Strategy Performance
December was a positive month for the MPS strategies, capping a pleasing final quarter. Strategies at the lower end of the risk spectrum typically saw high single digit returns in 2025, moving up to low double digits for the more equity-orientated strategies. All this notwithstanding the unwinding of the initial “Trump Bump” rally, the tech-focused “DeepSeek” sell-off, the reciprocal tariffs outlined on “Liberation Day”, and the ensuing market turmoil. After the fireworks of Q2 were dampened by delays in tariff implementation and temporary trade agreements, the second half of the year saw particularly strong market gains, as economic resilience, policy support and, of course, robust corporate earnings – led by the continued optimism surrounding the AI boom – drove markets upwards in the face of ongoing geopolitical concerns, periodic trade tensions, the longest US government shutdown in history and concerns around distress in private credit markets…to name but a few factors! You name it, investors had it thrown their way in 2025. But despite these recurring causes to worry, the eventual outcome was a positive year for those who kept the faith, and a reminder of the importance of ignoring short-term headlines in favour of focusing on longer-term financial objectives and investment opportunities.
Activity
2025 also concluded with a busy period of activity “under the bonnet” of the strategies. During the month we added to the holding in Anglo American, reflecting our positive view on the UK Materials sector and specifically Anglo’s attractive portfolio of commodities expected to be in high demand due to global trends like electrification and sustainability. Its recently agreed merger of equals with Teck Resources will make it one of the largest copper players in the world: a move that we see as strategically attractive, and further demonstrative of a highly active M&A backdrop within this segment of the market. This move was funded by the sale of the remaining holding in Diageo, where poor recent trading performance, ongoing headwinds in its core markets and the anticipation that this will be a long-term recovery story further supported the reallocation of the capital.
In the US, we trimmed the holding in The Coca-Cola Company to accommodate a new idea in the form of Dollar General, the US discount retailer with over 20,000 stores offering everything from food and snacks to beauty products and cleaning supplies. Dollar General’s share price endured a torrid 2024, driven by multiple profit warnings. The company has since implemented a self-help strategy with a renewed focus on supply chain and inventory enhancements, existing store optimisation and aggressive expansion plans. We see the stock as trading on a discounted valuation, despite exhibiting strength in 2025, offering an attractive turnaround opportunity that remains underappreciated within the market.
In Europe, and consistent with our move regarding Diageo in the UK, we exited the remaining holding in wine and spirits company Pernod Ricard amid a gloomy outlook. The proceeds from this sale, coupled with a trimming of holding Deutsche Telekom, were used to initiate a position in Heidelberg Materials, the German cement and aggregates producer. This move supports our growing exposure to the structural multi-year themes we see as playing out in Europe, namely a significant uplift in infrastructure and defence spending, as well as regulatory policies focused on decarbonisation that should support the company’s strong position as a less-polluting cement producer. While its share price performed very well in 2025, the sector fundamentals have undoubtedly changed, underpinning these moves. We think there is further to go, with the stock trading at valuation multiples that compare favourably with immediate peers.
From a fixed interest perspective we marginally increased duration (a measure of how much a bond's price is likely to change when interest rates move) across the medium and medium-higher risk strategies, while also adding to high quality corporate bonds to boost the allocation’s yield given the current supportive economic backdrop. Despite this move we retain our tilt towards sovereign bonds over corporates, with plenty of room to add credit risk should spreads (the difference in yield between corporate and government bonds) move wider.
Within the strategies’ alternatives exposure, we reduced cash and short-dated bond exposure to increase our hedge and absolute return fund exposure, adding the Jupiter Merian Global Equity Absolute Return fund as a new holding within the allocation. We also sold the strategies’ holding in PRS REIT, the real estate investment trust operating in the Private Rental Sector. This move was made ahead of the cancellation of the company’s shares following an agreed takeover. This was the third of our REIT holdings to be subject to corporate activity in the past twelve months, following in the footsteps of the Care REIT acquisition and merger of healthcare-focused Assura Group and Primary Health Properties.
Outlook
And so, the big question – where next for markets in 2026? Firstly, it is important to acknowledge that the strong run higher in equity markets over recent years has certainly left some investors feeling nervous. Equally, another concern regularly cited relates to stock market valuations, with global equities trading above their long-term average.
In both cases, we would highlight that the picture – and current investment landscape – is slightly more nuanced than it perhaps first appears. For instance, history shows that new all-time highs are often a better time to invest than average, with highs begetting new highs. For instance, the MSCI North America has posted an average cumulative return of 85.1% five years after making a new high, compared to 74.5% on average (with data going back to 1988). This shows that investors taking money off the table after a good run can lead to worse outcomes, and once more that time in the market beats timing the market. Equally, when looking at valuations, while the US remains a notable outlier (skewing the headline index given its >60% weighting within MSCI ACWI), its is crucially one where companies are demonstrating higher profit margins than in prior decades, while also demonstrating superior returns on equity versus global peers.
The key thing is to focus on fundamentals, and it is here – as mentioned in last month’s update – where we take comfort in what remains a constructive environment for equity and bond investors, but one in which we nevertheless remain prudent, avoiding all-in bets on specific themes or markets. While we believe that AI is a potentially transformative technology, offering considerable growth potential ahead our exposure to US tech names remains highly selective, with a focus on growth at a reasonable price, not at any price. These are some of the very best companies in the world, many of which we want to own. At the same time, it is our view that caution should rightly be heeded when considering others.
Away from the US tech sector, we see exciting opportunities within Europe, whether that’s from the effects of increased infrastructure and defence spending, or the chance to purchase quality companies that have derated in recent years, but where we still see attractive business models. Emerging markets continue to offer attractive valuations, strong earnings, and robust GDP growth. In addition, we see merit in retaining the diversifying drivers of returns provided by alternative investments such as UK REITs, listed infrastructure, listed private equity, and hedge funds.
