Mike Kempster: Hello everyone and thank you for joining us today. I’m Mike Kempster, Head of London & East Distribution at Rathbones.
The purpose of today’s session is to give you a clear, practical update on how our dedicated, bespoke Managed Portfolio Service for 2plan is positioned, and perhaps more importantly why.
I am joined by Ronelle Hutchinson, Senior Investment Director at Rathbones and we are going to talk you through the service and provide key insights for when you are speaking to and carrying our annual reviews with your clients.
Our agenda today is to look at:
- The global macro investment environment
- Portfolio Activity & Positioning
- MPS Performance
There’s no doubt we’re still operating against a challenging backdrop. Geopolitical tensions remain elevated, inflationary pressures haven’t gone away, and central bank policy continues to keep markets on their toes. All of that feeds into higher levels of uncertainty and with uncertainty comes volatility.
Now, volatility understandably makes clients nervous. But from an investment perspective, it’s not something we fear, it’s something we plan for.
Within the 2plan MPS, risk management is central to everything that we do. We don’t react emotionally to headlines or short term market moves. Instead, portfolios are managed through a clear and repeatable risk framework that’s designed to protect on the downside, while still allowing us to participate when markets recover.
A key part of that process is governance. Our strategic asset allocation is guided directly by the 2plan Investment Committee, which ensures portfolio positioning remains aligned with agreed risk profiles and long term objectives. That discipline is especially important in periods like this, when noise is high and clarity can feel in short supply.
It’s also worth remembering that markets rarely move in straight lines. Periods of uncertainty tend to create dispersion between asset classes, sectors and styles and that creates opportunity.
Our role as an active manager is to carefully assess where risk is being rewarded and where it isn’t and to rebalance portfolios accordingly, without losing sight of the bigger picture and we’ll talk more later these investment principles later.
Let’s start by looking at asset class returns. It was a dynamic start to 2026. While markets rallied in the first two months buoyed by falling inflation and anticipated interest rate cuts.
The month of March and the start of the Iran war resulted in a sharp sell off as investors reset expectations. As a result, asset class returns were mixed over the quarter. As shown in the chart, Gold was up 9% as investors fled to safe-haven assets. UK & Japanese equities managed to hold onto gains ending up over 2 and 3% and UK inflation linked bonds with their built-in inflation protection rose 2.6%.
On the opposite end of the spectrum, equities in China fell 7% and the S&P 500 shed 2.5% in pounds and UK Gilts fell 1.8%. Taking a broader view, Ronelle talk us through the impact that the Iran war is having on the energy prices.
Ronelle Hutchinson: What is obviously missing from the previous chart is the performance of energy prices.
In this chart, we show how the escalation of the conflict in Iran reverberated through energy markets causing oil and gas prices to rise sharply by over the period.
Leading indicators of global economic activity like global purchasing Manager Indices in this chart were healthy prior to US strikes on Iran but higher energy prices will indeed be a headwind for growth.
If oil prices remain elevated averaging $90, this is estimated to subtract just over 0.1 percentage points from global GDP. However, the impact will differ by country. Energy importers are likely to be affected more negatively than energy exporters and the US as the world’s largest producer of oil and natural gas is likely to be more resilient.
While Inflation in the UK was slowing before this shock, higher energy prices will put upward pressure on inflation. We estimate that if oil prices remain higher for longer, this could add about 0.5PP to UK inflation over the near term.
This is without accounting for natural gas that is delayed by the price cap. As a result, inflation is likely to remain elevated above the 2% target.
Higher energy prices may rule out interest rate cuts in the UK. While in the US, expectations have been dialed back to a lesser extent.
Despite growth being weaker, the BOE has less policy flexibility vs the US given its sole objective of inflation management, while the Fed has a dual mandate of inflation and maximum employment.
Beyond the war, AI continues to dominate market headlines, but what stood out this quarter was how uneven the returns have been.
Investors are no longer treating AI as a single trade; the market is pricing in much more differentiation between winners and losers.
In this chart we show the material divergence in performance of semi-conductors vs. software companies. This dispersion is creating opportunities for active investors and reinforcing the importance of diversification.
One area that’s performed particularly well recently is Emerging markets. In the chart we show current and forward earnings growth in EM vs. the ROW. Solid earnings growth relative to other regions is underpinning the price appreciation.
Most importantly, this is not just AI driven. Earnings are broadening across sectors and regions, including materials and financials. While growth in China is a challenge, emerging markets have become less dependent on Chinese growth.
Turning to asset allocation and current positioning while we made no shifts in asset allocation overall, remaining neutral on equities and overweight alternatives. It is within asset classes that we have been more active.
Within equities we’ve reduced our overweight to Europe and neutralised our underweight to emerging markets.
