Market headwinds test portfolios

Market headwinds test portfolios

Global markets experienced a more volatile start to 2026, reversing some of the steady gains seen at the end of last year. Equity markets began the quarter on a  positive footing, supported by resilient economic data, easing inflation and expectations of further interest rate cuts. However, sentiment deteriorated sharply towards the end of February as escalating geopolitical tensions in the Middle East triggered a significant rise in oil prices and renewed concerns around inflation and global growth.

Global markets experienced a more volatile start to 2026, reversing some of the steady gains seen at the end of last year. Equity markets began the quarter on a positive footing, supported by resilient economic data, easing inflation and expectations of further interest rate cuts. However, sentiment deteriorated sharply towards the end of February as escalating geopolitical tensions in the Middle East triggered a significant rise in oil prices and renewed concerns around inflation and global growth.

As a result, global equities declined over the quarter, with weakness particularly pronounced in US markets, where technology stocks came under pressure following strong performance in 2025. Emerging markets proved relatively more resilient in parts of the quarter, while Japan and some commodity‑linked markets held up better due to their exposure to cyclical sectors. Commodities were a notable positive, with energy markets outperforming as supply disruptions pushed prices higher.

Bond markets also experienced a challenging quarter, with yields rising across major regions as inflation concerns resurfaced and expectations for near-term rate cuts were pushed out. Central banks broadly maintained a cautious stance, with policy rates largely unchanged, but markets repriced towards a higher‑for‑longer interest rate environment. This combination of rising yields and increased uncertainty led to negative returns across many fixed income assets.

Against this backdrop, peer group returns mostly negative during the quarter, reflecting the broader risk‑off tone across markets. As expected, performance varied across risk profiles, with more defensively positioned portfolios demonstrating greater resilience relative to higher equity allocations.

Cautious Peer Groups
Cautious Peer Groups experienced relatively limited declines during the quarter, typically delivering slightly negative returns across GBP, USD and EUR. These lower‑risk portfolios proved more resilient than higher‑risk peer groups, supported by their higher allocation to fixed income and cash, although the rise in bond yields still acted as a modest headwind. Performance was broadly in line with, or slightly ahead of, Benchmark Portfolios, with volatility remaining low and consistent with the capital preservation objective.

The equity allocation is approximately 30‑35%, while fixed income and cash represent around 50‑60%. The remaining c.10‑15% is invested in hedge funds, commodities and other alternatives.

Balanced Peer Groups
Balanced Peer Groups delivered modest negative returns over the quarter, reflecting their higher exposure to equity markets during a period of increased volatility. Returns were broadly similar across GBP, USD and EUR, with performance slightly lagging Benchmark Portfolios in some cases due to the timing of market drawdowns towards the end of the quarter.

Equity allocation is around 50‑60%, with fixed income and cash approximately 30‑35%, and hedge funds, commodities and other alternatives around 10‑15%.

Growth Peer Groups
Growth Peer Groups recorded the weakest performance over the quarter, with negative returns across all currencies driven by higher equity exposure and the decline in global stock markets. As expected, these portfolios were more sensitive to the sharp shift in market sentiment, particularly the weakness in US growth stocks and broader risk‑off positioning in March.

Equity allocation is around 70‑75%, with fixed income and cash approximately 15‑20%, and the remaining c.10% in hedge funds, commodities and other alternatives.

Cross-Currency Comparison
Performance varied across GBP, USD and EUR Peer Groups, reflecting regional equity performance, differing bond market dynamics and currency movements. Differences in exposure to US equities and the relative strength of commodity‑linked sectors also contributed to the dispersion in returns. Overall, currency effects played a secondary role compared with the broader impact of global market volatility and shifting investor sentiment over the quarter.

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Lastly, we are proud to release this peer group data, which is published quarterly. We will be sharing more insights in the coming quarters. All contributors to this data will remain anonymous, and this is designed as a market intelligence tool rather than a research platform for managers.   

*Benchmark portfolio - a simple composite of global bond (hedged) and global equity investable index returns that mirrors the headline equity allocation of each risk profile. The weights between the two indices are 30:70, 50:50, and 70:30, respectively. 

N.b. All content is based on data at the time of writing on 28/05/26.