| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
Rathbones delivered a constructive year-end review highlighting higher-than-average equity returns in 2025, with FTSE 100 up 25.8%, European markets up 26.8%, and Emerging Markets up 25.1%, all outperforming the US at 9.8%. The technology sector experienced three volatility episodes around generative AI, including challenges from Chinese competitor DeepSeek, MIT study questioning corporate AI benefits, and profit-taking as investors demanded higher revenues. Trade policy remained a key risk factor, with Trump's tariff threats triggering near-20% equity falls before quick reversals. Looking ahead to 2026, economic conditions remain generally favourable with falling interest rates, decent corporate and consumer finances, and low recession probability. However, core inflation in the US and UK proves sticky, leading to expectations of persistently higher and more volatile inflation than pre-Covid levels. The manager maintains a constructive outlook for balanced portfolios while emphasizing diversification, shorter-duration bonds, and actively managed funds as key positioning strategies. Political risks in both the UK and US elections add uncertainty to the investment landscape.
Despite higher-than-average equity returns in 2025 and periodic volatility from trade tensions and AI sector concerns, global economic conditions remain generally favourable with falling interest rates, decent corporate finances, and low recession probability, supporting a constructive outlook for diversified portfolios in 2026.
The manager remains constructive about the outlook for balanced portfolios while not getting carried away. Economic conditions globally are generally favourable with consumer and corporate finances in decent shape. While equity market valuations have risen in anticipation of future growth, a derating would need a specific catalyst such as unexpected economic deceleration or sharply higher interest rates. Other regional equity markets offer more attractive valuations and could attract more investor interest if things go right.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 5 2026 | 2025 Q4 | ORCL | AI, Bonds, equities, Global Markets, inflation, technology, Trade Policy, volatility | - | The technology sector experienced three bouts of volatility around generative AI, including challenges from Chinese competitor DeepSeek, MIT study questioning corporate benefits, and profit-taking as investors demand higher revenues before rewarding companies with higher share prices. Despite volatility, the manager retains long-term belief that genAI will deliver positive outcomes for companies and consumers. President Trump's tariff threats triggered significant market volatility, including a near-20% fall in US equities when 'liberation day' tariffs were announced, though markets rallied after tariffs were put on 'pause'. China's control of 90% of global rare earth mineral refining capacity gives it strong leverage in trade negotiations. More trade-related volatility is expected in 2026. Core inflation in the US and UK is proving slow to return to 2% targets, with the manager expecting inflation to remain generally higher and more volatile than the pre-Covid era due to political preferences for more deficit spending, less globalization, climate change, and demographics. This drives preference for shorter maturity government bonds. |
| Oct 3 2025 | 2025 Q3 | - | Bonds, diversification, equities, inflation, monetary policy | - | The letter frames artificial intelligence as a powerful but still unproven driver of long-term productivity and earnings growth, underpinning equity market strength despite political and macro uncertainty. It highlights massive capital investment by hyperscalers, the risk of winner-takes-most outcomes, and the appeal of both enablers and adopters of AI rather than pure speculation. AI is treated as a structural theme that could reshape competitive dynamics across sectors, while also demanding discipline and diversification given valuation and execution risks. |
| Sep 10 2025 | 2025 Q2 | - | diversification, fiscal risk, government debt, inflation, rates | - | The letter focuses on rising government debt as a structural investment theme affecting inflation, interest rates, and asset allocation. Management argues that higher debt servicing costs will constrain policy choices and increase volatility. The outlook favors diversification and careful duration management. |
| Mar 28 2025 | 2025 Q1 | - | - | - | |
| Jan 9 2025 | 2024 Q4 | - | - | - | |
| Sep 27 2024 | 2024 Q3 | - | - | - | |
| Jun 28 2024 | 2024 Q2 | - | - | - | |
| Mar 28 2024 | 2024 Q1 | - | - | - | |
| Jan 4 2024 | 2023 Q4 | - | - | - | |
| Dec 15 2023 | 2023 Q3 | - | - | - | |
| Jul 11 2023 | 2023 Q2 | - | - | - | |
| Apr 12 2023 | 2023 Q1 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI has been integrated into RGA's research process through tools like NotebookLM, Gems in Gemini, and Claude Code. The firm views AI as a force multiplier for human judgment rather than a replacement, emphasizing the Kasparov Law principle. They believe the market narrative around AI displacement is swinging to unhelpful extremes, creating investment opportunities. |
Machine Learning Automation Software Productivity Innovation |
InflationInflation has continued to be a persistent feature in Japan and has prompted changes in both corporate and consumer behavior. Importantly, inflation has fed through to corporate earnings and equity performance. Companies that have successfully passed on higher costs to consumers have benefited from improved operating margins. |
Inflation Corporate Earnings Operating Margins Consumer Behavior Cost Pass-through | |
Trade PolicyRecent tariff policies continued to negatively impact U.S. consumers and companies throughout the year. However, international companies have been finding new trade arrangements and growth opportunities, benefiting from shifts in global trade patterns as the new U.S. administration alters terms of international cooperation. |
Tariffs International Growth Cooperation Impact | |
| 2025 Q3 |
Bonds |
|
DiversificationThe Fund remains purposefully diversified despite market leadership being narrow and focused on AI. This discipline reflects commitment to effective risk management and appropriate diversification, which weighed on relative performance but positions the Fund well for various market scenarios. |
Risk Management Portfolio Construction Concentration | |
Equities |
||
InflationInflation has continued to be a persistent feature in Japan and has prompted changes in both corporate and consumer behavior. Importantly, inflation has fed through to corporate earnings and equity performance. Companies that have successfully passed on higher costs to consumers have benefited from improved operating margins. |
Inflation Corporate Earnings Operating Margins Consumer Behavior Cost Pass-through | |
Policy |
||
| 2025 Q2 |
Debt |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| ORCL | Investor enthusiasm for Oracle's stock in calendar year 2025 was initially driven by several multi-billion-dollar contracts it signed with leading AI companies, including OpenAI and Meta. However, in Q4 sentiment for ORCL's growth prospects shifted to skepticism, as investors began to scrutinize the return profile of the substantial capital investments required to support the approximately $500 billion of contracts signed by Oracle. Given the widening range of potential outcomes associated with Oracle's elevated capital needs, we reduced our position in ORCL during Q4. |
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