Client Update - 2nd October 2026

We have been reviewing our portfolio strategy over the last quarter, and I thought it would be interesting to share with you the thoughts of our Chief Investment Officer, Jonathan Prout. The investment team have had a very strong 24 months, investing sensibly through volatile markets and I think his commentary underlines the risk aware, common-sense approach to investing that has served our clients well.

“It is now more than six months since hostilities began in the Middle East, and the conflict is taking an increasing toll on economies and financial markets. The region remains in an uncomfortable holding pattern, characterised by a US military blockade, sporadic attacks on infrastructure and an increasingly heated war of words on social media.

Thankfully, there have been some more encouraging developments of late. The Iranian government has presented terms for a permanent peace agreement that would allow oil to flow freely through the Strait of Hormuz. These proposals have not been accepted at the time of writing, but they provide further evidence that the current position is becoming difficult for either side to sustain. In our view, the political and economic incentives to reach an agreement are strengthening.

In the meantime, disruption to the supply of crude oil and refined petroleum products has kept energy prices elevated. Economic history shows that sustained increases in energy prices can become an important indicator of future inflation. With oil potentially remaining higher for longer, central banks are contemplating interest rate increases for the first time in several years. The Federal Reserve raised the federal funds rate by 0.25 percentage points at its most recent meeting and indicated that further increases may be required if inflation does not moderate.

There are, however, important differences between the current environment and the last major period of rising inflation and interest rates in 2022. That episode followed the rapid reopening of economies after COVID lockdowns, supported by exceptional fiscal and monetary stimulus. Demand recovered much faster than supply chains could respond, creating a powerful combination of excess demand, restricted supply, and rapidly rising prices.

Today’s inflationary pressure is being driven more directly by a geopolitical event that has raised the cost of energy. Rather than stimulating demand, higher oil prices reduce household spending power and increase business costs. In our view, an externally driven energy shock may not require the same scale of interest rate increases. Higher rates cannot increase the supply of oil or resolve the conflict. This helps explain why markets are pricing in only modest interest rate rises.

Stock markets have remained robust because these developments are taking place against a healthy global economic backdrop. Corporate earnings growth remains strong and widespread across all major sectors. This broad earnings support explains why equity markets have so far looked through much of the short-term disruption. We do expect uncertainty to remain elevated in the near term. Nevertheless, the strengthening incentives for a settlement, the relatively modest expected interest rate response and continued corporate earnings expansion provide evidence to retain a constructive view on markets.

There is no doubt that 2026 has been more volatile than recent years. This has been reflected not only in portfolio movements, but also in the pace of news flow surrounding political, economic, and thematic developments. For us as investment managers, responding to changing circumstances is business as usual. Our investment process has been refined over many years to assess new information, adapt quickly and take advantage of opportunities as they emerge. We have reduced exposure where valuations have become less compelling or earnings upgrades have slowed, and redirected capital towards more focused opportunities offering stronger growth and more attractive valuations. These changes remain diversified across asset classes, regions, and sectors.

We remain constructive on markets and continue to see opportunities arising from stronger earnings growth, sustained corporate capital expenditure and the development of AI infrastructure. Our positive outlook does not mean that we are overlooking the risks. Geopolitical uncertainty, energy prices, inflation, and changing interest rate expectations may continue to cause volatility. Risk management therefore remains central, with position sizes carefully considered and portfolios diversified across a range of assets and sources of return.

In our view, portfolios are well placed to participate in further market gains while retaining the diversification needed to manage an uncertain and fast changing environment.”

I thought it sensible to share this update, as I imagine the rest of October will be focussed on commentary around the upcoming budget, that has started to build momentum already. Do have a good weekend.