Liam Goodbrand

The start of a new calendar year is always a good time to reflect on our current positioning and challenge whether any changes are required to our core positions. While there is possibly too much reliance placed on the full year outlooks, it does help one take a step back and review wider matters.

The end of US exceptionalism? Probably the most widely discussed topic is whether US assets (I include the dollar and treasuries as well as equities) can continue to lead the way as they have done for the last 10 or so years. Last year was the first year in a few years that other major stock indices (UK, Europe, Japan and Emerging Markets) outperformed. Why is this so important? Well, in passive equity indices, around 65% of the stocks are US which also means a significant amount of dollar exposure for sterling investors. For comparison, the UK makes up 3.3%. It therefore means that the majority of passive returns are tied to the performance of US assets and from our perspective, while the last few years have been excellent for US growth stocks and dollar exposure, we don’t see them being the best performing areas over the next few years. We still retain exposure to some of these areas but do carry an underweight stance, preferring our domestic UK market, particularly financial stocks, and overseas markets like Japan and Emerging Markets.

On interest rates, we are firmly in a rate cutting cycle on both sides of the Atlantic but the real question the pace of cuts. Focussing more on the UK which has more of an impact to us, the market is pricing in between one and two cuts but we believe there are reasons to be optimistic the Bank of England could cut more. While inflation remains stubborn around 3%, mostly due to core services, there are signs that many of the recent price increases are from one-off or administered factors rather than persistent demand-driven forces. In addition, wage growth has slowed notably, easing the pressure on inflation staying high. Combine both with the Bank of England’s wish to prop up growth and avoid recession, provides the runway for more cuts than what is currently expected. Short-dated Gilts, where we have a good amount of exposure should benefit from this, as well as alternative assets (such as those in the property and infrastructure sectors) should also benefit as the yield differential between the Bank of England base rate and the rate of dividend they are paying increases. We have evidence of the validity of Net Asset Values in these sectors given the takeovers seen in early 2025.

We have been vocal in the past of our notable weighting in gold and have continued the benefit of this during the first month of 2026 – although, the rise in the yellow metal (and other commodities) brings different worries which we have to be alert to. As we move into a structural regime change where, we believe, US equity dominance will not be as strong as the last 5/10 years, we will be keeping our flexible and active investment management style which has served us well. While general macro numbers remain supportive to keep neutral equity weightings, there are still data points flashing amber which show we have to be ready to move more defensively. Maintaining our over-exposure to non-US geographies will likely continue over the coming period.

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