow to normalise, and rerouting via the Cape of Good Hope is adding meaningfully to delivery times in the meantime. With these frictions likely to keep goods price inflation elevated, we see scope for inflation to reassert itself. In that scenario we would prefer to hold alternative assets rather than equity or longer-dated bonds, and it was on this basis that we took the decision to reduce equity exposure slightly across our model portfolios, which is covered in more detail below.

Technology stocks have been the primary driver of the market rally. Within the sector, the principal concern coming into the season was AI capital expenditure. The hyperscalers were collectively expected to grow AI spend by 77% this year, to around $725bn, with further increases pencilled in for coming years. Strong cloud results have largely offset that concern: Google, Amazon and Microsoft all delivered substantial cloud revenue growth, helping to justify the elevated capex. Meta was the notable exception. Although revenue growth was strong at 33%, capex came in higher than expected, and there is now a growing market debate around whether the business is shifting from being capital-light to capital-burning.

The period has been a constructive one, but the gains in equity markets sit somewhat at odds with the more cautious signals emerging from bonds. Strong corporate earnings have given the rally a reasonable justification, but the inflationary consequences of the conflict, and the time it will take for trade flows to fully normalise, leave the path forward less clear than the recent recovery might suggest. Against this backdrop, we are happy to maintain a slightly more defensive posture across our model portfolios, with the changes outlined below positioning us for a wider range of outcomes from here.

Changes to Model Portfolios and Seven Rivers Funds

Across our model portfolios we have reduced equity exposure in favour of diversified alternatives, reflecting our caution around the inflation outlook set out above. Another alternative would have been to add to fixed income, but with rising inflation and the prospect of higher rates likely to weigh on bonds as well as on equities, we felt that our blend of absolute return strategies and real assets within diversified alternatives offered better protection across a wider range of outcomes. It is also worth stressing that this is not a large reallocation. We are not predicting that inflation will return, simply that the probability has risen since the conflict began, and a modest tilt feels appropriate as a response to that shift in odds rather than a high-conviction call on a particular outcome.

The most significant addition within equity has been Amati Strategic Metals, which we have introduced in line with our view that real assets will become increasingly important from here. This has been partly funded by exiting three positions that have disappointed: Troy Trojan Global Income and Heriot Global, both of which we sold on the back of a sustained period of poor performance, and Hyperion Global Growth Companies, where weak performance combined with a lack of AUM growth had left us with an uncomfortably large share of the fund. The proceeds have been redeployed into our more favoured active and passive names, with additions to Fidelity Index World, Orbis Global Equity and Redwheel Global Equity Income.

In fixed income, we have reduced our exposure to short-dated conventional bonds and introduced short-dated index-linked gilts in their place, providing a more direct hedge against the inflation risks we could see ahead.

Within diversified alternatives, we have further trimmed our infrastructure exposure and added to gold, which we feel gives us a more meaningful gold exposure at model level.

In the Responsible fund, following GIB’s decision to close its UK wealth management business, we sold their Emerging Market fund and reinvested the proceeds into the passive alternative we previously used. We have also taken the opportunity to derisk modestly, building up the position in our money market fund, and Troy has been sold here too in line with the change in the main range. Finally, we have introduced Brown Advisory US Sustainable Value, mirroring the Barrow Hanley US Mid Cap addition in the main range and giving the Responsible model comparable US value exposure within a sustainable framework.

Disclaimers

The content is intended for retail investors only, and for marketing and information purposes only. It is not an offer or solicitation to buy or sell any security, nor does it constitute investment, accounting, legal, or tax advice. You should not rely on this document as such – you should seek advice from your professional advisers.

The information is obtained from third party sources we believe reliable, but accuracy and completeness are not guaranteed, and opinions may change without notice.

Past performance and forecasts are not reliable indicators of future results. Investment values and income can fall as well as rise and you may get back less than you originally invested. Currency movements may also affect returns.

We accept no responsibility or liability for any loss arising from the use of this information. We and any connected parties may act upon information referred to herein before this document is published.

IC meeting date 27^th April 2026. The information and commentary contained in this document is based on views as at 12^th May 2026 and may be subject to change.