Global Markets Between Meetings

Global equity markets returned a little under 2% over the period, an unremarkable figure that conceals an eventful five weeks. Japan illustrates the point. It fell more than 5% in the first three days, recovered to stand over 7% higher by the middle of August, then surrendered almost all of that ground to finish 2.6 % up. The technology heavy Nasdaq index led both the falls and the recovery and ended as the strongest market of the period, while Europe took a considerably steadier route to a very similar destination. The United Kingdom returned around 1%, lagging the wider global market, and Hong Kong was the only major market to finish lower than it began.

The Federal Reserve left interest rates unchanged at the end of July, and its new chairman, Kevin Warsh, declined to offer investors any detailed guidance on what might follow. Speaking at the Jackson Hole conference at the end of August, he was considerably clearer, describing inflation as running too high and leaving the door open to an increase in rates. Investors took the point, and the probability they attached to a rise in September moved from around one in three to better than evens. This matters because it is the reverse of the direction markets had been expecting for most of the past two years.

Government bond yields rose over the period, particularly on longer dated bonds, with the thirty-year United States Treasury reaching its highest level since 2007. In an unusual move, the United States Treasury announced it would substantially increase its purchases of its own longer dated bonds in an attempt to bring those borrowing costs down. Total United States government debt passed forty trillion dollars during August. We have for some time preferred bonds of shorter maturity, where we believe investors are better compensated for the risk being taken, and the events of this period have supported that stance.

The most striking currency development came at the very start of the period, when the United States Treasury bought yen alongside the Japanese authorities to arrest the currency’s slide to forty-year lows. This was the first such joint operation between the two countries since 2011, and it was notable less for its scale, which was modest against the enormous daily turnover in that currency, than for the signal it sent about the level of official concern.

Later in the month attention turned to the dollar itself. Following the announcement on bond purchases, the dollar weakened and both gold and bitcoin rallied strongly. This particular combination is what investors have come to call the debasement trade. The thinking behind it is that when confidence in a currency erodes, whether because of the scale of government borrowing, the persistence of inflation or political pressure on the central bank, money moves towards assets whose supply cannot simply be increased at will. Gold and bitcoin both fall into that category. On this reading, the rise in the gold price says as much about the currency it is measured in as it does about gold itself. Gold rose by around a tenth over the month and reached fresh highs.

We continue to hold a modest allocation to gold in the majority of portfolios. It has served its purpose over the long term as a source of protection when other assets come under pressure, and while its behaviour over the past six months has been less reliable in that respect, we remain comfortable with the position at its current size.

Shipping through the Strait of Hormuz remains severely disrupted, and the oil price was unsettled throughout the period as a result. Prices eased through the first fortnight of August on expectations that an arrangement to restore traffic through the waterway was close, then rose again when no agreement materialised and the rhetoric on both sides hardened, before falling back towards the end of the month as talks between Iran and Oman on a temporary shipping route appeared to make progress.

Running alongside this, the United States set out plans for a substantially tougher sanctions regime, described by the Treasury Secretary in unusually stark terms and intended to isolate Iran economically rather than to escalate militarily. The wider significance lies in the direct effect on the oil price as well as the tension such an approach would create with China, which is a substantial buyer of Iranian oil. In the event, the measures announced were less severe than markets had feared, and oil fell on the news. This remains a situation we are watching, though we would caution against reading too much into any single headline.

Technology shares were volatile rather than weak. Chipmakers fell sharply in the closing days of July, and again in the middle of August, on a combination of rising borrowing costs and questions about how the enormous investment being made in artificial intelligence infrastructure is being financed. Neither episode reflected a deterioration in the underlying businesses so much as a reassessment of expectations after an exceptionally strong run.

Set against that, results from Nvidia at the end of August comfortably exceeded expectations, with revenues roughly doubling on the same quarter a year earlier, and the shares responded strongly. Taken as a whole, the technology heavy Nasdaq index finished the period as the strongest of the major markets despite having led the falls along the way. The forthcoming stock market listing of Anthropic, one of the leading artificial intelligence firms, is expected in the autumn and will be watched closely as a gauge of appetite for the sector more broadly.

Changes to Model Portfolios

Earlier this year we took the decision to slightly reduce the equity content of our portfolios. That was a deliberate risk management step, taken because we were concerned that inflation was proving more persistent than expected, driven in large part by the energy costs flowing from the closure of the Strait of Hormuz, and that the response to it, in the form of higher interest rates held for longer, would in time weigh on economic growth and on company profits. Neither of those concerns has yet come to the fore. Inflation remains higher than central banks would like, and the risk has not disappeared, but economies have proved more resilient than we anticipated and company earnings have continued to grow. In that environment a more cautious stance was always likely to give up a little of the return available from markets, which is the trade-off we accepted at the time in exchange for a smoother outcome had those risks materialised.

Having reviewed this at our most recent investment committee meeting, we have decided to bring the equity content back into line with benchmark. The change applies only to the lower half of the risk range, where the underweight position was most pronounced. The higher risk portfolios were already close to their benchmark equity weight and are unchanged. The additional equity has been funded from both fixed income and diversified alternatives, rather than from either alone, so that the balance between the remaining holdings is preserved. We have continued to maintain our overweight to diversified alternatives. Bonds have been a less dependable counterweight to shares at times over the past few years, moving with equity markets at times when we would have expected them to move against, and we regard diversified alternatives as the more effective source of protection in present conditions.

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 28^th August 2026. The information and commentary contained in this document is based on views as at 3^rd September 2026 and may be subject to change.