At our recent Investment Committee meeting, we reviewed the current global investment environment, including economic conditions, market valuations, inflation risks, interest rates, geopolitical developments and portfolio positioning.

While investment markets have remained relatively resilient, particularly in the United States, the Committee continues to see a number of risks developing beneath the surface. These risks do not necessarily mean investors should move away from growth assets altogether. However, they do reinforce the importance of maintaining discipline, managing risk carefully and ensuring portfolios remain appropriately diversified.

The current environment is being shaped by several competing forces. On one hand, artificial intelligence, technology investment, infrastructure spending and resilient corporate earnings continue to support market confidence. On the other hand, persistent inflation pressures, higher energy prices, elevated government debt levels and geopolitical uncertainty remain key challenges for investors.

Against this backdrop, the Committee remains constructive on long-term investment opportunities, but believes portfolios should continue to be positioned with a degree of caution.

Our Current View

The Committee believes investors should remain invested, but selective.

Trying to time markets perfectly is rarely a successful long-term strategy. However, portfolio construction becomes particularly important when valuations are elevated and the economic outlook is uncertain. In this type of environment, we believe investors should focus on quality assets, reliable income, diversification and downside protection.

Our view is that portfolios should continue to participate in market growth, while also maintaining sufficient defensive exposure to help protect capital during periods of volatility.

Several key themes emerged from the Committee’s discussion.

1. Global Growth Remains Uneven

Global economic growth remains mixed.

The United States continues to benefit from strong investment in technology, artificial intelligence, cloud computing and data centre infrastructure. These areas have been major drivers of recent market strength and have supported earnings growth across parts of the US equity market.

However, US equity valuations remain elevated compared with historical averages. This does not mean US markets cannot continue to perform well, but it does mean investors are paying a higher price for future earnings. When valuations are high, markets can become more sensitive to disappointment, whether that comes from weaker earnings, higher interest rates or changes in investor sentiment.

The Committee believes there may be increasing relative value outside the United States, particularly in selected Asian, European and Japanese markets. These regions may offer more attractive valuations and different sources of return, although careful manager selection remains important.

From a portfolio perspective, this supports maintaining global diversification rather than relying too heavily on one region or one investment theme.

2. Inflation May Remain Higher for Longer

Inflation has moderated from the peak levels seen in recent years, but the Committee remains cautious about assuming inflation will quickly return to central bank targets.

Several factors could keep inflation higher for longer, including higher energy prices, geopolitical tensions, supply chain disruption, increased defence spending, infrastructure investment and the cost of the energy transition.

If inflation remains persistent, central banks may be slower to reduce interest rates than markets currently expect. This could place pressure on parts of the economy that are more sensitive to interest rates, including highly leveraged businesses, property markets and lower-quality credit.

For investors, this reinforces the importance of holding assets that can perform in a range of inflation and interest rate environments. It also highlights the need to avoid overexposure to areas that rely heavily on falling interest rates to justify current valuations.

3. Defensive Positioning Remains Appropriate

Given the uncertainty around inflation, interest rates and economic growth, the Committee remains comfortable maintaining a moderately defensive portfolio position.

This does not mean avoiding growth assets entirely. Rather, it means balancing growth exposure with assets that can provide income, stability and liquidity.

We continue to see value in maintaining meaningful allocations to:

• Cash and term deposits, which provide liquidity and flexibility.
• Investment-grade credit, which can provide a reliable income stream while maintaining a focus on capital preservation.
• Infrastructure, which can offer defensive characteristics, inflation linkage and exposure to long-term structural growth.
• Defensive equity exposures, including businesses with strong balance sheets, reliable earnings and pricing power.
• Real assets, which may provide protection in periods of persistent inflation.

This approach is designed to ensure portfolios remain resilient if markets experience renewed volatility, while still allowing clients to participate in long-term investment opportunities.

4. Commodities Remain a High Conviction Theme

One of the Committee’s strongest long-term convictions remains the outlook for commodities and resource-related investments.

The global economy is undergoing a significant structural shift. Electrification, artificial intelligence, data centres, renewable energy, grid upgrades and energy security all require substantial investment in physical infrastructure and raw materials.

