Fidelity International’s Sam Morse will retire in October 2027 and the asset management house is adding Alexander Laing to the team to help manage the change.

Morse and Marcel Stötzel currently run the Fidelity European Trust and the Fidelity European fund together. From 1 November 2026, Laing will join them as a third manager and the team will be supported by Fidelity International's global research staff and other resources.

Over the next 12 months, Morse's duties will pass to Stötzel and Laing as part of long-term succession planning. There will be no change to either fund’s investment objective or investment policy.

Morse began his career as an analyst in 1986 and became a fund manager in 1992. He joined Fidelity International in 2004, working first in UK stocks then European stocks.

Laing has worked at Fidelity International since 2011. He runs the Fidelity Climate Solutions fund and the Circular Economy strategy; he also co-manages the Fidelity Sustainable Water & Waste fund.

Laing also has experience as both an analyst and a manager focused on Europe.

A Fidelity International spokesperson said: “Bringing Alexander into the portfolio management team at this stage provides an extended period for him to work closely alongside Sam and Marcel, supporting a smooth transition of responsibilities. Alexander also brings complementary portfolio management experience and investment expertise to the team.

“We would like to thank Sam for his contribution to the success of Fidelity and wish him all the very best in his retirement. He has successfully navigated the highs and lows of financial markets, while maintaining a consistent investment approach which has delivered strong long-term outperformance for his clients.”

Hymans Robertson, Drumnor Investments and Saltus head up the leaderboard of model portfolio service (MPS) providers that have the most model portfolios boasting the highest Crown Rating from FE fundinfo.

Awarded to model portfolios as well as open-ended funds and investment trusts, FE fundinfo's Crown Ratings are designed to help identify investments that have consistently outperformed their peers. The top 10% of portfolios receive five crowns, the next 15% get four crowns and the remaining three quartiles are for three-, two- and one-crown portfolios.

The ratings are based on an independent, purely quantitative and backwards-looking assessment of how a fund has navigated the market – focused on alpha, volatility and consistency – over the past three years.

Below, Trustnet reveals which providers have the biggest proportion of their MPS line-up holding the top rating of five crowns.

Performance of HRIS Blended Medium Risk Growth vs UK MPS 45%-65% Growth sector over 3yrs to end-August 2026

Source: FinXL. Return in sterling between 1 Sep 2023 and 31 Aug 2026

Hymans Robertson sits at the top of the table: six of its 14 model portfolios hold an FE fundinfo Crown Rating and five of these (or 83.3%) have been awarded five crowns. The three-year total return of its HRIS Blended Medium Risk Growth portfolio against its average peer can be seen in the chart above.

HRIS Blended Equity Focus Growth, HRIS Blended Medium to High Risk Growth, HRIS Blended Medium Risk Growth, HRIS Blended Low to Medium Risk Growth and HRIS Blended Low Risk Growth are the top-rated portfolios. HRIS Blended Higher Risk Growth has three crowns.

The firm has two MPS offerings: Blended and Markets. Hymans Robertson's Blended models – which all its rated portfolios are examples of – invest in passive, factor and active managers, holding between 25 and 35 underlying funds. The Market range only uses passive and factor-based investments in order to reduce costs.

Hymans Robertson's MPS team uses the long-term, evidence-based approach that the independent partnership has used with institutional clients for decades, saying it builds high-conviction and low-turnover portfolios that are intentionally different to market indices.

The models hold notably less in North American equities than the broader market (49% versus a market-weighted 65%), reflecting concerns over high valuations and stock concentration, though the region still represents its largest geographic allocation given its role as the primary source of global earnings growth.

As part of its strategy review earlier in the year, the HRIS model portfolios increased their multi-factor exposure to around 25% of equities, up from roughly 21% the previous year, continuing a steady rise from 13% in 2023 as it looks to reduce reliance on a small number of stocks.

The 10 MPS providers with the largest proportion of their rated models holding the top award of five crowns can be seen in the table below.

Source: FinXL

Drumnor Investments comes in second place as all five of the firm's models are rated under FE fundinfo's Crown methodology and four (80%) won the top five crowns in the latest rebalance. Drumnor Adventurous, Drumnor Progressive, Drumnor Moderate and Drumnor Steady have five crowns, while Drumnor Cautious has four.

The firm holds around 15 funds in each model, blending passive and active strategies to reduce costs while aiming for differentiation and potential outperformance from broader market indices. Drumnor Steady, for example, has trackers such as iShares UK Equity Index and Vanguard US Equity Index sitting alongside active funds like Downing Active Defined Return Assets and FP Foresight UK Infrastructure Income in its top 10 holdings.

When Trustnet looked at the MPS providers that made the highest returns in 2025, Drumnor was one of the best performers, taking places in three of FE fundinfo's six MPS peer groups.

Saltus is in third place, as five of its 10 rated models (from a total of 15) hold an FE fundinfo Crown Rating of five. These are the group's Global Market Adventurous, Global Market Growth, Global Market Balanced, Global Market Moderately Cautious and Managed Cautious models.

Saltus' Market range is built from passive and factor-based funds, while its Managed range uses both active and passive funds.

In the firm's latest asset allocation committee meeting, the managers left the models' equity risk unchanged but adjusted its composition: adding US small-caps (funded from US large-caps) on more attractive valuations and consumer resilience while rotating from quality into a broad defensive allocation across staples, utilities and healthcare.

Elsewhere, the portfolios exited gold mining equities entirely following an earlier halving of the position and kept fixed income unchanged, favouring alternatives over longer-dated government bonds as its defensive ballast given inflation risk.

The world’s 300 largest pension funds had a bumper year in 2025, with assets up 13.4% to a record $27.7trn, while the largest – The Government Pension Fund of Norway – topped $2trn for the first time, according to a report by the Thinking Ahead Institute.

Growth was even stronger among the largest funds, with the top 20 biggest pensions increasing their assets by 14.7% last year, taking their total assets to $11.9trn.

It has been a successful past half-decade for pension funds, with the cumulative growth rate in the first half of the 2020s at 27.5%. On an annualised basis, the top 300 pension funds rose 5% per year, while the top 20 were slightly better at 5.5%.

So what do the world’s largest pension funds invest in? On average, the top 20 funds, which include the Government Pension Fund of Norway, the Japanese Government Pension Investment Fund ($1.9trn) and the US Federal Retirement Thrift (£1.1trn), are 46.2% weighted to equities. They hold 27.6% in bonds, 23.9% in alternatives and 2.2% in cash.

Russ Mould, investment director at AJ Bell, said: “You can see why some institutional investors may have elected to cut equity weightings and seek to diversify using other asset classes. Equities have done very well, so valuations have gone up and valuation is the ultimate arbiter of investment return.

“To expect an asset class to continue to provide above-long-term-trend returns from, at least in the case of US equities, a starting point of well-above-average valuations is, for some, the very definition of a bubble.”

Meanwhile, bonds have been in a five-year bear market, meaning government bonds may be good value, he said. An uptick in alternatives is also “understandable” when viewed through the lens of diversification, although this broad bucket requires nuance.

For example, commodities are a hedge against any sustained bout of inflation, while Covid and wars in Ukraine and the Middle East have “taught the importance of resource security as part of national security,” he said.

Private credit and equity markets are “trickier”, however, as both thrived during the era of lower interest rates, but both rates and starting valuations are higher now.

That said, pension fund asset allocations varied markedly by geography. On average, Asia Pacific pension funds had 51.8% in equities. However, they were also the most confident on bonds, with 39.8% allocated to fixed income and just 7.8% in alternatives.

European pension funds were the most bullish on equities, with 59.9% of their cash tied to the stock market. They had 30.1% in bonds and 10% in alternatives.

Source: Thinking Ahead Institute

Most remained broadly the same when the research was expanded to the top 300 pension funds. However, Europe was significantly different, with equities plummeting to 48.3% and a 6- and 5-percentage-point rise in bond allocations and alternative holdings, respectively.

With more than 70% invested in equities, Norway’s Government Pension Fund pulls the top-20 European allocation towards equities, as Stefan Rusev, senior strategic asset allocation strategist at Fidelity International, noted.

"At the same time, parts of the European DB market are relatively mature and more heavily allocated to fixed income, which may further contribute to the more bond-heavy allocation seen when the sample is broadened to the Top 300," he said.

Jason Hollands, managing director of Bestinvest, said: “Differences in pension fund asset allocation between these regions is likely to be partially down to differences in regulation and the maturity profile of the liabilities for these schemes.

“This helps explain the relatively lower allocation to equities among large European schemes, where there is a greater emphasis on asset and liability matching (hence also they have much higher exposure to bonds than in the US).”

North American pension funds among the top 20 largest in the world were the least weighted to bonds (15%). They were also the most cautious on equities (42.7%) and were the most heavily weighted to alternatives (34.7%) and cash (7.6%).

Alternatives can include hedge funds, private market assets, real estate and infrastructure. Hollands noted that these large pension funds have the “scale, expertise and time horizons to access illiquid investments that are often unavailable, or unsuitable, for ordinary investors”.

The DB to DC transfer

The state of the pension market is changing, although the largest pension funds remain shaped by defined benefit (DB) assets, the report noted.

“Defined contribution systems continue to grow in importance across many markets, bringing new challenges and opportunities for pension funds,” it read.

DB assets increased by 9.4% in 2025, while defined contribution (DC) assets grew faster at 15.8%.

