August 2026 Performance Update

Of course, none of this is new news, all these variables have been in play for some time, and our portfolios have performed strongly despite them. That said, protracted events in the Middle East have moved the goal posts more recently. Bond markets are pricing in more inflation rather than less, and that wasn’t the case just a few weeks ago, when everyone was ‘logically’ predicting that the US Iran ceasefire would lead to some form of agreement.

The key ‘trigger’ then has been conflicts’ protraction leading to a rising oil price. At the time of speaking Brent Crude sits at $95 per barrel, still much lower than the c$115 peak in April but well above the $60-70 range that we entered the year with. That is pushing inflation into the system, which is typically managed through interest rate increases and therefore, market participants now expect Central Banks to increase interest rates several times over the next 12 months. A good proxy for this is mortgage rates, with a 2-year fixed rate today sitting at 4.5-5.0%, well above the current Bank of England base rate of 3.75%.

The financial press have used headlines such as ‘global bond markets slump’ to describe what is occurring. Really it is renewed concerns about the level of inflation, expectations for interest rates to go up on the back of that inflationary pressure, and the knock-on impact that will have on government debt and spending. The end of August and start of September has therefore been slightly more challenging than the weeks that preceded it.

August on a whole was a positive month, with the portfolio range adding between 0.80% (Low Risk) and 2.57% (High Risk). Year-to-date returns sit between 3.85% (Low Risk) and 13.32% (High Risk) depending on the risk profile selected.

Whilst the higher inflation pressure and interest rate expectations are definitely negative drags, on the positive, economic activity in the US has been resilient, with a variety of indicators suggesting the economy is robust. Corporate earnings have equally beat expectations in the aggregate, which drove a nice market bounce into the first half of August, and really has been the factor that has allowed equity market returns to be strong this year so far, despite the effects of the Iran war.

From a portfolio perspective, we are pleased with how we are performing. Low Risk portfolios hold more than half their assets in bonds, which have had a very challenging year in price terms. Despite that, they are on track to deliver returns at the mid to upper end of their target, thanks in part of the high level of income they generate on an ongoing basis. One of the positive outcomes of higher bond yields for investors is you are paid more to own bonds going forwards. In this regard it is not challenging to lock in 6%+ in income, without taking a huge amount of investment risk. This somewhat smooths any negative shocks, as the income adds value progressively over time.

At the same time our equity selections have been good. We have been overweight in UK equities for some time now, and continue to value its more defensive characteristics, as well as exposure to commodity-related stocks. Our US technology exposure, whilst modest, has also performed very well, benefiting from the strong earnings season there.

Looking forward, the end of the year looks challenging with so many variables in play. Any progress in the Middle East will see oil fall, inflation and interest rate expectations abate and both bond and equity markets rally. It would be wrong to count on that, but it is good to be aware that the current narrative can change quickly. In an alternative world, if the oil price keeps rising, and governments are not fiscally responsible in their budget announcements for example, then the trend of the last few weeks could well continue, and erode much of the good work we have delivered this year.

It won’t surprise you that against these two very different environments we are positioned with diversification in mind, but also with openness to change positioning quickly if required. What will unfold ahead is unknown, though providing economic data remains benign to positive, then the downside risk should be reasonably contained. Progress in the Middle East would help, but if that doesn’t come, bond yields may well track higher, leading to higher levels of portfolio income into 2027 and beyond.