Our latest investment views: July update

• The opening week of April brought with it White House rhetoric suggesting a cessation of hostilities toward Iran. This triggered a relief rally for stock markets with the S&P 500 Index of US companies enjoying its best day of 2026 so far. This was the beginning of a significant turn in market direction that saw global stock markets power ahead throughout April and May.
• With the US and Iran trudging toward compromise, the price of oil fell more than 40% over the second quarter from a peak of $126 to around $73 a barrel by the end of June.
• This eased inflationary worries and allowed the dollar to weaken. Meanwhile, a massive tidal wave of earnings growth that was centred on US and Asian technology stocks ignited markets in both the US and Asia.
• Although UK shares briefly outperformed when investor sentiment cooled – thanks to over 20% of the FTSE 100 Index consisting of oil and gas, metals and mining stocks – they underperformed other developed markets in the second quarter, gaining just 3.4%.
• As the AI buildout theme re-emerged as the most prominent driver of stock markets in the second quarter, emerging market shares leapt over 23% while North American shares gained just over 14% on the back of the best US earnings season for five years. Japanese and European shares were close behind with double-digit gains.
• Among our thematic holdings, a wave of recent M&A and IPO deals in the biotech space, has seen it outperform the wider stock market, repaying our conviction in the sector. Meanwhile, decreasing regulatory hurdles and a change of leadership at the Food and Drug Administration (FDA) have paved the way for more deals to come.
• The performance of our insurance holding has recently improved. Although investors continue to overlook this area, we see the potential for strong growth as fears of interest-rate hikes have receded while US insurance premiums continue to rise due to climate change, the spread of electric vehicles, and cyberattacks.
• Elsewhere, our position in mining companies stands to benefit from the supply squeeze on all types of industrial metals that’s being created by steeply rising government spending on infrastructure and defence, the sprawling AI buildout, and the green energy transition.
• We remain broadly overweight to stock markets as despite the background noise, the recent rally in share prices has been driven by sensational earnings growth, not hype – especially for companies in the AI sphere.
• We expect to see the new US earnings season continuing the recent narrative of both sustained earnings growth, and a widening of this growth to US companies outside of the AI complex.
• We continue to prefer shares outside of the US due to the greater growth potential they present. As this year’s ‘oil shock’ continues to dissipate, European and Japanese shares will be among the biggest beneficiaries. The same argument supports our tilt towards UK and UK smaller company holdings. Meanwhile, investing in emerging markets has become more of a bet on AI stocks than investing in the US.
• Even so, the evidence that the US economy is enjoying a cyclical upswing in growth alongside the operational excellence of many US companies means we’re reluctant to go further underweight to US shares.
• Thanks to our overweight towards more cyclical regions – ie those more driven by the economic backdrop – our portfolios are also marginally overweight to ‘value’ investing and to smaller companies, relative to our long-term averages.
• We look forward to the second half of the year which promises to see markets moving past the short-lived Iran war. We expect the focus to move to the reduced fears of inflation and interest-rate increases, and the strong fundamental backdrop of an expanding US economy which, along with massive AI investment, is driving sustained earnings growth.
• Even so, this is no time for complacency. Given the stellar run stock markets have enjoyed since their nadir in March, we expect to see increasing market squalls ahead as investors choose to bank their profits.

Our stock market exposure

• As at 29 June 2026, the Handelsbanken Wealth Balanced Multi Asset Fund, which sits at the mid-point of our portfolio range in terms of the balance between risk and reward, held 67.8% of its portfolio in company shares – a small overweight compared to our long-term average weighting.
• Within this, we remain underweight to US stocks versus our long-term average, although the US remains our largest regional weighting. It accounts for 50% of our total stock market exposure. Conversely, we’re overweight to the stock markets of more economically sensitively regions, chiefly the UK and emerging markets.
• We are underweight in Japanese companies, as we see more compelling opportunities elsewhere.
• The Balanced Multi Asset Portfolio has thematic exposures to UK and US smaller companies, biotech, sustainable infrastructure, metals and mining, and insurance sector stocks.

