Market & Portfolio Update

Q3 2025

Prepared by the Investment Management Committee – October 2025

This report is provided for information purposes only and does not constitute personal investment advice. The content reflects Welsh & Taylor Wealth’s views as at October 2025 and may change without notice.

Market Overview

Predicting markets is a dangerous game - and one we’ll never play. Markets are simply too complex, influenced by countless global factors, to be forecast with any short-term accuracy.

The table below shows where some of the world’s leading investment banks and analysts expected the S&P 500 to end 2025. As you can see, their projections vary dramatically - in some cases by more than 1,000 points. This highlights how uncertain and inconsistent even professional forecasts can be.

Our purpose in sharing this is to demonstrate why we don’t rely on forecasts. It reinforces our core investment philosophy: long-term success doesn’t come from predicting markets, but from diversification, discipline, and staying focused on fundamentals.

Despite ongoing uncertainty, global markets have delivered solid returns through 2025. This has been supported by resilient economic data, easing inflation, and improving corporate earnings. Although interest rates have stayed higher for longer, investors are increasingly looking ahead to potential policy cuts in 2026 - a backdrop that has benefited both equities and bonds.

Key themes across global markets:

  • Growth has moderated but remains positive, underpinned by robust consumer spending and a recovery in business investment.

  • The UK has seen modest growth of around 0.6% year-on-year. Higher borrowing costs and softer consumer confidence have weighed on housing and retail. The upcoming Autumn Budget on 26 November 2025, led by Chancellor Rachel Reeves, will be closely watched for any policy changes around infrastructure, corporate tax, and housing that could shape conditions heading into 2026.

  • The US continues to outperform expectations, with GDP growth and corporate profits both rising strongly.

  • European markets have lagged due to weaker manufacturing activity, while Japan and emerging Asian economies remain bright spots for long-term investors.

Why markets remain strong

Global equities have continued their positive momentum in 2025, supported by resilient economic data, easing inflation, and healthy corporate earnings. Although growth has varied across regions, most major markets have shown resilience as investors anticipate lower interest rates in 2026.

The Big Picture

  • Up around 12% year-to-date (as of 8th October 2025), the MSCI World Index has been lifted by strong performances in US and other developed market equities - particularly within the technology, healthcare, and industrial sectors.

  • The FTSE 100 has gained roughly 14% year-to-date, driven by a weaker pound and dollar that have boosted overseas earnings for global-facing UK companies in energy, pharmaceuticals, and consumer staples. This currency benefit has offset slower domestic growth.

  • The MSCI Europe ex UK Index has risen about 13% in 2025, supported by improving investor sentiment, easing inflation, and expectations that the European Central Bank may begin cutting rates in early 2026. Industrial and financial sectors have led gains, though consumer and manufacturing demand remain mixed.

Earnings and Economic Support

Corporate profits continue to be a major driver of equity market strength. As shown below, S&P 500 earnings per share have risen from $105 in 2012, to an estimated $269 in 2025, and $305 in 2026 - a powerful reminder of long-term profit growth and innovation.

Overall, the combination of steady earnings growth, moderating inflation, and a shift toward more supportive monetary policy has continued to provide a solid foundation for global markets.

The Impact of Weaker USD on UK & European Markets

A softer US dollar through mid-2025 has acted as a tailwind for UK and European equities. When the dollar weakens, international markets often benefit for several key reasons:

  • A weaker dollar makes goods and services from UK and European exporters more attractive globally, boosting demand and supporting corporate earnings.

  • International investors tend to allocate more capital outside the US when the dollar is weaker, providing additional support to regional equity markets.

  • Many European and UK-listed companies - particularly in energy, materials, and industrials - earn revenues in US dollars. When the dollar weakens, these earnings are worth more when converted back into local currencies, improving profit margins.

As a result, UK and continental European markets have delivered stronger relative performance in the second half of 2025, led by large-cap exporters, industrials, and financials. This trend has provided a useful diversification benefit for global portfolios.

Watch the Fundamentals

When it comes to long-term investing, the most important thing to focus on is the fundamentals - because that’s where the real story lies.

