Strong Q2 recovery, with selective evidence of active-management value

Strong Q2 recovery, with selective evidence of active-management value

The second quarter of 2026 brought a strong recovery in global equity markets, reversing much of the weakness experienced earlier in the year. Investor sentiment improved as geopolitical tensions in the Middle East eased, oil prices retreated from their earlier highs, and concerns about an energy-driven inflation shock moderated. Resilient corporate earnings and continued investment in artificial-intelligence infrastructure provided further support to risk assets.

Against this backdrop, all nine peer groups delivered positive returns. Performance increased broadly in line with portfolio risk: Cautious peer-group returns ranged from 4.4% to 5.1%, Balanced returns from 7.2% to 8.4%, and Growth returns from 9.4% to 9.8%. This illustrates the additional upside that portfolios with greater equity exposure would be expected to capture during a strong market recovery.

Performance relative to the benchmark portfolios was less consistent. Five of the nine peer groups outperformed, with the strongest relative results recorded by EUR Balanced, GBP Balanced and GBP Growth. EUR Growth lagged its benchmark, while all three USD peer groups finished behind their respective benchmarks, although the shortfalls for USD Balanced and USD Growth were modest.

Cautious Peer Groups
GBP and EUR Cautious outperformed their benchmark portfolios during the quarter, while USD Cautious lagged. Over the trailing year, all three Cautious peer groups remained ahead of their respective benchmarks.

The quarter provided a useful test of lower-risk portfolios. Although portfolios with less equity exposure inevitably captured less of the market rebound, the Cautious peer groups still participated meaningfully while maintaining more diversified sources of return.

The Cautious peer groups also continued to show the clearest evidence of risk efficiency. For trustees, this reinforces an important governance principle: a Cautious portfolio should not be judged on whether it keeps pace with equity markets during a strong quarter. The more relevant test is whether it provides a smoother investment journey and achieves an appropriate balance between risk and return over time.

Diversification can appear least valuable when markets are rising rapidly, but its benefits are generally most evident when conditions become more challenging.

Balanced Peer Groups
The EUR and GBP Balanced peer groups outperformed their benchmark portfolios, while USD Balanced finished close to its benchmark. All three Balanced peer groups remained ahead over the trailing year.

Balanced portfolios captured a meaningful proportion of the market recovery while retaining diversification across asset classes. However, the underlying portfolios within each peer group were not positioned identically. Differences in equity exposure, fixed-income allocations, investment style, and implementation approach continued to influence returns, demonstrating that “Balanced” remains a relatively broad category, with contributing managers ranging from 4% to 10% over the quarter.

Trustees should therefore treat peer-group rankings as a starting point for further assessment rather than as a definitive measure of manager quality. Two portfolios can carry the same headline risk classification while being positioned quite differently for future market conditions.

Growth Peer Groups
Growth portfolios benefited most from the recovery in risk assets, as would be expected during a quarter in which investor confidence improved and equity markets advanced strongly.

GBP Growth outperformed its benchmark portfolio, while USD Growth lagged narrowly and EUR Growth trailed by almost 1%. The weaker relative performance of EUR Growth also remained evident over the trailing year: the peer group lagged its benchmark by 3.7%, compared with a 2.3% shortfall for USD Growth, while GBP Growth was broadly in line. Asset allocation helps to explain part of this difference. EUR Growth held approximately 65% in equities, below GBP Growth at around 72% and USD Growth at 68%. In a quarter when returns rose broadly in line with equity exposure, the more conservatively positioned EUR Growth peer group captured less of the market recovery.

Growth portfolios should nevertheless be assessed on more than their participation in rising markets. Over three years, all three Growth peer groups recorded lower Sharpe ratios than their benchmark portfolios, indicating that the additional investment risk taken had not translated into superior risk-adjusted returns. The clearest case for active-management value, therefore, remains within the lower risk profiles.

Cross-Currency Comparison
The differences between currency peer groups cannot be simply explained by market direction alone. USD peer groups remain the most domestically oriented, reflecting the size and depth of US capital markets. GBP and EUR portfolios generally hold greater international exposure and therefore derive returns from a broader combination of markets and currency movements.

The data suggest that each currency peer group has developed distinct characteristics. GBP portfolios retain a relatively balanced mix of domestic and international assets. USD portfolios remain more closely aligned with the US opportunity set, while EUR portfolios appear mostly internationally diversified, with the least home-currency bias.

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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 01/10/26.