MPS September Newsletter

Strategy Returns

August produced low single-digit returns for all strategies around 3% at the high end of the risk spectrum, driven by tech returns in the US and Asia. Medium-risk portfolios generated 1.5%-2% and lower-risk portfolios returned around 1%. Year-to-date, high-risk portfolios are up c.12%, medium-risk portfolios 7%-8%, and our lowest risk portfolios, depending on the strategy, have delivered between 2%-5%.

Trading Activity

Key trading in August saw us exit Segro in the UK – the UK real estate investment trust (REIT) is likely to be acquired by Prologis, the world’s largest industrial and logistics REIT. Shares in Segro were up around 27% since news emerged about the proposed takeover in June, so we exited the position and used the proceeds to add to UK Banks, reflecting an improved outlook on the back of strong profitability in a higher interest rate environment. In line with this, we introduced a new position in Lloyds.

In the US, we exited our residual position in Honeywell Aerospace, which split out of Honeywell International in June this year, after a disappointing update from management in August. We used the proceeds to add to our position in data storage business Seagate Technology Holdings, which we initiated in July.

In Europe, we made a similar move to increase our banking exposure by adding to Nordea Bank, funding this increase through a reduction in Sika, the construction chemicals business.

Finally, in our alternatives exposure, we increased our holding in the Jupiter Merian Global Equity Absolute Return fund, which has been delivering well on its market neutral absolute return objective since we initiated in December last year.

Outlook

In last month’s update, we discussed at length the importance of the AI theme for global equity returns this year and how we have built a diverse stable of potential winners across the tech stack so that our clients can benefit from the huge growth this sector is experiencing. One month on it has been encouraging to see another set of strong results and increased guidance from Nvidia, supporting our view that the AI capex buildout will continue to expand.

As we reach the end of the Q2 earnings season, it has also been reassuring to see how well US companies have performed across the board, not just in the tech sector. 86% of US large-cap companies beat their earnings guidance in Q2. Industry estimates from FactSet are for a huge 52% year-on-year earnings growth – the highest since Q2 2021 when businesses were still recovering from Covid-19. The corporate sector appears in good health and that supports the bullish view we’ve held this year.

Away from equities, we’re keeping an eye on rising bond yields globally – particularly in the US where 30-year yields have been rising steadily this year and are now over 5%. Whilst there are concerns about the US fiscal deficit and national debt hitting $40tn, long-term inflation expectations are still quite well anchored at around 2% which implies the market has not lost confidence in the Fed. The dollar should therefore remain stable.

Certainly, rising bond yields are something to keep an eye on but it is worth pointing out that for now the rise in yields has been orderly. The 30-year Treasury yield has edged up from 4.85% at the start of the year to a peak of 5.34% in August. Furthermore, 5%+ yields are nothing new. The 30-year yield reached 5.18% in 2023 and traded above 5% several times in 2025. Yields are therefore not much higher than those seen in recent years.

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