Moderate Portfolio Fact Sheet

Outperformance was driven primarily by equities. Global equities delivered their strongest second quarter since 2020, as the easing of the Middle East conflict sent oil prices back towards pre-crisis levels and strong reported earnings helped boost risk appetite. In the portfolio, Comgest Growth Japan was the standout, supported by a recent US-Japan trade deal and continued enthusiasm for AI beneficiaries. US markets also performed well across both large and smaller company holdings as the rally broadened beyond the technology leaders. Emerging market and Asian holdings gained, led by South Korean and Taiwanese markets, while European and UK exposure participated on the back of attractive valuations.

Fixed income contributed positively as corporate bonds and higher-yielding credit outperformed government bonds with the return of positive sentiment to the markets. The only detractor within the sleeve was the US TIPS holding, which fell as oil prices reversed and US inflation expectations eased.

Alternatives were mixed. Gravis UK Listed Property rebounded strongly from depressed levels, but the portfolio’s holding in Cohen & Steers Diversified Real Assets detracted due to a reversal in energy and other commodity prices.

AI remained at the forefront of equity markets, particularly in the United States and Asia ex-Japan, as investment in data centre infrastructure continued to gather pace. Investor attention has also shifted further 'upstream' within the AI supply chain, with companies such as Micron and TSMC reporting strong earnings growth. However, questions around the durability of this growth have contributed to heightened share price volatility.

A notable development during the quarter was SpaceX's blockbuster initial public offering (IPO). The company raised more than USD$85bn, making it the largest equity issuance in history. The offering also saw a record 20% allocation to retail investors, who appeared willing to look beyond valuation concerns in favour of the company's long-term growth prospects.

In monetary policy, the European Central Bank (ECB) raised interest rates by 0.25% in June, citing expectations of higher inflation and weaker economic growth than previously forecast, reflecting what it described as "a more pronounced impact of the war". In the US, the Federal Reserve left interest rates unchanged, as elevated inflation and a resilient labour market continued to support a cautious policy stance.

In the UK, the quarter also brought significant political developments, with Keir Starmer resigning as Prime Minister and Andy Burnham succeeding him as the country’s seventh Prime Minister in a decade. Gilt markets have now turned their attention to the possible implications for public finances.