“DC systems have become very effective at accumulating assets during working life, supported by scale, defaults, governance and institutional pricing. The weakness appears at retirement, when those benefits often fall away,” the report said.

In the US, more than $6.3trn worth of pension plans have exited DC schemes over the past decade through rollovers and cash-outs.

Owen MccCrossan, senior solutions director and head of investments from Aberdeen Group Pensions Schemes, said including the top 300 pensions “may mean capturing more of the DB-heavy corporate plans, which have seen significant de-risking in recent years”.

Rob Andrew, head of UK pension strategy & solutions at the firm added: “Never before has there been a more interesting time for pension fund investing. As one example, in the UK many legacy defined benefit pension schemes are now considering running on for longer, rather than transferring risk to insurers at the earliest opportunity.

“This shift has profound implications for investment strategy, influencing both near-term asset allocation decisions and the long-term deployment of capital.”

A takeaway for your own portfolio

The allocations above represent very large institutional schemes that are influenced by regulatory factors, making direct comparisons difficult for individual investors, said Hollands. However, the figures do show the importance of diversification across different assets and not being wholly exposed to equities, “as many DIY investors are”.

“The ‘right’ asset mix will ultimately depend on an investor’s time horizon, objectives, risk tolerance and whether they need income. In simple terms, the longer you have until you need to access your pension pot, the greater exposure to more volatile asset such as equities can be tolerated, but asset allocation needs to evolve over time,” he said.

Rusev broadly agreed but added that in a world of higher and more volatile inflation and greater concerns over debt sustainability, bonds have become more positively correlated with risk assets and have provided less diversification than they did over much of the past two decades.

"Investors should therefore reassess whether their bond exposure remains appropriate and whether strategies such as absolute return, market neutral, gold or short-duration income and real assets such as infrastructure and real estate can help improve portfolio resilience," he concluded.

Investors should not rush for the exit on the news that FE fundinfo Alpha Manager Helge Skibeli is to retire, standing down from the JPMorgan Global Growth & Income trust (JGGI), experts have said.

Skibeli, who took over the 149-year-old closed-end fund seven years ago and is credited with reviving the trust’s fortunes, will leave JP Morgan Asset Management in February 2028 after 40 years in the industry.

His responsibilities move to co-managers Sam Witherow and James Cook, both established members of the team, with the board expecting an orderly handover.

During Skibeli’s term, the trust performed strongly. The net-asset value (NAV) return of 176% from March 2019 to the end of August beat the 151% advance in the MSCI AC World index over the same period.

Over 10 years, the trust leads its six-strong AIC Global Equity Income sector with a 287.8% total shareholder return, well ahead of the 167.6% peer group average.

More recently, however, the £3.3bn trust has trailed competitors Murray International and Invesco Global Equity Income over one and three years, as the team turned more cautious on technology valuations.

Below, Trustnet asked four fund selectors whether Skibeli's departure changes their view of the trust.

Performance of fund against index and sector over 10yrs
Source: FE Analytics

Chris Salih, head of multi-asset and investment trust research at FundCalibre, said JPMorgan Global Growth & Income is “an all-weather portfolio with a focus on high-quality companies with faster earnings growth and attractive valuations”.

He said the past year's weaker showing reflects quality being out of favour rather than a change in process, highlighting the trust's underweight to emerging markets and its avoidance of lower-quality semiconductor and software names that have rallied in 2026.

On the succession itself, Salih was unconcerned.

“Helge Skibeli is a 40-year veteran at JP Morgan, so his decision to retire is not a huge surprise, but it should be noted that he remains as portfolio manager at the firm until February 2028,” he said, adding that Cook and Witherow both have long JPM tenures and strong internal support.

Salih flagged the Invesco Global Equity Income trust, with its more concentrated 40 to 60 stock portfolio, as a possible diversifier.

Rob Morgan, chief equity analyst at Charles Stanley, largely agreed that investors have little reason to worry, adding that JPM's research-driven process, backed by a large analyst team, reduces key person risk compared with smaller management teams.

On performance, he said the trust's recent lag in performance should be a good sign as it reflects discipline.

“Recent relative returns have been weaker than before as it has become less exposed to the AI winners, but that demonstrates the valuation discipline of the process, which won't always work over short periods,” Morgan said.

Still, for investors leaning more on growth he preferred Monks, while for income he suggested Murray International, which he said has produced better recent form and has an attractive natural yield (meaning it is paid out of dividends, whereas JGGI pays income out of capital).

Ben Yearsley, director at Fairview Investing, was more sceptical on the JP Morgan trust, questioning the balance of JGGI's income. The payout is fixed based on the trust’s net asset value (NAV) annually and paid regardless of underlying income generated.

This means JPMorgan Global Growth & Income “has ridden the growth wave well” but “isn't a balanced income portfolio” given how little value exposure it has held.

“JGGI wouldn't be my go-to for global income. I'd look at Artemis Global Income or Guinness Global Equity Income,” he said, adding that he tends to build income exposure through regional building blocks such as BNY US Equity Income and Jupiter Asian Income alongside UK funds.

Still, he acknowledged the trust is “decent value” with a strong delivery record and said Skibeli's exit is “an opportunity to reassess” rather than a reason to sell outright.

Jason Hollands, managing director at Bestinvest, which ranks JGGI in its Best Fund buy list, was the most positive of the four.

“Skibeli's retirement is still some way off, with his departure not scheduled until February 2028. That provides a long and orderly period for the handover, so there is no need for investors to take any immediate action following the announcement and we are not remotely concerned,” he said.

JGGI remains the only global income investment trust on Bestinvest's Best Funds list, alongside open-ended options Fidelity Global Dividend, Guinness Global Equity Income and Evenlode Global Income.

“JPMorgan Global Growth & Income currently offers the highest yield of these options, has the lowest ongoing charges, and has also delivered the strongest five-year returns,” Hollands said, though he added that this does not make it automatically right for everyone.

Value-oriented and small- and mid-cap (SMID) equities have been given a "modest but deliberate" increase in the latest rebalance of Quilter's WealthSelect MPS range, reducing passive US exposure in response to concentrated market leadership in mega-cap technology and AI-related stocks.

WealthSelect's managers have reduced their model portfolios' US passive weighting as they believe the opportunity set is broadening from the narrow band of stocks that have dominated the past few years, creating a more favourable backdrop for active managers, value strategies and SMID stocks.

The value tilt has also been applied in Europe, with WealthSelect adding to the Quilter Investors Europe (ex UK) Equity Income fund in its Managed Portfolios and EdenTree Sustainable European Equity in its Responsible Portfolios. In the Sustainable Portfolios, allocations to the Lyrical GIVES fund and CT Sustainable Global Equity Income have been increased.

In emerging markets, WealthSelect has raised its allocation to Quilter Investors China Equity within the Managed Portfolios. It said this reflects the fund's valuation-sensitive approach and relative value in China compared with other emerging markets.

There has been no change to headline asset allocation across the Managed and Responsible Portfolios, with high-level exposures returning to previous model weights.

This locked in some equity gains and prompted further profit-taking on gold in the Managed Portfolios, through the Quilter Investors Precious Metals Equity fund, amid moves in US bond yields. The proceeds have been used to top up fixed income and alternatives.

WealthSelect has also shifted further away from passive gilt exposure towards active global government bond strategies ahead of the Autumn Budget. The Quilter Investors Global Government Bond fund allocation has been increased in the Managed Portfolios, while Aegon Sustainable Sovereign Bond's allocation has risen in both the Responsible and Sustainable Portfolios.

Helen Bradshaw, portfolio manager of Quilter's WealthSelect MPS, said: "While market momentum has stayed strong, we remain mindful of elevated valuations in parts of the market, ongoing concentration risks within AI-related sectors, continued geopolitical uncertainty and the upcoming Budget.

"As a result, while we didn't feel we needed to increase overall portfolio risk at this stage, we did want to refine some of the holdings and style tilts to help take advantage of these conditions. In equities, it provides greater scope to add value through stock selection; in fixed income, managers can use their flexibility across duration, country exposure and yield curve positioning to navigate changing market conditions."

Chancellor John Healey used a speech in Coventry this morning to set out plans for driving growth “in more places” across the UK, while refusing to be drawn into discussing tax rises ahead of the Budget.

Speaking at the Manufacturing Technology Centre, Healey said he wanted to make “Great Britain, growth Britain again,” arguing that fiscal credibility and growth were inseparable. He restated the government's commitment to meeting its fiscal rules at the Budget, saying “there's nothing progressive” about the government spending £1 in every £10 on debt interest, and blamed Liz Truss's 2022 mini-Budget for the “trust penalty” Britain has paid since.

On regional growth, Healey confirmed £150m from the British Business Bank for scale-ups in the north of England, targeting investments of £5m-£15m in university spinouts and ambitious businesses from Liverpool and Manchester to Leeds, Sheffield, Hull and Newcastle. He also named South Yorkshire, Liverpool, the North East and the Cardiff Capital Region as new strategic partners of the National Wealth Fund.

The chancellor said he would change the Treasury's green book rules, which govern how government projects are appraised, cutting the discount rate from 3.5% to 3%. This, he said, would “skew investment towards projects with more long-term potential.” He pledged to cut the burden of business regulation by 25% by the end of the parliament and extend judicial review reforms from energy to all major infrastructure projects.

