Tom McGrath

The third quarter was marked by an uneasy balance between resilient growth and persistent inflation pressures. Tariff headlines have faded slightly from the front pages, but their impact on supply chains, corporate margins, and central bank policy remains a live issue. Markets have rallied in places, but beneath the surface, positioning has been more cautious, with investors rotating regionally and reassessing valuations.

In the UK, inflation has stayed stubbornly high in services, leaving the Bank of England cautious despite mounting political and fiscal pressures. Public borrowing is overshooting forecasts, and while rate cuts are expected, the pace of easing looks set to be gradual. UK equities have struggled in this environment, and we have reduced exposure, moving back towards a more neutral stance relative to our long-term benchmarks.

In contrast, the US continues to be the global bellwether. Growth has moderated but remains broadly resilient, and corporate earnings have held up better than many feared, even as margins feel the strain of higher costs. Valuations remain demanding, but the risk of being materially underweight has diminished as market leadership broadens. We have therefore added modestly to the US, trimming our underweight, reflecting a more balanced risk/reward profile.

Europe and Asia remain important diversifiers. German fiscal expansion, stronger sentiment indicators, and more attractive relative valuations have made Europe an area of renewed interest. In Asia, China’s incremental stimulus, Japan’s tariff exemptions, and a more constructive stance from global investors have supported regional allocations. These exposures continue to provide balance and opportunity within portfolios.

Fixed income has been more complicated. While yields remain elevated, inflation progress has been patchy, and government bonds have struggled to deliver consistent protection. We have shifted away from a UK-heavy gilt weighting in favour of broader global bond allocations, with particular emphasis on US credit, where yields remain attractive and fundamentals solid.

Looking forward, the environment is likely to stay challenging, with inflation easing only gradually and geopolitical uncertainty persisting. Yet corporate balance sheets are broadly healthy, earnings momentum outside the US is improving, and valuations in Europe and Asia remain supportive. In this context, we continue to favour diversification, balanced equity exposure, and active regional allocation.

Our overall stance is cautiously constructive. We are no longer materially underweight the US, while reducing UK exposure, and continue to favour opportunities in Europe, Asia, and global credit. The aim is to capture selective upside, while maintaining resilience in what remains a finely balanced global outlook.

‍