2plan Rathbones portal

Video transcript

Speakers

• Britt Holland-Ellice – Strategic Partnerships Director, Rathbones
• Ronelle Hutchinson – Senior Portfolio Director, Rathbones

Transcript

Introduction and key takeaway from the first half of the year

Britt: Welcome, everyone, and thank you for joining us. I'm Britt Holland-Ellice, Strategic Partnerships Director at Rathbones, with responsibility for our relationship with 2plan. I'm joined by Ronelle Hutchinson, Senior Portfolio Director and lead manager of the 2plan Rathbones bespoke MPS range.

Together, we'll discuss what's been shaping markets so far this year and how the portfolios are positioned in response to a changing investment landscape.

Ronelle: The most important thing to remember from the first half of the year is that markets constantly reassess risk. We began the year with a relatively positive backdrop as inflation moderated and investors anticipated lower interest rates.

The conflict involving Iran forced markets to reassess those expectations, causing risk assets to fall and gold to rally as a safe-haven asset. As tensions eased, oil prices moved lower and markets recovered.

This demonstrates why diversification remains so important. Different assets respond differently to changing conditions, helping portfolios remain resilient through periods of market stress.

Market expectations, inflation and interest rates

Britt: Markets started the year expecting falling inflation and lower interest rates. What changed?

Ronelle: The conflict in Iran led investors to rethink both growth and inflation expectations. Inflation expectations rose, oil prices increased and growth forecasts weakened. However, market conditions continue to evolve.

Another important development was the return of investor interest in AI-related companies. Earlier in the year, AI stocks had come under pressure while regions such as Europe and emerging markets performed strongly. More recently, investors have favoured the stronger earnings visibility offered by AI-focused businesses.

From a portfolio perspective, rising oil prices matter because of their impact on inflation and growth. The environment today is very different from 2022. Inflation has generally been falling, labour markets are less constrained, and interest rates began from different starting points.

We continue to see resilience in both economic data and company earnings, which has helped support markets despite geopolitical uncertainty.

Separating market noise from meaningful developments

Britt: How do you distinguish between short-term noise and developments that genuinely matter?

Ronelle: We focus on the questions that really matter. How does an event affect inflation? How does it affect economic growth? We model different scenarios and assess their likely impact on markets.

Our conclusion is that while recent events may create a modest drag on growth, the broader outlook remains relatively resilient and the longer-term disinflation trend remains broadly intact.

Investment opportunities and portfolio positioning

Britt: Where do you currently see the most compelling investment opportunities?

Ronelle: Emerging markets remain one of our highest-conviction positions. We have moved from underweight to overweight emerging markets over the last six months.

Earnings fundamentals are improving, particularly within technology and energy-related sectors. Valuations remain attractive compared with many developed markets, and investor ownership levels are still relatively low. Taken together, these factors provide a strong case for maintaining an overweight position.

Portfolio changes should be viewed through the lens of our broader asset allocation decisions. Recent adjustments, including increased exposure to US equities, emerging markets and Japan, reflect our evolving views on relative opportunities rather than isolated fund selection decisions.

Managing volatility and protecting portfolios

Britt: If volatility increases from here, where will portfolio protection come from?

Ronelle: We continue to maintain meaningful exposure to fixed income and alternative investments. These asset classes can provide diversification benefits and help stabilise returns during periods of market weakness.

Higher bond yields also create a stronger foundation for fixed income to contribute positively to portfolios. Alongside this, alternative managers can respond more dynamically to changing conditions.

Portfolio performance and lessons from recent markets

Ronelle: Looking back, we're pleased with how the portfolios behaved across very different market environments. During the first-quarter market sell-off, the portfolios were relatively defensive and outperformed their IA peer group benchmarks.

When markets rebounded in the second quarter, we still participated strongly in the recovery despite maintaining a focus on downside protection.

If there is one thing I would reconsider, it is that we potentially could have added more risk during the first-quarter sell-off when valuations became more attractive.

Certain holdings, including Morgan Stanley Emerging Market Debt and M&G Japan, also made significant positive contributions through both asset allocation and fund selection decisions.

Supporting client conversations during uncertainty

Britt: What should advisers focus on when discussing market performance with clients?

Ronelle: Advisers should focus on the long-term picture. History shows that geopolitical events often trigger short-term market declines, but markets typically recover over time.

Staying invested and remaining diversified continue to be important principles. Time in the market remains more valuable than attempting to time market movements.

One of the differences in our approach is how carefully we manage risk. We take measured views rather than large directional bets. We focus on delivering smoother returns through disciplined portfolio construction, quality-oriented equity exposure and broad diversification.

Consistency matters because it improves the likelihood that clients remain invested and achieve their long-term objectives.

Risks investors may be overlooking

Britt: Where might investors be taking more risk than they realise?

Ronelle: One area is concentration risk within passive investments. While passive strategies can be effective, investors may underestimate their exposure to a small number of companies, sectors or correlated sources of return.

Looking beyond headline allocations and understanding the underlying risks remains important.

Advisor perspectives and client concerns

Ronelle: What are advisers telling you about the concerns they're hearing from clients?

Britt: Advisers are hearing concerns about the pace of change, particularly around AI and technology. Geopolitical events and market volatility are also creating uncertainty.

Clients increasingly consume information in real time through a continuous news cycle, which can amplify concerns and emotional reactions to events.

Advisers therefore play an important role in helping clients remain focused on their plans, objectives and long-term goals rather than short-term headlines.

Looking ahead

Ronelle: As we move into the second half of the year, we'll be monitoring developments in Iran, evolving interest-rate expectations, inflation trends and the outlook for emerging markets.

We'll also be watching the strength of the US dollar and how central banks respond to changing economic conditions.

Britt: Thank you again for joining us today. We've discussed the importance of diversification, the changing market backdrop, portfolio positioning and the value of disciplined risk management.

We hope this update provides useful context and practical insights for your conversations with clients over the coming months.