Bull markets don’t end simply because they’ve lasted a long time. Historically, they tend to falter when central banks tighten policy into a weakening economy, as we saw in 2022. Today, the environment looks quite different. The Federal Reserve has already begun cutting interest rates, and current trends suggest there could be at least two more cuts before the end of 2025.

At the same time, the US economy remains resilient. GDP growth is tracking close to 3.8%, unemployment is steady at around 4.3%, and corporate earnings continue to rise - none of which points to an imminent recession.

The key takeaway for investors: Stay focused on company fundamentals, not short-term market noise. As long as earnings remain healthy and economic growth continues, equity markets are likely to stay well-supported.

Artificial Intelligence: Are We in a Bubble?

It’s natural to wonder if the excitement around artificial intelligence (AI) has gone too far but history reminds us that major innovations often begin with extraordinary growth before becoming everyday essentials.

  • In 1830, just 415,000 passengers travelled across 23 miles of track. Ten years later, 13 million passengers were riding trains across America. That wasn’t just growth - it was transformation.

  • In 1922, only 60,000 households owned a radio. By 1932, over 17 million families were tuning in daily. Within a decade, radio evolved from novelty to cultural cornerstone.

  • In 1929, just 6,000 people flew commercially each year. By 1939, that number had soared to 1.2 million - an entirely new industry had taken flight.

Consider the past:

Today, AI appears to be on a similar trajectory. The technology is already reshaping industries by improving efficiency, decision-making, and productivity. While valuations in certain areas may seem stretched, the scale of investment and long-term potential suggest we’re still in the early stages of adoption - not at the peak of a speculative bubble.

For investors, AI represents one of the most significant technological shifts of our time. Our portfolios are positioned to benefit from its continued integration across global industries.

Portfolio Insights

Our Investment Committee regularly reviews portfolio positioning to ensure it remains aligned with market conditions, our long-term strategy, and the best interests of our clients.

Below is a summary of performance for our three core WTW portfolios:

Portfolio Performance Since Launch (8 July 2025 – 30 September 2025)

Assessing Value and Client Outcomes

As part of our ongoing commitment to delivering good outcomes for clients, we regularly assess whether our portfolios continue to meet their stated objectives and represent fair value. This involves reviewing performance, cost efficiency, risk management, and suitability against client expectations and the broader market environment.

    • Risk Profile: Upper-Medium

    • Total Return: +8.48%

    • Alpha: +2.64

    • Sharpe Ratio: 1.36

    • Annual Fund Charge: 0.07%

    WTW Progressive Growth Portfolio

    Objective:
    To generate long-term capital growth by providing broad exposure to global equity markets. With an allocation of 80–100% in equities, the portfolio seeks to benefit from growth opportunities across developed and emerging markets while maintaining diversification.

    Assessment:
    The Progressive Growth Portfolio has achieved +8.48% since launch, driven by strong US equity exposure and contributions from global developed markets.

    • The portfolio is performing in line with expectations for its risk level.

    • Returns have been achieved with controlled drawdowns and strong diversification.

    • Fees remain competitive compared to similar actively managed portfolios, supporting positive long-term value.

    The Progressive Growth Portfolio is delivering on its goal of high-conviction, diversified global growth, and continues to represent fair value by balancing cost, performance, and risk effectively.

    • Risk Profile: Medium

    • Total Return: +7.52%

    • Alpha: +3.00

    • Sharpe Ratio: 1.35

    • Annual Fund Charge: 0.09%

    Objective:
    To provide long-term capital growth by investing across developed global markets. The portfolio balances growth opportunities with risk management, aiming to deliver strong returns over the medium to long term.

    Assessment:
    Since launch, the Balanced Growth Portfolio has returned +7.52%, reflecting strong global equity performance alongside well-managed fixed income exposure.

    • The portfolio’s equity exposure has captured global market gains, particularly from US and developed world indices.

    • Diversified bond holdings have provided stability and income.

    • Risk-adjusted performance (Sharpe ratio of 1.35) indicates efficient returns relative to volatility.

    The portfolio continues to offer fair value, achieving solid growth while keeping volatility at an appropriate level for investors with a balanced risk appetite.