This creates long-term demand for a range of critical resources, including:

• Copper.
• Rare earths.
• Critical minerals.
• Energy infrastructure.
• Resource-related infrastructure.

While commodity markets can be volatile in the short term, the Committee believes the long-term demand outlook remains attractive. Many of these resources are essential to the global energy transition and the continued expansion of technology infrastructure.

However, the Committee is also conscious that commodity investments can carry higher levels of risk. For this reason, we are reviewing opportunities that provide exposure to these themes while maintaining diversification, liquidity and appropriate risk controls.

The aim is not simply to buy commodities broadly, but to identify areas where the long-term risk and return profile is compelling.

5. Defence Spending Continues to Increase

Global defence spending continues to rise, particularly across Europe and Asia, as governments respond to a more uncertain geopolitical environment.

This represents a structural investment theme that may continue for many years. Higher defence budgets can support earnings growth for selected companies involved in defence technology, aerospace, cybersecurity, logistics and related infrastructure.

However, the Committee remains selective. Some defence-related assets have already performed strongly, meaning valuation discipline is important. The Committee is focused on identifying opportunities where earnings growth appears sustainable and valuations remain reasonable.

As with all thematic investments, the key is to avoid overpaying for a good story. A strong long-term theme does not automatically make every investment within that theme attractive.

6. Credit Markets Require Careful Monitoring

Credit remains an important part of client portfolios, particularly for those seeking income and capital stability.

Higher interest rates have improved the income available from many fixed income and credit investments. However, the Committee is also mindful that credit markets can become vulnerable if economic conditions deteriorate.

We are monitoring credit spreads, default rates, lending standards and broader economic conditions closely. The Committee’s preference remains for high-quality managers, diversified portfolios and a disciplined approach to risk management.

We continue to favour credit strategies that focus on capital preservation, strong security selection and appropriate compensation for the level of risk being taken.

In the current environment, we believe investors should be cautious about reaching too far for yield. Higher income is attractive, but only where the underlying risk is properly understood and appropriately priced.

Portfolio Positioning

Following the meeting, the Committee agreed to maintain a moderately defensive stance while continuing to search for attractive long-term opportunities.

The key areas of focus include:

• Select commodity and resource exposures.
• Critical minerals and electrification themes.
• Global infrastructure.
• High-quality income-producing assets.
• Defensive equity strategies.
• Selective international opportunities outside the United States.
• High-quality credit managers.
• Adequate liquidity through cash and term deposits.

This positioning reflects our view that portfolios should remain invested, but not overly exposed to a single market, sector or economic outcome.

We believe diversification remains particularly important. A well-constructed portfolio should not rely solely on falling interest rates, continued US technology leadership or a strong global growth cycle. Instead, portfolios should be able to withstand different market environments while still capturing long-term opportunities.

What This Means for Clients

For clients, the key message is that we are not making major changes for the sake of activity. Instead, we are continuing to apply a disciplined investment process focused on risk management, valuation and long-term outcomes.

In uncertain markets, it can be tempting to react emotionally to short-term news. However, successful long-term investing usually requires patience, diversification and a clear understanding of the role each investment plays in the portfolio.

Our investment approach remains centred on:

• Preserving capital.
• Managing downside risk.
• Maintaining appropriate liquidity.
• Generating reliable income.
• Remaining diversified across asset classes and regions.
• Identifying opportunities where investors are being properly compensated for risk.

This is particularly important for clients who are drawing income from portfolios, approaching retirement or relying on their investments to fund long-term lifestyle goals. In these cases, avoiding large permanent losses can be just as important as generating growth.

Looking Ahead

Markets continue to face a complex mix of positive and negative forces.

Artificial intelligence, technological innovation, infrastructure investment and resilient corporate earnings remain supportive for growth assets. At the same time, inflation, higher interest rates, geopolitical risks and rising government debt continue to create uncertainty.

The Committee’s view is that investors should remain constructive, but careful.

We continue to believe there are attractive opportunities available, particularly in areas linked to infrastructure, commodities, income-producing assets and selected international markets. However, we also believe risk management remains essential.

Our focus remains unchanged: to preserve capital, manage risk and identify opportunities where we believe investors are being appropriately compensated for the risks they take.

As always, we will continue to monitor market conditions closely and adjust portfolios where necessary.