• The second quarter of 2026 was a volatile one for government bonds. UK government bonds (gilts) initially suffered a far worse decline than US Treasuries due to the UK’s greater exposure to the rising oil and energy prices triggered by the Iran war. They consequently rallied back harder, despite the UK’s latest political turmoil.
• While gilts delivered 2.1% over the second quarter of the year, this was only sufficient to restore their previous losses meaning that UK government bonds were entirely flat in the first half of the year. Meanwhile, more modest returns from US government bonds (Treasuries) over the second quarter left them ahead by just 0.5% in 2026.
• In May, global bond markets recoiled at sharply rising oil prices and signs that the closure of the Strait of Hormuz was pushing US inflation higher. Yields on 30-year Treasuries, hit 5% – their highest since 2007 (meaning their prices were at record lows). Meanwhile, 30-year gilt yields hit their highest since 1998 due to the additional political turmoil caused by ‘Starmergeddon’ and the need for yet another UK prime minister, our seventh of the decade. It was only when Labour’s leader in waiting, Andy Burnham, while still unelected to parliament, pledged to stick to the UK’s fiscal rules that the yields on 10-year gilts retreated from their highs of over 5%, meaning their prices gained, as traders walked back expectations of greater government borrowing and higher interest rates.
• Kevin Warsh’s arrival as the new Chairman of the Fed in June initially triggered US Treasuries to sell off over fears of higher US interest rates. Whether Mr Warsh’s apparently hardline was an attempt to build credibility, and support his earlier claims of not being Mr Trump’s “sock puppet” remains to be seen. What is clear is that while the Bank of England is seeking to deliver greater transparency the Fed is making concerted efforts to do the opposite.
• We are of the view that current projections for central bank interest-rate hikes look overdone. Indeed, while both the US and UK central banks need to maintain strong, anti-inflation rhetoric, a number of factors suggest that a pivot to cutting interest rates could be closer than most observers currently think.
• To us, the prospect of the 2026 UK rate hikes currently priced in seem especially at odds with the underlying fundamentals of Britains’s anaemic economy, and this is what underpins our decision to move back from neutral to an overweight position in gilts.
• With no other appreciable changes to our views, this left our total bond exposure at neutral. Within this, we were overweight to both UK government and investment-grade corporate bonds (issued by companies), relative to our long-term average, underweight to high-yield bonds and neutral on emerging market bonds.

Our bond market exposure

• As at 29 June 2026, the Handelsbanken Wealth Balanced Multi Asset Fund held 22.6% of its portfolio in bonds, a small underweight relative to our long-term average weighting. Within this, 7.6% was in government bonds, which was a slight underweight, despite our marginal overweight to UK government bonds.
• The fund also held 8.9% in higher-quality, investment-grade corporate bonds (issued by companies) with a 3% weighting to higher-yielding bonds of lower credit quality. This represented a slight underweight compared to our long-term average weighting.

• The fund’s small position in emerging market bonds was in line with our long-term average weighting.

The ‘alternative’ investment space covers an enormous universe of competing strategies and asset classes from gold, commodities and commercial property to specialist hedge funds that employ a diverse spectrum of strategies. Consequently, broad statements as to our view on the market as a whole are redundant.

In the alternatives space we hold only gold, a select group of hedge fund strategies, and a small position in commercial property.

Although we’re broadly underweight to alternatives, relative to our long-term average weighting, we have significant positions in gold, hedge funds, and a small but growing exposure to property assets where we’ve recently been reducing our underweight.

• We previously held gold as a reliable means to ‘hedge’ geopolitical risks. Although it enjoyed its strongest run up in decades in 2025, and moved higher early in 2026 due to geopolitical risks, the outbreak of the Iran war marked the end of its diversification benefits. Somewhat counter-intuitively gold sold off sharply when the latest war in the Middle East broke out as investors chose to take their profits.
• Thanks to its previous run-up, gold is currently more correlated to risk assets such as shares and bonds. Consequently, our decision to cut our exposure to gold and go underweight at the start of the second quarter proved timely. The gold price declined by over 13% during the second quarter to be 6.6% down in the first half of 2026.

• We hold hedge funds to protect us from violent market disruptions by providing returns with a low correlation to the movement of stock and bond markets. Our trend-following hedge fund has continued to reward in 2026 thanks to this year’s increased market turbulence and the active re-balancing undertaken by the fund’s manager. It remains an attractive way for us to ‘hedge’ the risk of sudden market declines.
• We also remain overweight, relative to our long-term average, in what are called ‘commodity trading advisor’ or CTA funds. These employ complex derivative strategies to trade across commodities, shares and currencies and tend to perform well in recessionary periods. Given the recent correlation we’ve seen between stock and bond markets, this makes such funds an attractive addition to our portfolios.

• Currently, economic indicators suggest that our neutral to marginally underweight positioning in global real estate is the correct stance given the intense competition for capital apparent in the sector.
• While we believe that the best way to play property is through core property holdings with additional tactical ‘satellite’ positions in more specialist real estate trusts (REITs), we think the latter look expensive. Consequently, we remain very selective.

Our alternatives market exposure

• As at 29 June 2026, the Handelsbanken Wealth Balanced Multi Asset Fund held 9.2% of its portfolio in alternative asset classes intended to deliver diversification from its stock market and bond holdings. This was split between a 2.5% weighting to property and a 3.3% weighting to gold – both underweights relative to our long-term averages – and a slight overweight to hedge funds (3.4%).