Our latest investment views: March update

• So far, the first quarter of 2026 has been a story of two halves. The dividing line is the onset of the US/Israel war on Iran on 28 February.
• The first half saw strong gains from stock markets outside of the US alongside solid progress for both government and corporate bonds (issued by companies), a weakening US dollar and a racing gold price. Markets were also expecting interest-rate cuts in the UK and US later this year.
• The second half has seen a reversal of this picture. Global stock markets have declined with Europe and the UK suffering painful losses in response to fears of a second energy-induced spike in inflation. Since the outbreak of the Iran war, US shares have seen muted losses, but outperformed their peers with former winners such as Japan, Asian Pacific and emerging markets suffering significant losses, although they remain strongly ahead in 2026 (to 20 March).
• Expectations of interest-rate cuts in the UK have evaporated. They have been replaced with fears of a potential hike later in 2026, while US rate cuts now seem a distant prospect.
• The dollar has also strengthened as investors seek ‘safe havens’ from market volatility. This has benefitted US mega-cap stocks, in particular the Magnificent 7 cohort, while reversing the recent fortunes of the US software sector. It’s also helped to undermine the gold price. For sterling investors, gold plummeted by close to 12% in the first three weeks of March.
• Fortunately, we came into the year with a view best described as ‘constructive, but not complacent’. We saw economic momentum building, inflation and interest rates abating and the prospect of strong US company earnings. We also saw the heightened geopolitical risks signalled by US actions toward Ukraine, Venezuela, Greenland and Iran.
• The short-term outlook for stock markets now hinges on how long the Iran war persists, and specifically, how long the Strait of Hormuz, the world’s key supply channel for the petrochemical, liquified natural gas and fertiliser industries, remains closed. Any extended closure will have significant consequences for global growth and inflation.
• Even so, we remain alert to the stock market opportunities created by the outbreak of war in the Middle East. If history is any guide, markets will quickly move on from the threats posed, and there are already tentative signs that President Trump has reached the limits of his current position.
• Among our thematic holdings, our insurance exposure has so far rewarded, thanks to its defensive characteristics with the sector moving much in line with the broader S&P 500 Index of US companies, which has outperformed its international peers since the conflict began. Our biotech exposure has performed relatively well as the sector is fairly well insulated from geopolitical turmoil (although it’s sensitive to potential interest-rate hikes).
• Elsewhere, our trend-following hedge fund has performed robustly so far this year, thanks to the increased market turbulence we’ve seen, while our purchase of a ‘put option’ in late 2025, that will pay out if stock markets suffer any further declines this quarter, now looks especially prescient.

Our stock market exposure

• As at 23 March 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 64.4% of its portfolio in company shares, which represented a small overweight compared to our long-term average weighting.
• Within this, we remain underweight US stocks versus our long-term average, although it remains the largest regional exposure at 52% of total stock market exposure. Conversely, we are 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.

• Prior to the onset of the Iran war, we had been reticent of further bond exposure as markets were transitioning from a period of synchronised interest-rate cuts from central banks to one of diverging rate decisions, which introduced an element of ‘two-way’ risk to bond markets. At the time, the UK and US were still expected to make further rate cuts unlike their peers in Europe and Japan.
• With the onset of the Iran war, UK government bonds, or gilts, became an immediate casualty. February’s solid gains were erased in March, leaving gilts in negative territory for 2026. Although more muted, US government bonds (Treasuries) also sustained losses to be in the red for 2026 (to 20 March).
• Most notably, interest-rate expectations have reversed course since war broke out in the Middle East. Prior to the hostilities, markets were expecting two UK interest-rate cuts this year. This has been replaced with the expectation that interest rates might need to rise this year as the UK imports another round of fuel price inflation.
• Expectations of US rate cuts have also been pushed a long way back, with all four major central banks pointing to the inflation risk posed by the current crisis in the Gulf at their recent March meetings. All four also kept interest rates on hold.
• Because inflation was already higher in the UK than in the US, and because the US is the world’s largest energy exporter and so mostly self-sufficient in terms of its energy needs, US Treasuries have so far sustained less damage than UK gilts.
• At the time of writing, UK 10-year borrowing costs had risen to an 18-year high, while the gilt market continued to be whip-sawed by President Trump’s changing rhetoric on the Iran war and by a new, surprisingly ‘hawkish’ tone from the Bank of England.
• Bond markets will remain under pressure so long as the spectre of another energy-driven inflation spike persists. This could be some time considering the effort it will take to restore global supply lines, and so ease inflation pressures, even if the war comes to an early end.
• Since the start of the Iran war, bonds have demonstrated relatively few diversification benefits. However, yields for government bonds – especially gilts – now stand at attractive levels meaning they offer attractive future income streams, and greater diversification benefits going forward.

Our bond market exposure

• As at 23 March 2026, the Handelsbanken Wealth Balanced Multi Asset Fund held 24.4% of its portfolio in bonds. Within this, 9.1% was in government bonds which was an underweight relative to our long-term average weighting. We reduced our overweight to UK government bonds prior to the outbreak of the Iran war. This took us back to a ‘neutral’ weighting (meaning it was much in line with our long-term average weighting).
• The fund also held 10.2% in higher-quality, investment-grade corporate bonds (issued by companies) with a 3.3% 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.
• Following the significant fall in UK gilt prices, we decided to take advantage of the value on offer by adding back to our holdings once more, moving us from ‘neutral’ back to being marginally ‘overweight’ (compared to our long-term average).

The ‘alternative’ investment space covers an enormous universe of competing strategies and asset classes from 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 hold gold as the best means to ‘hedge’ geopolitical risks. Although the gold price surged due to earlier geopolitical events in 2026, it sold off sharply following the start of the Iran war (to 20 March) as investors booked profits. We would expect to see gold’s safe-haven characteristics reasserting themselves, and demand returning, in response to today’s heightened geopolitical tensions.

• 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.

• We recently increased our global property exposure from ‘underweight’ to ‘neutral’ on the basis that such assets should benefit from the improving economic backdrop. However, the potential for rising interest rates caused by an energy-driven spike in inflation will impact the prospects for real-estate assets.

Our alternatives market exposure

• As at 23 March 2026, the Handelsbanken Wealth Balanced Multi Asset Fund held 10.7% of its portfolio in alternative asset classes intended to deliver diversification from its stock market and bond holdings.
• Our exposure to gold constituted just over 40% of this weighting with our specialist hedge fund positions and our small exposure to property accounting for the rest.
• For the Balanced Multi Asset Fund this represented a slight underweight compared to our long-term average weighting.