Healey said a “roadmap to fiscal devolution” would be set out at the Budget, including greater business rates retention for councils and a shift from central grants to a share of local income tax for mayoral authorities from 2028.

Reacting to the speech, Matt Benchener, chief executive of Hargreaves Lansdown, said the chancellor's “ambition for growth” was “absolutely right,” but that reforms already made would “take time to work through the system.”

He added that fiscal stability was now what mattered most, saying it would give “investors and savers the confidence to plan with certainty for the long term,” and that this was “how wealth creation can be delivered in every postcode.”

Luciano Lilloy will join Aviva Investors as head of sustainable equities, a newly created role, the asset management group announced this morning.

It forms part of a restructure for the firm’s equities team, which will now be united under one umbrella, bringing the index team and active funds under one banner, headed by Nicholette MacDonald-Brown, who joined the firm last year.

Lilloy joins from Impax Asset Management and will be responsible for developing the firm’s sustainable equities capabilities. He will also become a named portfolio manager on the Global Climate Equity Strategy, replacing the current head of equity research Max Burns, who is to retire later this year.

Aviva also announced the hire of Duncan Bulgin as head of equity research, who is moving from GAM Investments. He has 20 years of experience as both an analyst and portfolio manager, having previously worked at GAM and Newton Investment Management.

MacDonald-Brown said: “Luciano and Duncan both bring with them vast industry experience and knowledge that will complement the existing expertise within portfolio management and research teams.”

Alongside the Global Climate Equity Strategy, Burns was also a named co-manager on the Global Core Strategy. Harsharan Mann has been added to the latter as a replacement.

MacDonald-Brown thanked Burns "for his significant contribution to the Aviva Investors Equity team over the past decade and [we] wish him all the best in retirement”.

Jupiter Asset Management has hired George Ensor and Mayan Uthayakumar from rival fund group Liontrust, the firm announced this morning.

Ensor and Uthayakumar worked at River Global, which was recently acquired by Liontrust, and are expected to start in their new roles from January next year.

The managers run the £149m Liontrust UK Listed Smaller Companies fund, as well as the £79m Liontrust River UK Micro Cap investment trust.

Today’s announcement is part of the wider restructuring of Jupiter’s UK equities capability under the leadership of Adrian Gosden and Alex Savvides, who will head up the Income and Alpha investment teams, respectively.

As a result, Tim Service and Matt Cable are to leave the firm in early 2027, the firm announced, with the income managers expected to take on the management of Jupiter's existing UK small and mid-cap range.

Service joined the firm through the merger with Merian Global Investors and has co-run the Jupiter UK Mid Cap fund since 2023 alongside James Giblert, with the pair taking over from Richard Watts. He is also in sole charge of the Jupiter UK Specialist Equity fund.

Cable oversees the Jupiter UK Smaller Companies fund and Rights & Issues Investment Trust.

Piers Hillier, chief investment officer at Jupiter, said Ensor and Uthayakumar bring "strong track records of delivering investment performance for both retail and institutional clients".

"Today's announcement reaffirms our commitment to our home market of the UK and, under the leadership of Alex Savvides and Adrian Gosden, we have built teams of high-quality investment managers across styles and market caps, with the ability to deliver positive outcomes for clients across the market cycle," he added.

A global fund has the ability to diversify across regions, sectors and styles, meaning it theoretically can seek out pockets of safety when markets prove volatile.

But for much of the 2020s, there has been nowhere to hide, with a global pandemic, a historic inflation spike, aggressive rate-hiking cycles and wars across continents.

This has all conspired to make the 2020s thus far some of the most volatile years in recent memory for investors – even for those with the broadest possible mandate. Of course, in crisis, there is always opportunity, with some funds profiting off the chaos.

This article marks the final instalment in Trustnet’s series identifying funds where taking more risk paid off.

Turning to the IA Global and IA Global Equity Income sectors, Trustnet has identified the most volatile strategies that posted first-quartile returns between 2020 and the end of July 2026, alongside a first-quartile Sharpe ratio.

The Sharpe ratio indicates whether a fund’s returns have justified the level of risk taken, using the same risk-free rate applied consistently across the series – reflecting the average Bank of England base rate to represent the uniform baseline for UK investors in the 2020s so far.

The majority of funds across both sectors benchmark themselves against the MSCI ACWI index, which returned 116.6% over the assessed period, with a volatility of 12.7% and a Sharpe ratio of 0.76.

Starting with the IA Global sector, the funds below all met the set criteria.

Source: FE Analytics

Among actively managed strategies, MFS Meridian Contrarian Value logged the highest Sharpe ratio at 0.80, making returns of 166.3% over the assessed period with a volatility of 16.5%.

The global equity strategy seeks areas of controversy in the market and approaches them from a fundamental, bottom‑up perspective to identify asymmetric investment opportunities that aim to limit downside, with the managers prioritising investing in companies trading at a discount due to adverse sentiment, operational challenges or transitional periods.

Reflecting its value tilt, the fund has its highest sector exposures to industrials (23.3%), healthcare (14.6%) and financials (14.1%), with no exposure to the information technology sector. It is also overweight the more defensive UK equity market and underweight the growth‑oriented US market.

The strategy has logged first‑quartile returns over one, three and five years to the end of August 2026, gaining 108.3% over the half‑decade.

Performance of the fund vs sector over 5yrs

Source: FE Analytics

The highest return among the actively managed funds in the table came from Polar Capital Artificial Intelligence, which gained 241.2% with a volatility of 22.5% and a Sharpe ratio of 0.79.

Awarded an Elite Rating by FundCalibre last month, the strategy – which is managed by Ben Rogoff, Nick Evans and Xuesong Zhao – takes a broad approach to investing in the build-out of AI, including companies constructing AI infrastructure as well as businesses set to benefit from the technology. Current top holdings include Nvidia (5%), Alphabet (2.6%) and Caterpillar (2.3%).

Launched in 2017, the fund has proven sensitive to AI-driven momentum rallies and sell-offs, moving from the first to fourth quartile in the sector as sentiment has shifted. Nonetheless, these peaks and troughs smooth out to paint a picture of consistent outperformance over the past three full calendar years and first half of 2026.

The strategy has grown rapidly, reaching $11.9bn in size – more than doubling its assets since June. Polar Capital Artificial Intelligence has gained 127.1% over the five years ending August 2026.

Performance of the fund vs sector over 5yrs

Source: FE Analytics

Other funds in the table include Fidelity Global Industrials, Xtrackers Artificial Intelligence and Big Data UCITS ETF, Janus Henderson Horizon Global Smaller Companies and L&G Battery Value-Chain UCITS ETF. However, the Janus Henderson and Legal & General strategies failed to beat the benchmark for risk-adjusted return.

It should also be noted that the highest Sharpe ratio in the IA Global sector was logged by Heptagon Kopernik Global All Cap Equity, at 1.07. It also gained 207.2% over the assessed period. However, its volatility of 14.9% placed it in the third quartile, meaning it generated a strong return for more moderate risk, with not enough volatility to qualify.

Turning to the IA Global Equity Income sector and only one fund met the criteria: Artemis Global Income.

The £6.6bn strategy, which aims to grow both income and capital over a five-year period, returned 200.7%, with a volatility of 15.2% and a Sharpe ratio of 1.01.

Co-managed by FE fundinfo Alpha Manager James Davidson and Jacob de Tusch-Lec, the fund carries an FE fundinfo Crown Rating of five and has a historic yield of 2.28%.

The managers take a contrarian approach, actively adjusting regional, sector and style exposures through the economic cycle and favouring attractively valued businesses often not held by similar funds the managers deem capable of generating high levels of cash and paying reliable dividends.

Top holdings include Samsung Electronics (4.2%), Cisco (3.5%) and Lam Research (2.3%).

Artemis Global Income has consistently outperformed, logging first-quartile returns in the sector over one, three, five and 10 years, gaining 290.5% over the decade.

Performance of the fund vs sector over 5yrs

Source: FE Analytics

The Aegon Strategic Bond fund has posted a first-quartile return over 10 years, up 49.5%. Yet, between 1 January and 1 September of this year, it was down 1.4%.

Performance of the fund vs sector and benchmark YTD

Source: FE Analytics

That’s a sharp swing for a fund in an asset class that is typically supposed to be one of the calmer parts of a portfolio. According to manager Alexander Pelteshki, who runs the fund alongside Colin Finlayson, the gap comes down to one thing: risk avoidance.

“What has repriced quite a bit is government bonds, or interest rates,” he said. “Between the beginning of April until today, we’ve had several market episodes with very sharp rallies and very sharp sell-offs, and most indices or funds have participated in that rollercoaster ride. We have not. [...] That’s been intentional, so that we can get better clarity and understanding of what we expect from the markets in the near term.”

And he won’t be changing this stance any time soon. “It continues to be our firm view, and we’re not seeing anything that makes us change that, or chase excessive market beta, at the moment,” Pelteshki said.

“It’s very easy to get ahead of yourself, and even easier for markets to humble you,” he added.

Below, Pelteshki explains the flexibility around his investment process, where he is finding value, and his best and worst calls.

What is your process?

The fund’s investment process primarily focuses on identifying mispriced opportunities in the global fixed income market – in particular, we have historically been good at identifying mispriced corporate credits.

We select market beta when we are overcompensated for it, while we also try to establish a central investment case and try to anticipate what the tail outcomes could reasonably be, so that we can hedge those as well.

How much flexibility does this process have?

