Asset owners globally are feeling much wealthier than they were a few years ago, whereas those that do not hold assets are falling further behind.
In terms of investment outcomes, January is a key month in setting the tone for annual performance. When it is positive, then 90% of the time the calendar year that follows also delivers a positive outcome. January has been a positive month 65% of the time historically, so taking that data into account, and given that gross portfolio returns were between 0.74% (Very Low Risk) and 1.21% (High Risk) for the first month of 2026, we can be forgiven for thinking that 2026 is going to pick up where 2025 closed. History is certainly behind us.
As we shared in our recent outlook, the macroeconomic environment generally remains supportive. If you read the papers and focus on the geopolitics, it doesn’t feel like that, though with inflation under greater control, interest rates gradually falling, and policymakers still spending… together there is a very positive combination. The consumer, of course, also remains central, and at the moment there is a divergence in this respect. Asset owners globally are feeling much wealthier than they were a few years ago, whereas those that do not hold assets are falling further behind. The economy continues to move forward despite parts of the consumer base facing increasing challenges, but how this plays out remains to be seen. Importantly, this will help to dictate whether economies reaccelerate or continue to deliver slow growth
There are a few other interesting trends to observe. The first, is a gradual but consistent move away from the US. Since Trump’s inauguration, on 20th January 2025, the US stock market has underperformed the rest of the world by around 20%. That is a significant shift, especially given that the US has been the leading market for most of the last 15 years. At the same time, the dollar has devalued, and assets like gold have rallied, all suggesting the same thing – investors are selling US assets and diversifying.
Harry Markowitz, a famous economist once said, “portfolio diversification is the only free lunch in investing”.
This trend has continued in January, and from our perspective it is a great outcome. For some time, we have argued that holding 70% of your equity allocation in a single region isn’t appropriate risk management, but it is the route the industry has converged on, and most portfolios today still sit with that sort of allocation. In comparison we have had consistently less than 50% of our equity bucket held in the US and have strong allocations in regions such as the UK and Europe which are now performing strongly.
We think the challenges are two-fold. The first is that economic and foreign policy in the US is extremely volatile. We could write paragraphs on this alone but it’s probably just as effective to leave it at that. Secondly, there is a greater level of uncertainty over how the technology sector will be shaped in a world of AI, with some of the current market incumbents slowly being disrupted. On the other side of this coin is a significant opportunity for the winners, but as it is hard to clearly identify them at this early stage, investors are placing a higher degree of scrutiny.
Similarly in the bond world, for some time we have preferred UK and European bonds to those in the US. Bonds and equities in the UK and Europe tend to pay a higher level of income, and although politically both regions have significant challenges, there appears to be better value here than across the pond.
The second big trend to observe at the start this year is an increase in volatility. Although it has been a positive month, we have seen big swings in certain markets. Gold should not fall 10% in a day on very little news, and similarly both bonds and equity markets have seen decent gyrations even within a good month overall.
Given all that, our perspective remains the same – stay diversified and disciplined. We can obtain strong levels of income generation across the portfolios, without taking significant bets in one direction or another. Don’t get me wrong, we are generally positively positioned, but within a framework that emphasises diversification, especially for low-risk clients where we can obtain 5-6% by taking just a small degree of investment risk. Harry Markowitz, a famous economist once said, “portfolio diversification is the only free lunch in investing”. Thankfully the masses are starting to shift towards that way of thinking.
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