Strategy returns
This mixed backdrop was mirrored in a flat-to-slightly positive return across the strategies for the month. The UK equity allocation delivered a return of just under 1% where despite a tough year, names such as software reseller Bytes as well as Diageo saw strong gains, with the latter posting surprisingly positive earnings results while also providing 2026 guidance ahead of consensus. In addition, our pure-play aerospace holding, Melrose, also bolstered performance after reassuring investors on its forecast cash generation. Elsewhere, select holdings within the Asian & Emerging Markets equity allocation positively contributed to performance, notably our Japanese exposure, with the market rallying strongly in the wake of the US-Japan trade agreement.
Turning to other allocations, the North American equity allocation finished marginally negative for the month. Much of this can be attributed to adverse currency moves, with the pound rising 2.2% against the US dollar. However, at the security selection level, detractors included IT names such as financial management solutions provider Intuit – despite solid results – as well as chipmaker AMD and Microsoft. The latter have both exhibited strong performance year-to-date, with short-term weakness likely driven by a degree of profit-taking.
The European equity allocation, while finishing in positive territory, lagged the broader index following the market’s reaction to news of a vote of no confidence announcement from the French prime minister. This development affected several holdings, notably French financials stocks, offsetting gains previously seen elsewhere across the fund.
Lastly, returns from the Alternatives and Fixed Interest allocations were marginally negative, with weakness from Commercial Property contrasting a modest positive return from the strategies’ Hedge and Absolute Return exposure. As mentioned, bonds were weak, with concerns regarding inflation and fiscal sustainability, as well as structural market dynamics, boosting yields on longer-dated bonds. It is important to emphasise that the strategies’ exposure to gilts is currently positioned more towards the shorter-dated end of the market, where returns have been positive so far this year.
Activity
Within the UK equity allocation, the marginal overweight allocation to the energy sector was reduced. This was achieved by trimming exposure to Shell on expectations of a slight reduction in geopolitical risk and a surplus in oil markets, driven by weaker demand and an increase in supply. Adjustments were also made to the Consumer Staples allocations; profits from Tesco were realised and the position exited following its pleasing performance since April. The proceeds were used to initiate a new position in Marks & Spencer, where we see a favourable entry opportunity and interesting recovery story following recent weakness. The cyber incident at Marks & Spencer is viewed as an isolated incident, and does not impact the ongoing strategic transformation and attractive long-term growth story that we see as very much intact.
In Europe, we adjusted exposure within the Healthcare sector, exiting our position in Novo Nordisk. This decision followed a recent profit warning that indicated potential challenges related to pricing, competition, and product pipeline development. The proceeds from this transaction were partially allocated to increase holdings in Novartis, which has a robust pipeline and an attractive valuation. We also trimmed our allocation to Total following our more sanguine view on the oil sector. The proceeds of our sales were deployed across Financials (Dutch-based bank ING and insurance and services giant Allianz) as well as topping up the exposure to European Smaller Companies via the JP Morgan European Small Cap fund.
In North America, Energy exposure was again adjusted, in this case by reducing the holding in Exxon Mobil; and healthcare exposure was decreased by exiting our position in Pfizer. The proceeds were reallocated to increase the position in Alphabet, ahead of the Department of Justice case ruling on its antitrust suit against Google’s Search Division, on the basis that this could be a positive catalyst for the stock.
In our Alternatives allocation, and after a competitive bidding process, the merger between Assura and Primary Health Properties (PHP) completed. We have chosen to retain the stock, seeing attractive characteristics in the combined entity which enables exposure to primary healthcare assets such as GP surgeries and other community-oriented outpatient facilities. The company's rental income is predominantly sourced directly from the government, which substantially mitigates tenant credit risk.
Outlook
There were no significant changes to positioning over August, and as we approach the end of the third quarter of 2025, it is easy to overlook that financial markets have delivered fairly strong returns, despite a seemingly near-constant barrage of negative headlines. This is all the more impressive given that currency moves have weighed on UK-based investors’ exposure to US markets due to a 7.9% appreciation in sterling versus the dollar, through the end of August.
Away from equities, we continue to recognise the value of our bond exposure. Although this past month has presented challenges, our Fixed Interest allocation has delivered positive returns for 2025, especially for clients with lower risk profiles. We view current gilt yields as particularly attractive relative to the past 15 years, with the asset class continuing to offer diversification benefits away from our risk asset exposure.
Please note that the funds used within the International MPS are ring-fenced for exclusive use by Quilter Cheviot within our discretionary services only. The funds do not apply an annual management charge (AMC) and cannot be purchased as standalone holdings.