    • Risk Profile: Lower Medium

    • Total Return: +4.32%

    • Alpha: +5.50

    • Sharpe Ratio: 0.99

    • Annual Fund Charge: 0.17%

    Objective:
    To achieve long-term growth while managing volatility through diversification across fixed interest, cash, commodities, and equities. This balanced approach allows access to growth markets while reducing exposure to the fluctuations of the overall stock market.

    Assessment:
    The Cautious Portfolio has delivered +4.32% since launch, which we consider a strong outcome given its defensive positioning and low risk exposure. The portfolio has benefited from steady bond and money market performance, alongside modest equity growth and positive contributions from gold.

    • Volatility remains low and within the portfolio’s target range.

    • Diversification is delivering as intended - smoothing returns through a mix of defensive and growth assets.

    • Ongoing charges remain competitive relative to the peer group, and the fund mix continues to prioritise liquidity and cost efficiency.

    Overall, the portfolio is meeting its objective of steady growth with controlled risk, representing fair value for investors seeking capital preservation and gradual appreciation.

Summary:
Across all three portfolios, performance has been positive and risk levels are consistent with client expectations and the stated aims of each strategy. The combination of robust investment governance, transparent costs, and strong early performance indicates that the WTW portfolio range is delivering good outcomes and represents fair value for clients.

How Do Our Portfolios Compare?

To assess performance objectively, we compare our portfolios against the Adviser Fund Index (AFI) - a recognised industry benchmark compiled by FE using data from leading UK financial advisers.

Unlike a theoretical or single-fund index, the AFI reflects real portfolios recommended by professional advisers, making it a practical and meaningful measure of how our portfolios perform relative to the wider advice market.

The index draws on a diverse and credible sample:

  • 116 constituent funds, covering a wide mix of asset classes, regions, and investment styles.

  • 59 fund providers, including many of the UK’s largest and most respected investment houses.

  • 26 funds managed by FE Alpha-rated managers, recognised for consistently delivering risk-adjusted outperformance over time.

The AFI is segmented into three categories, which align closely with our own portfolio range:

  • AFI Cautious - lower-risk portfolios with a higher allocation to bonds and cash.

  • AFI Balanced - medium-risk portfolios combining equities and fixed income for steady growth.

  • AFI Aggressive - higher-risk portfolios with greater exposure to global equities.

By comparing each WTW portfolio to its corresponding AFI benchmark, we can objectively assess how our disciplined, cost-efficient, and globally diversified approach is adding value for clients.

Performance Comparison (8 July 2025 - 30 September 2025)

Why Our Portfolios Have Outperformed

Our portfolios have delivered stronger returns than the AFI benchmarks primarily due to three key factors:

  • Many UK adviser portfolios remain heavily weighted toward UK equities and gilts. In contrast, our allocations emphasise global exposure, particularly to US large-cap, technology, and developed market indices - the best-performing regions in 2025. This global orientation has materially improved risk-adjusted returns.

  • The inclusion of physical gold via Invesco ETC has enhanced diversification at a time when gold prices have reached record highs (+52% year-to-date). While AFI benchmarks typically hold little or no exposure to real assets, our approach has captured additional returns while helping to dampen volatility during periods of market uncertainty.

  • By favouring institutional-class passive funds and ETFs, we have kept total portfolio costs well below the AFI peer group average. Lower fees and strong daily liquidity mean clients benefit fully from market movements - without unnecessary cost drag.

Balancing Risk and Return

All three portfolios have achieved outperformance without taking on additional volatility, as evidenced by higher Sharpe ratios and alpha values relative to comparable benchmarks. This confirms that returns have been driven by portfolio efficiency and diversification, not excessive risk-taking.

Summary

Across the range, each WTW portfolio has delivered superior outcomes versus its AFI benchmark since launch. This reinforces our core investment philosophy - that disciplined global diversification, cost control, and thoughtful risk management lead to better client outcomes over time. We remain confident that this approach will continue to deliver value as markets evolve into 2026.

Gold: A Standout Performer

Gold has been one of the standout assets of 2025, recently reaching record highs and reaffirming its importance as a hedge within diversified portfolios.

  • Gold prices recently traded near $4,200 per ounce (October 2025) - an all-time high and up roughly 52% year-to-date.

  • Gold has set over 25 new record highs this year across multiple currencies.

  • Central banks purchased 1,037 tonnes of gold in 2024, the highest level in over 50 years, and have continued adding reserves through 2025, including 166 tonnes in Q2 alone.

