Global Markets Between Meetings

May continued in much the same vein as April, another month full of political headlines, yet one in which earnings held firm and markets pushed higher. It is an interesting balancing act for an asset allocator, and one that leaves investors weighing how much to participate in still-strong economic growth against the need to stay alert to the obvious geopolitical, monetary and fiscal risks.

The major risk hanging over markets remains the closure of the Strait of Hormuz. Every week it stays shut is another in which the oil price remains elevated and inflationary pressures continue to build. We have appeared close to an agreement on several occasions but are not there yet. In early May both sides reported being close to a memorandum of understanding, though the nuclear question remained a persistent sticking point. As at the time of writing, a fragile ceasefire is still in place, but there is no lasting agreement and no flow of shipping through the waterway. While both sides have clear motivation to reopen the Strait, a durable and lasting peace still feels some way off.

Closer to home, political risk has come to the fore for UK investors. Labour’s heavy local election losses have cast real doubt over the future of Keir Starmer’s premiership, and markets dislike few things more than uncertainty. There is also concern about who might succeed him, both Andy Burnham and Angela Rayner are seen as standing to the left of Starmer, raising the prospect of higher government spending alongside a heavier tax burden on individuals and businesses. This has been felt most acutely in the gilt market, where yields have been notably volatile, peaking at 5.18%, their highest level since 2008, before retracing somewhat. Even after that move they remain elevated, and at these levels some now regard gilts as attractive, particularly given that the additional yield on offer for holding corporate rather than government debt remains fairly modest.

As we touched on at our last meeting, corporate earnings and economic data around the world, and in the US especially, have been very strong in recent months. More than 80% of S&P 500 companies have reported better-than-expected earnings, beating forecasts by an average of 18%. Against that backdrop the US has been a standout performer, with the technology-heavy NASDAQ delivering almost 10% between our last two meetings.

The AI hyperscalers remain central to that story. As we noted last time, they continue to generate enormous revenues, but the market is increasingly focused on the scale of their capital spending. The mega-cap US technology companies, Amazon, Alphabet, Microsoft and Meta, have for years combined vast cashflow generation with relatively asset-light business models, averaging free cash flow of around $34 billion each per quarter since the pandemic. The surge in AI investment is set to change that materially, with the figure expected to fall to roughly $4 billion in the third quarter of this year.

Finally, the IPO market looks set for an eventful few months, with some important businesses potentially coming to market. Elon Musk’s SpaceX could become the largest IPO on record, with a valuation touted as high as $2 trillion, while two of the largest names in AI, OpenAI and Anthropic, may also list this year, each at a potentially huge market capitalisation. While this could be positive for market momentum and equity sentiment, the capital to fund these new listings has to come from somewhere, and there is a risk that it crowds out some of the established names already trading in the market.

Changes to Model Portfolios and Seven Rivers Funds

The most significant of the changes made was to narrow our underweight position in US equities. The recent disruption to the Strait of Hormuz is, on balance, a relative positive for the United States. As a far more energy-independent economy, it is less exposed to the inflationary pressure that a sustained rise in energy prices could create in the UK and Europe. We are mindful that US valuations remain elevated, but they have continued to be supported by robust corporate earnings, and on balance we felt it right to bring our exposure closer to a neutral position. We have funded this largely by reducing UK holdings, where we see political instability as a risk.

Alongside this, we have taken steps to strengthen the portfolios’ resilience to inflation. We have modestly increased our holdings in index-linked bonds within the fixed income element of the portfolios, and added to our allocation to gold within the alternatives we hold. Both changes are intended to provide a degree of protection should inflationary pressures prove more persistent than markets currently expect, an important consideration given the energy backdrop noted above.

We have also made two changes at the manager level. Within our responsible and ethical holdings, we exited Liontrust Sustainable Future Corporate Bond, whose interest-rate positioning had moved out of step with our own view, reallocating the proceeds to ethical bond managers we already hold and know well. Separately, having previously removed Troy Trojan Global Income from our own equity fund following a prolonged period of disappointing performance, we have now taken the same step within our income model, replacing it with VT VanEck Global Equity Income, a fund we have followed closely for some time and whose disciplined approach to global equity income we rate highly.

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 26^th May 2026. The information and commentary contained in this document is based on views as at 1^st June 2026 and may be subject to change.