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Market Review and Strategy Returns
July saw weakness in technology stocks globally, weighing down the tech-heavy Asian and emerging market indices that have performed so well over the last year. US and European equities were more resilient - flat over the month in local currency terms, but a strong pound translated to a negative return of around 1% overall from global equities for sterling investors. UK equities had a strong month, up 3.9% due to a surge in oil and commodity prices lifting energy and mining stocks. Away from equities we saw weakness in UK bond markets in response to concerns over inflation, but a good month for UK property up 3.6% driven by corporate consolidation in the sector.
Against that backdrop, our highest risk strategies were down around -1.5% due to the higher exposure to international equities. Most strategies were down less than 1% as UK equities and Alternatives partially offset weakness in bonds and global equities. Year to date, all strategies are in positive territory – low single digit returns for low-risk strategies, with 8%-9% returns so far in 2026 for high-risk strategies.
Trading Activity
We trimmed energy exposure across the portfolios in July, reducing BP in the UK, TotalEnergies in Europe, and ExxonMobil in North America. These changes reflect our view of a higher probability that military hostilities in the Persian Gulf will progressively decrease and that oil transits will resume again, dampening pressure on oil prices.
In the UK, we increased our position in Rolls-Royce, further reflecting our view that despite concerns around a slowdown in global air travel and increased jet fuel prices given the Middle East conflict, we view Rolls-Royce as a quality company executing well, with the prospect for future upgrades.
In Europe, we reduced our position in Siemens Healthineers, the German health care company which manufactures and sells diagnostic and therapeutic products, due to short-term overhangs on the stock, including the unresolved Siemens stake and a potential diagnostic business spin-out which may limit upside in the share price until these issues have cleared. We increased our position in ASML with this decision driven by strong underlying demand in semiconductors, with expectations of continued growth and positive guidance.
In North America, we trimmed profit for two of our largest contributors to returns in Q2, namely Advanced Micro Devices and Palo Alto, and broadened our exposure across the semiconductor stack by topping up our position in memory chip manufacturer Micron, as well as adding a new memory name Seagate Technology Holdings, which we view as having a strong market position in the data-storage, with positive margin potential.
Outlook
2026 has been a remarkable year already for investing, largely due to the disruptive impact AI is having across all regions and sectors – investors are quick to update expectations - each day the narrative can shift or company earnings can surprise on the upside or downside, creating large moves in the share prices of some of the biggest businesses in the world – Q2 earnings saw 15% jumps in the share prices of Amazon and Microsoft that added $390bn and $450bn of market cap to the value of each company respectively – Microsoft’s move breaking the record for the largest single day move in market value since Nvidia in April 2025.
It’s worth setting out some principles to help structure our thinking around investing in this space.
Firstly, we believe in the quality of the big tech companies as capital allocators – Meta, Microsoft, Alphabet and Amazon, as well as many other businesses are all expanding their investment into datacentres and compute, because AI and cloud revenues are growing. As Amazon CEO Andy Jassy said earlier this year – “we’re not investing $200bn of capex in 2026 on a hunch”. Therefore, it’s fair to recognise the rationality of investing capex in AI, as there is a strong return on investment (ROI) expected.
Secondly, diversification across the tech stack is key; we now hold a broad range of potential winners from hyperscalers and cloud service providers, multiple competing chip designers, equipment manufacturers and foundries, memory and data-storage producers, and datacentre real estate itself. We believe holding several good quality names across the sector is the right way to play this opportunity.
Finally, diversification across sectors and asset classes is important – it’s not all about tech despite how pivotal that theme is – our oil and energy exposure has been crucial this year as the Iran war has disrupted commodity markets, our sector diversification gives us comfort that all our eggs are not in one basket – there are good quality businesses available to invest in across many sectors globally and the outlook for earnings growth is favourable.
With regard to positioning, we retain our risk-on approach with an overweight to equities and warn that short-term swings in share prices are to be expected – our job is to keep a steady hand on the tiller, looking through the short-term sentiment swings to where the longer-term opportunities lie – of which we see many.
Authors
Antony Webb
Head of MPS Investment Funds
