Andrew Johnston

We maintain a neutral stance on overall portfolio risk, balancing economic and geopolitical uncertainty against the support of lower interest rates and moderate global growth. With bond yields higher, the case for fixed income is stronger than it has been for many years. We prefer high-quality bonds, reduced interest-rate sensitivity, and increased exposure to inflation-linked securities given the uncertain inflation outlook. We retain allocations to flexible bond managers who can adjust duration, credit exposure, and regional positioning as markets evolve. Equities are supported by lower interest rates and resilient earnings, though elevated valuations, driven largely by the United States, keep the outlook balanced. We have reduced US exposure due to valuation and concentration risks, as the ten largest companies now account for nearly 40 percent of the market. We are overweight value, which further diversifies away from the largest US companies and offers attractive valuations. We have also increased exposure to emerging markets, where valuations are more compelling and the earnings outlook remains positive, while maintaining a lower-risk, minimum-volatility strategy to provide resilience if recession risks rise. Real assets help hedge inflation risks and enhance diversification. We favour listed infrastructure for its inflation-linked revenues, defensive characteristics, and tendency to perform well once interest rates have peaked.

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