  • Forecasts from major institutions, including Goldman Sachs, suggest gold could reach $4,900 per ounce by 2026, supported by strong central bank demand and constrained global supply.

Why We Continue to Hold Gold:

  • Inflation pressures remain persistent, and gold has historically been one of the most effective ways to preserve value when purchasing power declines.

  • Over 70% of global central banks plan to increase their gold reserves over the next decade (Source: World Gold Council, 2025). This sustained, price-insensitive demand provides long-term structural support.

  • Gold typically behaves differently from equities and bonds, offering protection during market volatility and helping to smooth overall portfolio returns.

Our Approach: Physcial Gold vs. Mining Companies

We have reviewed the potential to increase exposure to gold mining companies through ETFs. However, after careful consideration, we have chosen to maintain exposure through physical gold ETCs (Invesco) for now.

Physical gold ETCs provide direct exposure to the spot price of gold, offering a low-cost, transparent, and highly liquid way to participate in gold’s performance. They also have a strong correlation to the underlying gold price, without introducing additional company or operational risks.

By contrast, gold mining ETFs invest in companies that extract and produce gold. While these funds can offer potentially higher returns if mining shares outperform the metal itself, they come with higher costs, company-specific risks, and a less reliable relationship to short-term gold price movements. Although mining companies can deliver upside in a rising gold environment, we remain cautious given their greater exposure to operational and market risks.

For now, we believe that physical exposure through Invesco’s gold ETC remains the most efficient and dependable hedge against market volatility.

Fixed Income Outlook

Corporate Bonds

We continue to monitor the corporate bond market closely. Credit spreads - the difference between corporate bond yields and government bond yields - remain historically tight, averaging around 110 basis points across investment-grade bonds, compared with a 10-year average of around 150bps.  This indicates that investors are currently receiving less compensation for taking on corporate credit risk.

While overall yields remain attractive, the risk–reward trade-off has narrowed. If economic data weakens or default rates start to rise, credit spreads could widen again, potentially reducing returns. For now, we are maintaining a selective, high-quality bias within our corporate bond holdings, focusing on strong issuers with resilient balance sheets.

Gilts and UK Government Debt

On the sovereign side, UK government bonds (gilts) may offer a growing opportunity. UK borrowing levels have started to stabilise, and gilt yields remain elevated compared with global peers, providing potential value for fixed income investors.

However, much will depend on the Autumn Budget announcement from Chancellor Rachel Reeves on 26 November 2025. Her fiscal policy decisions - particularly around infrastructure spending, taxation, and borrowing - could significantly shape the outlook for UK debt markets.

We will review the outcome of the Budget carefully before making any adjustments to our fixed income allocations.

Looking Ahead

As we approach the end of 2025, we remain cautiously optimistic about the year ahead. While uncertainty always plays a role in markets, the broader fundamentals continue to support a positive long-term outlook.

Our portfolios are performing as intended - balancing growth, risk, and liquidity effectively - and we believe they are well positioned to navigate evolving market conditions.

We will conduct a comprehensive year-end review of markets and portfolio positioning, sharing our insights with you in the new year. This will ensure our strategy remains aligned with both market developments and client objectives.

Our 2026 Outlook

  • Supported by strong earnings and easing inflation. Selective exposure to US and global large-cap equities remains beneficial.

  • Bonds are once again offering real income and diversification, creating attractive opportunities for balanced portfolios.

  • Gold and other real assets continue to play a valuable defensive role in uncertain markets.

  • Maintaining broad geographic and asset-class exposure remains the best tool for long-term resilience.

As always, we continue to research cost-efficient, high-quality investment options. While we remain mindful of fees, liquidity and transparency remain our top priorities - allowing us to adjust positioning swiftly and efficiently when required.

Our focus is, and will always be, on delivering consistent, long-term value for our clients through disciplined, globally diversified portfolios.

Key Takeaways

  • Maintaining long-term discipline continues to reward investors.

  • Our portfolios remain balanced and aligned with each client’s objectives.

  • Markets are adapting to a new environment of moderate growth and more stable returns.

  • We continue to monitor opportunities for rebalancing as interest rate expectations evolve.