On the credit side, we don’t have many constraints, if at all. We do have an upper limit on how much we hold in high-yield-rated credit or below investment-grade-rated credit, which is capped at 40% of the fund's assets.

If we don’t think the overall index level of credit spreads is compensating us sufficiently for the risks out there – particularly in the high yield market, because that’s a more default-risk-sensitive sector – then we look to minimise our net exposure to that part of the market. On the other hand, if we feel we're overcompensated for that particular risk, then we increase exposure towards the upper end of that part of the market.

How does that work in practice?

We build a portfolio with high conviction positions through a very repeatable and robust credit selection process. We tend to retain the credit we like, also within the sub-investment grade part of the market.

We use very simple credit derivatives, buying protection via a simple index credit derivative in the high yield market and that degree of protection can go all the way up to the size of the bonds we have.

A recent example of this is Liberation Day – there was upwards of hundreds of basis points (bps) of spread widening in the high-yield index which gave us the opportunity to move from about 5% net exposure to high yield to just over 30%.

As credit spreads rallied and reached historic tights at the beginning of this year, we again started reducing that net exposure to the generic level of market or credit risk.

What is your current positioning on spreads?

We aren’t in a risk-off mentality, but we have decided to focus on yield and carry, because we don’t see upside in credit spreads from these levels.

We think spreads will sell-off at some point. We don’t know the timing of that and we don’t have to time it because, at the current level of yield, if nothing changes in 12 months, we’ll have about 8% to 8.5% return – we’ll have earned the portfolio yield.

Where do you see the clearest example of that mispricing in credit markets today?

We still don’t think that market levels in investment-grade hyperscalers or data centres are compensating anywhere near enough for the supply schedule you’re going to see in the market.

Every time you get earnings from the Magnificent Seven, they highlight even bigger capital expenditure spending plans. If you do the numbers, that translates into next year’s supply in the public investment grade bond market of about $400bn – this year, we’ll finish at around $260bn.

That is saturating the market, meaning every new deal will need to come at a materially bigger concession to attract marginal additional demand, because we’re of the view that whoever wanted exposure to those names already has some exposure.

We also question the profitability, the earnings generation and the impact on the balance sheets of those projects, because we think the pay-off will be diminished versus current expectations.

Where do you currently see value in terms of duration?

We find the front end of bond curves more attractive versus the long end.

If you look purely at credit curves between three, five, 10, 15, and 30 years in corporate credit – if you ignore the hyperscalers for the moment – the corporate credit curve has been quite flat. There’s been no additional compensation for lending to someone for five years versus 30 years, and that’s wrong as, historically, those credit curves have been upward sloping.

We expect credit curves to steepen and they have started steepening this year in some parts of the market.

The hyperscalers have put pressure on the long end of credit curves, and we think there is more to go. There’s no point in us buying a 10-year bond at 10% when we can buy a two-year bond at 10% as well. The risk/reward is better on the shorter bond.

What have been your best and worst calls in recent months?

We were very positive on UK lender Metro Bank and had expressed that view convincingly in the portfolio in the period. In the 18 months to end-July, our holdings of three separate Metro Bank bonds have collectively contributed 55bps to fund performance. 

On the other end of things, we were quite positive on Oracle earlier in the year following the repricing of the bonds lower. So far this has not been a correct decision, as ongoing capex spending from the hyperscalers, as well as from Oracle itself, has put pressure on the spreads further.

Oracle has dragged on overall portfolio performance by approximately 4bps.

What do you do outside of fund management?

I like any kind of sport. Lately, I’ve been playing sports with my kids and thankfully they are as competitive as I am.

There have not been many upsides to Brexit, as far as I can see. But the ability to rewrite inherited EU UCITS rules without asking Brussels for permission might just be one.

This week, I have written extensively about the failures of the current UCITS rules. Specifically, I have reported how the industry is pushing back against rules requiring active funds to adhere to a 5/10/40 portfolio restriction.

It means they can only hold up to 10% in one individual stock and can hold no more than 40% in companies with a weighting above 5% – a rule that is relaxed significantly for passive funds.

Brought over from Europe and implemented by the FCA, these regulations restrict active managers. As Fabiana Fedeli, chief investment officer of equities, multi-asset & sustainability at M&G, said: “We do not see a clear rationale for applying different concentration caps to active UCITS and passive strategies.”

Some may point to diversification – if an active fund owns more than 10% in a stock, it is taking on a bet that is too concentrated. If this is the case, surely the same logic must stand for passive funds. The solution: either up the active limits or lower passive ones. Only one of those figures can truly be right.

Additionally, we already allow some portfolios to invest however they like. Investment trusts have no caps. Just look at Scottish Mortgage, which at one point had 25% in Elon Musk’s SpaceX.

Others may suggest that looser rules will encourage bad actors. What is to stop fund managers from taking huge short-term bets to improve performance?

Yet no fund group would risk their reputation to allow one individual to do whatever they choose – and few would argue that this was an acceptable level of risk.

And if we are concerned about how the rules could be exploited by boutique groups, I would question how the current UCITS regime protected investors in 2019 from Neil Woodford, a saga that left the then-FCA chief executive Andrew Bailey to tell the Treasury Committee “we will see about UCITS, frankly”.

He wasn’t arguing for more restrictions either, noting that the UCITS regulations were “excessively rules-based”.

But the issues are not just a problem for active funds. There are real quirks in the system that need addressing, in my view, when it comes to passives too. For example, unless using full replication (buying every stock at the index weight), passive funds can find themselves under active rules, as Invesco’s Matt Tagliani told Trustnet this week.

There are also oddities surrounding quant funds (or passive plus), which may not be able to index weight positions because they are treated as active funds. The solution here could be a third tranche of rules centred around benchmark weightings.

Of course, the rules may be perfectly acceptable. It may be that what we have right now is genuinely the best solution for the world we live in and that the current restrictions in place are the right ones for retail investors.

I am not saying there is a right answer. But I think given the groundswell of support already shown this week by asset managers such as Fidelity, Invesco, Schroders and Aberdeen, now is the time to look at these rules.

I didn’t vote for Brexit. I wasn’t a big fan then of leaving the European Union and I remain unconvinced that it was the right decision.

But there could be one thing that comes from it that makes the investment world a better place: the ability to change arbitrary, restrictive EU UCITS laws.

UCITS started as an EU directive. After Brexit it was on-shored into the FCA's handbook, but there is nothing that states we have to keep them identical to those imposed on the continent.

There's no Brussels sign-off required, no EU negotiation, no external blocker to rewriting the rules. The FCA holds the pen and can wield it however it so chooses.

Investment trusts face no statutory limit on how much they can hold in a single stock, while open-ended funds are hamstrung by European UCITS rules carried over by the Financial Conduct Authority (FCA). Is this fair?

As we covered this week, active funds (and some passives) are only allowed to own companies within certain limits, under the so-called 5/10/40 rule.

Anna Macdonald, investment strategy director at Hargreaves Lansdown, said: “If the rules are here to promote diversification and to ensure that holders aren't too weighted into something, which I assume is the idea, there are no such rules in investment trusts.”

She noted that the FCA “is very happy for retail investors to buy” investment trusts with few restrictions but does not extend the same courtesy to open-ended UCITS funds.

Yesterday, Matt Tagliani, head of EMEA ETF product at Invesco, explained why he believes active funds have more punitive rules, with the freedom to invest in anything paired with restrictions on how much can be invested in any one particular stock.

He said that, although trusts are an area he “know less about”, they provide a “precedent for the argument of giving full flexibility [to funds too]”.

However, the argument that “trusts have full free rein and they've never had a problem” is unlikely to resonate with the regulator, as there are significant regulatory differences between the two and other reasons why they are st up that way.

Below, Trustnet looks at the key differences that allow investment trusts to operate differently, including their structure, and how the rules of companies’ law differ here from the FCA’s restrictions.

Different structures

UCITS funds are open-ended, meaning investors can withdraw their money at any time with the fund obliged to return their money. Conversely, investment trusts are closed-ended. They are listed on the London stock market and therefore to sell, investors must find a buyer for their shares.

Richard Stone, chief executive of the Association of Investment Companies (AIC), noted that, as a result, trusts “do not offer redemption and so a statutory limit on the size of their investments is not required”.

Withdrawals have been an issue in the past for open-ended funds, particularly during the Neil Woodford debacle in 2019 and among property funds, many of which closed in the late 2010s due to liquidity issues. Open-ended funds investing in difficult-to-trade assets were forced to sell some of their holdings to meet withdrawals. First out of the door tend to be the most liquid assets, such as large stocks.

However, after these have been sold, more time is needed to arrange the sales of illiquid assets, resulting in ‘gating’ – the temporary closure of a fund. This can lock investors’ money in a fund until such time as asset sales could be made.

What rules do investment trusts have to follow?

Trusts aren't rule-free, far from it. Under FCA Listing Rules, they must publish an investment policy demonstrating how they “spread investment risk” and maintain that policy on an ongoing basis.

Stone added that, as well as the FCA, any material change to a trust’s investment policy “needs to be approved by a shareholder vote”.

“Many investment trusts do set a limit to their single-stock exposure at purchase and boards review this regularly,” he added, although this is not compulsory.

There are exceptions, however. Venture capital trusts (VCTs) and real estate investment trusts (REITs) are not subject to a spread-of-risk test but have other diversification requirements.

