Hoshang Daroga

Following a volatile nine months in 2025, we maintain our conviction that American exceptionalism remains intact. While US dollar weakness has weighed on the relative performance of US equities year to date, we are more concerned about the global growth outlook than that of the US, and anticipate further Sterling depreciation against the US Dollar. Provided the US avoids recession, we expect US equities to outperform, supported by stronger earnings growth. To balance the higher valuations and growth bias inherent in US equity exposure, we complement it with UK equity income stocks, which offer lower valuations and a value bias. When risk is defined as volatility, near-term bonds offer protection but require acceptance of inflation risk; conversely, when risk is defined as inflation, long-term equities provide a hedge but demand tolerance for volatility. Dividend income growth tends to be more progressive from equities than from Gilts. We remain concerned about the sustainability of government debt levels and the fiscal outlook in the UK and other countries and therefore favour short-dated over long-dated bond exposures. Additionally, we continue to view gold as a strategic hedge against a potential bond market crisis, where debt and currency devaluation pose significant risks.

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