VCTs are subject to a 15% maximum in any one company at time of investment – similar to the current UCITS rules – while a REIT must have at least three properties, and no single property can represent 40% of the total value.

A true long-term approach

Because investment trusts do not offer daily liquidity in the same way as open-ended funds, they can take a much longer-term approach. As a result, they can invest in illiquid assets that can balloon in size should they perform well.

This recently became a live issue for Scottish Mortgage, for example, ahead of the SpaceX IPO. The unlisted tech stock had rocketed higher and accounted for more than a fifth (21%) of its total holdings ahead of the IPO. That figure still stands at 18.1% since the listing, almost double the amount an open-ended fund can own.

Stone said: “Unlike open-ended funds, trusts are also well suited to long-term investing in illiquid assets, the valuations of which can change significantly. This would make a limit impossible to manage,” he said.

“For example, it would be impossible for investment trusts to invest in exciting unquoted companies such as SpaceX if they had to follow the same rules as open-ended funds.”

Boards

Investment trusts use an independent board of directors, employed and voted on each year by shareholders to ensure the trust aligns with their interests.

“The oversight provided by boards is another reason why there is no regulatory limit on the concentration of an investment trust’s investments,” said Stone.

Conversely, open-ended funds use authorised corporate directors (ACDs), which is only required to have a minimum of 25% independent directors – or at least two.

“Independent boards of directors who look after shareholders’ interests are an important advantage of investment trusts,” added Stone.

Momentum and passive investing have dominated performance charts lately, leaving active managers behind. In fact, only two in five actively managed strategies managed to outperform passives in the first half of 2026.

Regional three-year numbers paint a similarly gloomy picture, with only two geographies – Japan and Europe – providing a fertile enough ground for active managers, where the odds of outperforming benchmarks were a bit better than a coin toss.

Yet, investors still choose to buy active funds for the promise of alpha, the returns that the manager can make on top of the benchmark’s beta.

But that isn’t the right choice for Nick McLoughlin, head of UK managed fund solutions and global head of research at HSBC Asset Management, and Jennie Byun, senior multi-asset investment specialist at the firm.

In HSBC’s World Selection multi-asset range, equity exposure is largely passive and fixed income is where the team takes almost all of its active risk.

“Roughly a quarter of equity managers beat their benchmark in a typical year,” McLoughlin said. “In parts of fixed income, that figure is 60 to 70%.”

That isn’t because equity managers lack skill, he said, but because of how benchmarks work. In a market-cap-weighted equity index, the biggest weights go to the companies the market believes have the strongest future earnings growth, priced in by every buyer and seller in that market, he explained. It's a structure that's hard to beat because, in effect, the whole market has already voted on it.

Fixed income benchmarks work differently. The most heavily indebted issuers get the largest weights: the more debt a company, or a country, issues, the bigger its slice of the index.

“Fixed income benchmarks, by design, are often quite inefficient,” McLoughlin said. Rather than rewarding the strongest balance sheets, they reward the biggest borrowers – arguably the opposite of who an investor would actually want to lend to.

For example, any decision to include or exclude China from a bond benchmark has had a dramatic effect on relative performance in recent years: Chinese bonds have traded broadly sideways while yields have risen and prices have fallen elsewhere.

An index built by a provider that includes China as an emerging market and one built by another that doesn't can show different results because of that single inclusion decision, before any manager has made an active call at all, McLoughlin explained.

Nothing comparable happens in equities: MSCI, FTSE and their peers all hold broadly the same large-cap names, so the choice of index provider makes far less difference to the outcome.

It isn't only about how the index is built, either, according to McLoughlin, but also the number of funds replicating it.

Take US large-cap equities: everyone tracks the S&P 500 and everyone knows its constituents, which makes mispricing harder to find. Meanwhile, a niche fixed income benchmark, such as one covering triple-B-rated emerging market corporate debt, has few trackers. Fewer eyes on the same information leaves more room for a skilled manager to spot value the market has missed.

That is what determines where HSBC uses active managers. In a typical 60% equity allocation, only around 10 percentage points of it is actively managed – roughly 15–20% of the equity sleeve – leaving the rest tracking the index.

The exception within that active slice is systematic, factor-based investing: value, quality, size and low volatility exposures with a long, well-documented history of earning a risk premium.

Fixed income is treated the opposite way. Here, the team leans towards more active, index-aware managers, with the view that the inefficiencies in how bond benchmarks are built leaves more genuine room to add value.

Where the firm doesn't have internal capacity, it resorts to either partnering with banks and QIS houses – institutions that design rules-based, systematic investment strategies, often delivered via derivatives or structured products – to design a bespoke strategy, or using a rules-based exchange-traded fund (ETF).

For example, commodities, where HSBC has no in-house capability, are fulfilled this way: an ETF tracking an appropriate index.

However, McLoughlin was careful to draw a line between that and genuine active management.

“It's not true active management alpha that you're generating there,” he said of the rules-based approach, where the performance is largely predetermined by the index rules, not the product of a manager's judgement calls.

“Some [investment houses] specialise in manager selection. We don't. That's not our core business, so we do not have a great depth of resource on our team to go and find the best third-party active manager within, say, government bonds or equities," McLoughlin concluded.

Highly concentrated US equity markets have been a consistent theme in recent years. Now, after the latest reconstitution of a major US equity benchmark, concentration is taking on a new form, with the Magnificent Seven’s grip loosening and semiconductor stocks gaining more influence. In essence, millions of passive investors received a new portfolio without making a single decision.

FTSE Russell’s June reconstitution of its major US large-cap indexes was more than just a technical exercise. By recalibrating constituents, styles and weights, regular index rebalancing is designed to keep benchmarks representative as markets evolve.

But this year’s changes may also have significant implications for investors in today’s AI-driven markets.

Dramatic shift in Russell 1000 Growth

The effects of the latest reconstitution were especially dramatic in the Russell 1000 Growth Index, a widely tracked barometer of US growth-stock performance.

Several of the largest technology companies saw meaningful changes to their style classification, with semiconductor companies gaining substantial representation within the index.

Before the rebalance, the Magnificent Seven mega-cap technology companies represented 52.8% of the Russell 1000 Growth by market capitalisation, giving them an outsized influence over equity returns. Now, their sway has fallen to 43.1%.

The Russell rebalance: Concentration has shifted, not disappeared

On the surface, this appears to be a welcome reduction in index concentration. But a closer look reveals more nuance.

Semiconductor and semiconductor equipment companies now account for a whopping one-third of the Russell 1000 Growth – a jump from 24% – as high-flying memory stocks crossed over to the index from its value peer.

In other words, concentration didn’t disappear, it just shifted.

New look, same concentration

Semiconductors’ newfound prominence may appear logical, given the importance of chips, memory and equipment suppliers to the AI infrastructure build-out.

But now, not only do semiconductor and semiconductor-equipment stocks represent one-third of the index by market cap, they also account for nearly half of its beta, or overall market risk, as shown above.

As a result, investors also inherited a benchmark with greater sensitivity to market swings relative to the S&P 500 than they might have expected. This risk was on full display in July when shares of some of the largest and most volatile memory companies dropped more than 25% in a single month

Meanwhile, index weights have been shifting within the technology sector. The rise of semiconductors coincides with a continuing decline in software stocks, which have been under pressure since February amid AI-disruption fears.

Software’s weight in the Russell 1000 Growth has fallen from a peak of 20% in August 2025 to 9.3% in June 2026. Taken together, these trends mark a sea change in the market composition of technology companies.

Investors now face a new-look index with a familiar challenge: while market leadership has changed, a growing portion of benchmark performance hinges on a relatively small group of companies within a single industry.

Why does that matter? History shows that periods of extreme concentration can leave investors exposed to potentially abrupt shifts in market leadership, which can be detrimental to returns.

Passive decisions may be more active than you think

After such a dramatic reconstitution, investors should ask a simple question: Just how passive is my passive index? Probably less than you think.

The decision to reduce Magnificent Seven weights while materially increasing semiconductor exposure wasn’t made by millions of individual investors. It was the result of index methodology that determines which companies qualify for inclusion and how much influence they receive.

In our view, index methodology and periodic reconstitutions can introduce an unexpectedly active element to an otherwise passive, index-tracking strategy.

Market-cap weighting, an important component of most major index methodologies, exacerbates this effect.

Most large, familiar benchmark indexes aren’t just neutral, but rather a rules-based collection of stocks. In market cap–weighted indexes, stocks are given greater weighting as their market values rise. That approach may appear mechanical but it still incorporates an active assumption that companies with soaring share prices deserve greater portfolio weight.

In this way, market-cap weighting can amplify the very concentration many passive investors may be trying to avoid, leaving passive index-based portfolios tied to a narrower set of economic drivers and revenue pools.

When leadership is durable, this kind of methodology can work well. But when conditions shift, such as during the rise of a disruptive technology, passive investors may end up more exposed to yesterday’s winners than tomorrow’s growth prospects.

We saw a similar benchmark leadership shift during the dot-com era, when dominant companies across healthcare, industrials and consumer sectors were eventually overshadowed by today’s technology giants.

Moreover, the recent ‘semi surge’ assumes demand for chips, memory and networking infrastructure will remain robust for years to come.

That may prove true. But if massive amounts of AI capex aren’t eventually converted into profits or demand for semiconductors flags, we believe investors could be in for a rough ride.

Semis are important, but so is diversification

As index concentration changes form, we believe investors should buck the trend and select stocks across a wide range of sectors and industries. As we see it, overloading on semiconductor shares could add risks that conflict with a diversified portfolio’s long-term strategy.

The Magnificent Seven’s volatility illustrates how quickly market sentiment can turn, and our research shows that active equity strategies have performed well during periods when extreme market concentration unwinds.

Active performance tends to improve as extreme concentration unwinds

None of this suggests that investors should abandon semiconductor stocks or ignore AI. The AI revolution is real and many semiconductor companies are benefiting from powerful secular growth trends.

And as AI adoption broadens, opportunities could emerge across healthcare, industrials and other sectors that harness AI to improve productivity. Already, AI is driving efficiency gains across a broad range of enterprise applications.

Today’s challenge is about balancing exposure to powerful AI-related trends while maintaining disciplined, broader diversification. While semiconductors are now taking centre stage, if their star dulls over time it could prove costly to passive investors.

Ultimately, we believe that long-term investors should turn to active management to identify durable businesses across a broader opportunity set. After all, the benchmark may have changed. The case for diversification has not.

John Fogarty is co-CIO for US growth equities and Matt Whitehurst is director and investment strategist for equities at AllianceBernstein. The views expressed above should not be taken as investment advice.

Systematic index-plus funds and even some dedicated passive vehicles are being hampered by UCITS rules confining them to the same rules as active funds, according to Matt Tagliani, head of EMEA ETF product at Invesco.

The rules currently employed state that active funds must adhere to a 5/10/40 rule, where a fund can hold up to 10% in one individual stock and can hold no more than 40% in companies with a weighting above 5%.

Conversely, passive funds can have as much as 20% in any company and 35% in one stock under exceptional circumstances.

But not all passive funds benefit from this, said Tagliani, as these rules only apply to vehicles that use full replication, where the fund buys every single stock (or bond) in the benchmark at the same proportion as the index.

Some exchange-traded funds (ETFs) use optimised sampling, a method where a smaller basket of stocks is used with the idea of matching the index’s key risks.

This happens in a lot of cases “if the full benchmark is not completely replicable”, said Tagliani. “So it [the 5/10/40 rule] still applies to passive funds, in the subset of cases where you're using optimised sampling,” he said.

The rules, he argued, are stricter for active managers because these funds are run by someone who can “select whatever” they want, while an index fund is beholden to a prospectus and must be transparent with what it will hold.

“You're guarding against a manager who's having a bad month, who's got a strong view on a particular stock, and says, 'Well, I'm going all in on this thing to try to turn around my performance’,” he said.

"Most managers are not going to [behave] this way, but the regulator has to watch out for a manager having a bad run and then doubling down on their best idea.”

Active funds typically disclose their holdings monthly or quarterly, Tagliani noted, meaning "no one's going to know for the next 15, 20 days" if a manager has made a concentrated bet. This is opposite to passive funds, where positions change gradually and are visible continuously. A stock is unlikely to go from 5% to 10% overnight, he noted.

Yet they can be caught up in the same rules applied to active funds. As can index-plus funds, also described as systematic, tilt or smart-beta funds.

These portfolios replicate an index before making tiny marginal calls – sometimes basis points – on stocks in an attempt to beat the benchmark.

This is a live issue for Invesco. Tagliani pointed to the firm’s Global Enhanced strategy as an example. The fund looks to deliver returns marginally ahead of the MSCI World. Its sector positions can never be more than 2 percentage points different from the index, targeting a tracking error of 1.5%.

He described the fund as a “hair's breadth” from being passive but noted that it is “classified as active” and, as such, is “immediately tied to these [active UCITS] constraints”.

These funds are growing in popularity, with Tagliani pointing to the rapid growth of benchmark-aware strategies, so now could be a good time to find a regulatory solution that works for these ‘hybrid’ funds.

One option is a benchmark-referenced set of rules that would allow funds to overweight stocks by a set percentage, say 2 percentage points. This would allow active funds to overweight a stock where appropriate, while also giving a limit to off-benchmark companies and small stocks in the index.

“Our current regulatory framework only really considers these two extreme cases. I think there's a clear logic to a middle ground,” he said.

“I think it's entirely a coherent concept to say, I'm going to have a benchmark-relative fund, where I want to have the same ability to go up to whatever the levels are in the benchmark. That's quite an interesting idea.”

He noted that this will be “much more challenging to monitor” than the current rules as both sides of the equation will be moving. A fund’s individual position could rise more if the stock does well, while the underlying weighting of the index will also change at the same time.

“The weighting in your portfolio would have to constantly be adjusted. It's a challenging thing for us to operationalise because the weights of the things you're referencing are constantly moving. But I think that's actually quite interesting.”

Ultimately, the regulator will not decide this based on what asset managers want, but on what is best for the end retail investor. Here, Tagliani noted that there is clear demand for systematic or quantitative index-plus funds.

He said the case should be framed to the FCA in terms of investors' interests, with a framework that lets these strategies replicate the benchmark closely while making minor tweaks.

“Those of us who do it better, and those of us who do it worse, will have more or less success but it's not about what we want, it's what retail investors want. I think that's the key point,” he concluded.

Yesterday, Trustnet looked at the issue active managers face when adhering to UCITS rules that do not allow them to overweight certain stocks. In the next article in this series, we look at investment trusts and why they are able to invest freely.

Investing in emerging markets has always come with a health warning: yes, there is high growth potential but there is also typically higher volatility, greater political and currency risk, and sudden sharp drawdowns. The 2020s have been no exception.

Against this backdrop, Trustnet is continuing its series identifying funds where risk has paid off, with the most volatile funds in their respective sectors posting first-quartile returns between 2020 and the end of July 2026, alongside top-quartile Sharpe ratios.

The Sharpe ratio indicates whether a fund’s returns justified the level of risk taken, using the same 2.76% risk-free rate applied consistently across all sectors in this series – reflecting the Bank of England’s average base rate over the period to represent a uniform baseline for UK investors.

Turning to the IA Global Emerging Markets sector, the most popular benchmark utilised by funds in this universe is MSCI Emerging Markets, which gained 71.7% over the assessed period, with a Sharpe ratio of 0.37.

All funds in the table below met the outlined criteria and also beat the index’s Sharpe ratio.

Source: FE Analytics

The strongest performer was Redwheel Next Generation Emerging Markets Equity, which topped the table with a return of 206.3%, Sharpe ratio of 0.81 and volatility of 19.5%. The fund also logged the highest return and Sharpe ratio across the whole sector.

The $2.6bn strategy, managed by FE fundinfo Alpha Manager James Johnstone since 2019, aims to provide long-term capital appreciation by investing primarily in smaller emerging markets and frontier equity markets, which Johnstone believes benefit from structural tailwinds such as expanding consumer populations and low labour costs.

Earlier this year, Trustnet research found that the fund was in the top decile for downside capture ratio over five years, as it has historically gained ground when MSCI Emerging Markets has fallen.

Titan Square Mile analysts have given the fund an ‘A’ rating. They said: “We believe the strategy [offers] long-term investors diversification benefits given that the markets the fund invests in are typically under-researched and under-represented by current indices.

“It provides access to a differentiated exposure [compared] to other mainstream emerging market funds, which may appeal to long-term investors looking to add a niche offering to their core large-cap emerging market allocation.”

However, the Redwheel strategy is on the more expensive side, with an ongoing charges figure (OCF) of 1.40%.

Performance of the fund vs sector over 5yrs

Source: FE Analytics

Another strong performer in the table is Carmignac Portfolio Asia Discovery, which has €257.2m in assets and has been managed by Naomi Waistell since late 2025. She took over from predecessor Haiyan Li-Labbé, who left Carmignac to pursue a career outside of portfolio management.

Formerly known as Carmignac Portfolio Emerging Discovery, the fund was renamed after shifting its strategy to focus more specifically on Asia excluding China. It can invest across Asian companies without emphasis on business sector or market capitalisation.

The strategy is in the first quartile of the sector for its one‑year return to the end of August 2026, gaining 70.5%. It is also in the top quartile over three, five and 10 years, rising 181.4% over the decade.

Its larger stablemate, Carmignac Portfolio Emergents, also met the criteria, albeit with a slightly lower Sharpe ratio of 0.52. Waistell is one of the co-managers of the €733.8m fund, alongside Alpha Manager Xavier Hovasse.

The strategy combines a top-down approach with bottom-up analysis, looking for long-term high-growth opportunities. It also considers sustainability factors, allocating at least 80% of net assets to companies aligned with the UN Sustainable Development Goals and lower carbon emissions.

Information technology (35.7%), industrials (16.9%) and consumer discretionary (14.7%) are its largest sector exposures, with top holdings including the popular trio of AI-focused stocks: TSMC, Samsung and SK Hynix.

Performance of the funds vs sector over 5yrs

Source: FE Analytics

Other funds that met the criteria include FTF Templeton Global Emerging Markets, FP Carmignac Emerging Markets and Fiera Emerging Markets.

Turning to funds targeting specific emerging market regions, only one strategy in each of the IA India/Indian Subcontinent and IA China/Greater China sectors met the criteria.

In the IA India/Indian Subcontinent sector, Jupiter India made the list, posting a 112% return in the 2020s thus far, with a volatility of 19.1% and Sharpe ratio of 0.49. In contrast, the most popular benchmark in the sector – MSCI India – returned 67% with a volatility of 18.4% and Sharpe ratio of 0.29.

Jupiter’s £1.2bn strategy carries an FE fundinfo Crown Rating of five and is co-managed by Avinash Vazirani and Colin Croft.

The portfolio is defensively tilted, with the largest allocations to financials, healthcare and industrials. As such, its top holdings include State Bank of India, Fortis Healthcare and Hindustan Petroleum.

Although the fund lost 6.1% over the past year – a common trend across the sector as the region continues to suffer from its lack of AI exposure – it is in the first quartile for returns over three and five years and has gained 93.7% over the decade ending August 2026.

Performance of the fund vs sector over 5yrs

Source: FE Analytics

In the IA China/Greater China sector, Matthews China Innovators returned 61.2% with a volatility of 27.3% and a Sharpe ratio of 0.17. Meanwhile, the most popular benchmark in the sector – MSCI China All Shares – returned 11.7% with a volatility of 20.3% and a Sharpe ratio of 0, indicating that investing in the index delivered no risk-adjusted return premium over cash for a UK investor in the 2020s.

The fund is managed by Tiffany Hsiao and targets long-term capital appreciation while promoting environmental and social characteristics according to Article 8 of the EU’s Sustainable Finance Disclosure Regulation (SFDR).

The portfolio is heavily overweight information technology at 30.9% versus 17.7% for the benchmark and industrials (20.1% vs 9.3%).

While the strategy recorded a 7.2% loss over five years to the end of August 2026 – still better than the sector average loss of 9.1% – it has logged top‑quartile returns over one, three and 10 years.

Performance of the fund vs sector over 5yrs

Source: FE Analytics

HSBC Asset Management’s flagship £11.5bn multi-asset fund range has ditched some of its bond allocation in favour of alternative strategies designed to offer true diversification away from equities, according to Nick McLoughlin, head of UK managed fund solutions and global head of research at the firm.

Bonds have had a wretched run this year and things have gone from bad to worse recently with the UK 10-year gilt yields hitting their highest level since 2008 this week.

The sell-off in bonds has been global, driven by inflation fears, heavy government borrowing and, most recently, renewed conflict between the US and Iran.

For long-term bondholders, that has meant capital losses for an asset that is supposed to be the safe half of a portfolio. The fact that equity markets have started to sell off too raises questions as to whether the asset classes are negatively correlated, the theory that multi-asset 60/40 portfolios have been built upon.

Broadly, for most of history, when equities have fallen central banks have cut rates and bond prices have rallied. This has led to negative correlation and given investors a sense of safety in their portfolios.

However, that relationship broke down in 2022, when inflation became a persistent problem. It was “the perfect storm for 60/40”, said McLoughlin and has yet to be unwound.

“These days, [central banks] can't cut rates because it's either an inflation problem or something else going on,” McLoughlin said.

As such, he has decided to pivot to defensive strategies in an effort to balance out the risk portion of the fund range.

These defensive strategies include a gold position, a currency trade that buys the yen, Swiss franc and dollar against higher-beta currencies such as the Australian and Canadian dollars, an interest rate volatility strategy, an equity volatility strategy, systematic put options and a trend-following strategy that sells equity futures once markets start falling.

“In normal times, it should be quiet and stable,” McLoughlin said of the combined strategy. “But if we enter a period of volatility or equity drawdown, we're hoping that these strategies will produce sufficient convexity to protect the portfolio, in the same way fixed income would have done five, 10, 15 or 20 years ago.”

Gold has a longer-term case going for it as well, independent of its role as a portfolio hedge. The manager expects central banks to keep reducing their reliance on the dollar as a reserve currency over time, which should support the gold price structurally. Over shorter horizons, though, he was more cautious, given how sharply the price has already moved.

“[Gold peaked] at $5,000, went down to $4,000, we're now about $4,500,” he said, referring to the price in dollars per ounce. “Eighteen months ago a client was joking, saying: 'Do you think gold will reach $3,000?'”

The scale of that move, “warrants a bit of caution” over the near term, even if the structural case still holds.

Commodities were the other side of his diversification case, with the team running a basket approach across energy, industrial metals, agriculture and precious metals.

McLoughlin was particularly constructive on energy, which is the most directly tied to the current backdrop: futures curves are in “quite nice backwardation [when the current price of a commodity is higher than its future contract prices],” McLoughlin said, which gives the position a favourable carry profile regardless of whether prices ease if the Iran conflict is resolved.

Industrial metals are being supported by demand from infrastructure building, including AI data centres, while agricultural prices are up due to El Niño-related weather patterns affecting crop yields.

“It's not just an oil story or a gold story,” he said. “The breadth of performance is there in commodities.”

Even more broadly, the World Selection portfolios are tactically steering away from credit and towards equities.

The manager is running a roughly 4% overweight to equities against its neutral allocation, funded by trimming credit: a 2% underweight each to investment grade, high yield and hard-currency emerging market debt, offset by a 2% overweight to local-currency emerging market credit.

“We're quite clear that that's something we've reinforced more recently, reducing our investment grade and high yield exposures, and increasing our equity weight,” McLoughlin said.

The team has also been adding risk within emerging markets (EM) specifically, shifting around 4% of the portfolio across equities, currencies and bonds combined, out of developed markets and into the region.

Within that EM allocation, the moves have skewed towards higher-risk, higher-beta names: the fund holds an overweight to the South African rand against an underweight to the lower-volatility Polish zloty, for instance, a trade McLoughlin frames as adding EM beta rather than simply adding EM exposure.

The great global bond sell-off has continued this week, with yields continuing to rise, leaving borrowing costs at multi-decade highs.

In the UK, the 10-year gilt yield rose to 5.27%, the highest level since 2008, as investors sold off fixed income assets due to fears of spiralling inflation and worrisome deficits.

This rise in yields stems from a resumption of military activity between the US and Iran, which pushed up the oil price as investors anticipated the continued effective closure of the Strait of Hormuz. This should increase energy prices, upping inflation and, in turn, making it more likely that central banks will raise interest rates.

Matthew Amis, investment director of rates management at Aberdeen, said: “The summer holidays are over and yet the Iranian conflict is still no closer to a resolution. Tensions in the Middle East increased again last night, as such both oil and natural gas moved higher. UK 10-year gilt yields are up over 10 basis points this week.

"At the front end of the UK curve, markets are now pricing in three hikes from the Bank of England over the next year. Gilt yields look elevated here but until oil and gas start freely moving in the Strait of Hormuz, gilt yields are going to struggle.”

However, it is far from just a UK problem. By Tuesday evening, the US 10-year treasury yield stood just shy of 4.8%, its highest level since Donald Trump returned to the White House. This morning it stood at 4.81%.

Mike Goosay, chief investment officer and global head of fixed income at Principal Asset Management, said: “The sharp rise in global bond yields reflects investors reassessing inflation risks, policy expectations and the growing supply of government debt across major markets.

“While markets are increasingly pricing the possibility of additional policy tightening, we believe higher long-term yields also reflect structural factors such as elevated issuance, ongoing fiscal financing needs, and a rise in term premium.”

The key question for investors will be whether we are moving into an era where rates are higher for longer, or if this is a short-term phenomenon, said David Roberts, head of fixed income at Nedgroup Investments.

While higher government borrowing around the globe and tensions in the Middle East have taken yields higher, growth is “downright anaemic” once AI spending is stripped out, while “employment across the G7 seems, at best, stable”.

“Right now, it’s difficult to see a change in fortune for bonds. Certainly, a long-term solution to the Iranian situation would help,” he said.

Today’s yields could offer an attractive entry point, with both Roberts and Goosay suggesting there were opportunities. The former noted that the income on offer provides a total return cushion should capital prices fall further, while the latter was more bullish, suggesting that higher yields offer a good starting point for long-term investors.

“We continue to see value in high-quality sectors, including investment-grade credit and select securitised assets,” he said. “We also believe there is room for measured exposure to risk assets such as high yield and emerging market debt.”

Higher yields pose both problems and opportunities for a range of assets outside the bond space too, said Charu Chanana, chief investment strategist at Saxo. In the first two days of September, for example, equity markets have followed the bond market and pulled back.

She noted that companies with strong balance sheets are generally less exposed to refinancing pressure and can continue investing even when capital becomes more expensive, making them more resilient, although strong balance sheets “do not eliminate valuation or company-specific risks”, she said.

Still, this could provide a catalyst for quality stocks to outperform, after years in the doldrums, with Chanana highlighting stocks such as tech giants Microsoft and Alphabet.

Speculative growth stocks, however, may struggle, as higher interest rates lead to an increased discount rate applied to future earnings, which matters more for companies that produce lower profits today but promise future growth.

“This is also where the distinction between profitable AI leaders and speculative AI stories becomes increasingly important. High rates do not necessarily hurt technology; they raise the bar on valuation and profitability,” she said.

Financials should also buck the market trend, as higher yields (and implied higher interest rates) boost net interest income.

“Market volatility can also support exchanges and trading businesses,” she said, as people trade more during volatile times.

However, she noted that “persistently high rates can weaken credit quality, raise funding costs and increase loan losses, so the impact is not uniformly positive across financial companies”. Options in this bracket include JP Morgan, Goldman Sachs and Berkshire Hathaway.

Energy and commodity producers should also thrive given the sell-off is being driven by higher oil prices. “Commodity producers can benefit when higher rates are being driven by stronger nominal growth, inflation, supply constraints or geopolitical risks,” she noted.

UK stocks Shell and Rio Tinto, as well as US giants Exxon Mobil and Chevron, are all illustrative company examples that should do well.

Healthcare is one sector likely to be relatively immune to higher yields as they are “relatively insensitive to interest rates and the economic cycle”.

Lastly, while higher rates tend to slow household spending, consumer staples with strong brands, recurring demand and pricing power may be able to buck the trend.

“Staples can still face margin pressure from higher input costs, weaker consumer demand and valuation risk, particularly when defensive sectors trade at elevated multiples,” said Chanana, so selectivity could be key.

However, she noted that higher mortgage, auto-loan and credit-card rates reduce disposable income, which will adversely affect consumer discretionary stocks, particularly those focused on lower-income consumers.

Elsewhere, companies with a lot of debt could come under pressure as refinancing “becomes more painful” when rates rise.

In particular, she noted that smaller companies tend to have “less access to capital markets” and therefore greater reliance on bank loans and shorter-duration borrowing – although this is not always the case.

Similarly, companies in the emerging markets may also struggle with funding commitments – particularly those denominated in dollars, as a higher US yield tends to strengthen the currency.

Lastly, the property market could also slow, as elevated mortgage rates can reduce housing affordability and demand – a difficult environment for housebuilders.

“Strong rental growth, housing shortages and well-managed balance sheets can still offset some of these pressures, so selectivity matters,” she said.

Investors looking at China have been staring at a split story this year, with reasons both to add and to stay away from the market. While the MSCI China index is down 8.4% year to date, AI and semiconductor names have been strong as Beijing pushes for technological self-sufficiency.

Exports also grew 24% year-on-year in US dollar terms in July, according to TrinityBridge, whose head of investment specialists, Tony Whincup, described the picture as split down the middle: “China's economy is uneven. Factory production and exports have remained relatively strong but domestic weakness has persisted.”

Investors who cut their exposure to the region after the 2021 regulatory crackdown and the years of property-driven gloom that followed might be tempted to reconsider, especially as the index trades at a discount to both global and emerging market peers.

Another reason China has been back on the radar is Shein. After failed attempts in New York and London, the fast-fashion retailer finally listed in Hong Kong at a valuation of around $27bn, roughly 70% below the $100bn it had in private markets in 2022.

The gap was due to slower growth, tariff changes that undermined its low-cost model, intensifying competition from Temu and mounting regulatory scrutiny in the US and Europe. Dan Coatsworth, head of markets at AJ Bell, said the company has “gone from being untouchable to something many investors wouldn't touch with a barge pole.”

But even so, the bull case shouldn't be dismissed outright.

“Shein has considerable scale and agility, meaning it can bring new designs to market quickly and get a clear idea of what's working and what's not,” he said, pointing to the retailer's ability to restock in-demand products in as few as five days.

“A cut-price valuation might present an opportunity for contrarian investors who believe the potential rewards outweigh the long list of risks.”

But the counterarguments continue. China's economy grew just 4.3% in the year to June, below Beijing's 4.5-5% target, and the property market remains in a multi-year downturn as household confidence has yet to recover.

So which is it, a market on the verge of a recovery or one where the good news is confined to a narrow slice of the economy?

Performance of index and over the year to date and 5yrs
 

Source: FE Analytics

Fund managers with China exposure are increasingly answering that question the same way: neither broad recovery nor broad avoidance.

One example is John Citron, manager of the JPMorgan Emerging Markets Growth & Income trust (JMGI), who said China's economic momentum “remains soft” and its recovery “uneven”.

“We are taking a selective approach rather than relying on a broad recovery in the Chinese economy. We have added to the portfolio's industrial investments in China as exports have strengthened and continue to see potential opportunities in technology, advanced manufacturing, AI infrastructure, robotics, semiconductors, batteries and advanced equipment,” he said.

“However, the consumer and property-linked parts of the Chinese market may remain under pressure until domestic demand improves more clearly.”

The manager highlighted how the bull case for China today is different to the false dawns of 2023 and 2024 because it does not depend on a swift, economy-wide turnaround.

The China and Hong Kong weighting of JPMorgan Emerging Markets fell from 26.8% at the end of July 2025 to 22.4% a year later in absolute terms, even as the position relative to the benchmark moved from underweight to slightly overweight. The shift was funded by trimming strong performers elsewhere in Asia.

For Citron, property remained the exception to his gradual re-engagement: he holds no direct real estate exposure and described the sector as “an important part of the China picture and a structural headwind,” with a durable pickup in domestic demand likely to require “greater stabilisation” first.

On the enthusiasts’ side of the split, Robin Parbrook, co-manager of Schroder Asian Total Return, has taken his China/Hong Kong position overweight for the first time in 20 years.

“It's about the companies, not the economy. Macro is a poor guide to where the bottom-up opportunities are,” he said.

“Companies have stopped diluting shareholders and started buying back shares and paying dividends. Tencent, for example, has been buying back stock aggressively.”

Combined with cheap valuations and improving returns on invested capital, he argued, “we are finding value bottom-up.”

Rob Secker, portfolio specialist for emerging markets at T. Rowe Price, recently initiated a position in Tencent for the first time, “not because the macro is turning, but because the risk-reward at current levels has shifted”.

Secker saw particular value in internet platforms and depressed consumer names, where “any sign of a pickup in inflation should benefit multiples,” while flagging that China's AI winners remain too small a slice of the benchmark to draw the same attention as Korea or Taiwan.

Yet another approach was that of Linda Lin, manager of the Baillie Gifford China Growth Trust, who was wary that AI capital expenditure was being propped up by debt and took profits from technology holdings earlier in 2026, redeploying the proceeds into hydropower group Yangtze Power, battery maker CATL and Chinese banks, as she told Trustnet last week.

CT Global Managed Portfolio Trust’s growth and income shares have both delivered strong double-digit returns in the first year under new managers Adam Norris and Paul Green, as a pivot toward Asia and emerging markets paid off, according to the trust’s annual results report.

Former manager Peter Hewitt retired last year, handing the portfolios to Norris and Green from 1 June 2025.

In their first year at the helm, Norris and Green made sweeping changes to both the Growth and Income portfolios. This includes cutting 14 holdings from the portfolio to up concentration in fewer names, as well as slashing UK exposure in favour of Asia and emerging markets.

The trust went on to deliver a strong performance for the year to 31 May 2026, as growth shares returned 25.6% on a share price basis while income shares returned 21.2%, placing the trust ahead of the FTSE All-Share’s 21.6% total return once dividends are counted on a NAV basis.

Standout winners for the strategy include Polar Capital Technology Trust – which has gone all in on some of the biggest AI players, such as Nvidia – alongside the Schiehallion fund and Fidelity Emerging Markets. These all provided triple-digit returns over the year.

In contrast, the trust’s private equity holdings struggled, with HgCapital Trust down 26.3% and Literacy Capital down 28.4%, as both suffered from concerns that AI could disrupt the software and services businesses they are exposed to.

Norris and Green said: “Our positive outlook at the start of the financial year, based on a strengthening economic backdrop and improving corporate earnings, has, at times, been tested by heightened geopolitical risks.

“However, the strength of corporate earnings has driven many equity market indices to new record highs, much in reaction to AI and data centre supply chains.”

They said they repositioned the portfolios to reflect their favoured investment markers, with the biggest beneficiaries being investment companies focused on Asia and emerging markets equities. The growth portfolio allocation increased to 18.1% while the income portfolio was upped to 17.7%.

“The level of overlap between the growth and income portfolios has increased,” Norris and Green added, pointing to the introduction of Invesco Global Equity Income Trust into the portfolio.

“It is now the largest holding in the growth portfolio and a top five holding in the income portfolio,” the managers said.

Alongside portfolio allocation changes, the board is also changing its approach to dividends. First, it aims to grow dividends at least in line with UK inflation over rolling three-year periods, rather than working to a fixed pence target. Second, the trust will pay dividends monthly instead of quarterly from June 2027.

The trust board has also raised the annual dividend by 3.3% to 7.85p per income share, marking the 15th consecutive year of dividend growth.

After paying this year’s fourth dividend, the trust has £2.9m sitting in the revenue reserve, which covers 59% of the coming year’s dividend cost. There is also a £29.6m distributable reserve which was created when the trust cancelled its share premium account in 2022: it is attributable to income shareholders and can also be drawn on to support dividends.

The board is also making changes to how the trust will measure performance, swapping out its single FTSE All-Share benchmark for three complementary comparators: FTSE All-Share, FTSE All-Share Closed End Investments Index and CPI.

David Warnock, chair of CT Global Managed Portfolio Trust, said: “Whether through clearer performance reporting, protecting income against inflation, providing a more convenient dividend payment schedule or making fuller use of existing features of the company’s investment policy, each initiative is designed to improve the experience and outcomes for our shareholders.”

During the financial year ending 31 May 2026, the growth shares and income shares traded at an average discount of 1.8% and an average premium of 0.6% respectively.

Looking ahead, the managers expect economic growth to stay positive, noting that earnings momentum appears strong and increasingly broad-based across sectors and regions.

“Narrow market leadership remains a risk, particularly given the extent to which the AI theme has driven gains in a relatively small group of companies, but the underlying profit picture is healthier than this suggests,” the managers said.

“We continue to see the most compelling return opportunities in equities, both public and private with selective allocations to alternative, bonds and direct lending investment companies.”