Over the last year, we benefited from our overweight position in Europe but the sharp rise in energy prices and weaker growth backdrop increases the risks.
While Emerging Markets are more diversified, they have energy exporters as well as importers, cheaper AI beneficiaries and hence they have more flexibility protect and provide resilience.
Within alternatives we’ve strengthened our portfolio protection, introducing a more dynamic hedge fund manager to replace an existing multi-asset fund.
Mike Kempster: Before Ronelle walks us through the changes and positioning of the income models, I wanted to highlight why the range is an important tool for 2plan advisers supporting clients on the journey to or in retirement. When we think about clients in retirement, the objective is no longer simply growing capital. It’s about delivering a sustainable, reliable income, managing the downside risk, and supporting good client behaviour through different market conditions.
That’s why income focused portfolios deserve particular attention today, especially in light of the FCA’s ongoing focus on retirement advice.
For clients drawing an income, the sequencing of returns matters more than the level of returns. A negative year early in retirement can have a disproportionate impact on long term outcomes.
Income portfolios are designed to balance three critical needs: generating a natural level of income, protecting against drawdowns and maintaining enough growth to support income sustainability over a longer period of time.
Recent periods have reminded us that markets don’t move in straight lines. Income strategies have had to navigate higher interest rates, changing correlations between asset classes, and pockets of equity concentration.
What we’ve seen is that diversified income portfolios, using a mix of defensive, credit, diversified equity income and alternatives can still deliver competitive outcomes while helping to dampen volatility.
We’ve worked to reduce the cost of the portfolios whilst still delivering value in the form of returns.
Importantly, in more challenging quarters, our income models have tended to fall less than broader market IA index which Ronelle will explain.
Importantly, in more challenging quarters our income models have tended to fall less than the broader market benchmarks which is exactly what many retired clients need.
The FCA has been very clear that good retirement advice should evidence: a clear income objective, consideration of sustainability and longevity risk, ongoing suitability monitoring and an understanding of how portfolios behave in stress as well as favourable markets.
Put simply, advisers need to demonstrate that portfolios are designed for the job they are doing, not simply selected for historical performance.
If you would like to know more about these portfolios, please contact your business development director and we also have useful adviser resources on our dedicated retirement hub.
Ronelle, talk us through the key portfolio trades we’ve made in the Income range.
Ronelle Hutchinson: Fund changes over the quarter reflect these Asset Allocation views. We sold out of the L&G European index fund, reducing Europe equities and we used the proceeds to add to Lazard Emerging Markets to increase EM exposure.
We fully exited Liontrust short dated corporate bond on review, following the resignation of the lead Portfolio Manager and replaced it with Twenty-Four Absolute Return Credit, a fund that was already on our buy list.
We sold out of Schroders Global Cities and the Trojan Fund to introduce Fulcrum Diversified. Fulcrum is a dynamic hedge fund manager which strengthens the portfolio’s ability to respond to increased market volatility. Overall, we believe these changes serve to improve portfolio quality and resilience.
In terms of equity style, in the last few months, we have gradually shifted the portfolio in favour of larger cap stocks with a bias to quality companies and those with a valuation underpin, hence overall, we’re fairly balanced in terms of style.
The regional equity allocations within the models now broadly reflect our house view allocation, neutral European equities and neutral emerging market equities.
Despite the challenges of the first quarter, the 2plan core model portfolio range provided better portfolio protection vs the peers amidst the sell-off.
This resilience was a result of our focus on diversification and defensiveness amidst heightened volatility.
The main detractor to returns were equity selection with passive index exposure in the US & Global via L&G index funds were hardest hit.
UK Gilts also detracted as UK gilt yields rose as markets priced in higher inflation and rate hikes.
On the positives, the portfolio benefited from inflation linked bonds and high yielding emerging market debt. Within equities, UK equities, our allocation to Europe and emerging markets contributed.
Over the one year, performance remains competitive across risk bands, broadly in line with peers from Defensive to Moderately Cautions while ahead in the Balanced and Adventurous models.
Since inception, portfolios have delivered strong cumulative outcomes relative to benchmarks across the risk profiles, this is despite a volatile macro environment.
If we move onto our 2plan Income model range, the fund changes were consistent with the changes in the core Models. We added to Emerging Markets via Lazard. Within Alternatives we exited Schroders and Trojan to introduce the Fulcrum Diversified Fund.
Regional equity exposure mirrors the growth models and the house views. We are neutral the US, neutral Europe and have moved to add more to emerging markets. Over the first quarter, the income portfolios outperformed the IA peer group demonstrating much stronger drawdown protection.
The one year returns remain competitive vs the peers, we are outperforming in Cautious and Balanced Income whilst keeping pace in Moderately Cautious. The income models have performed ahead of the core models reflecting improved capital resilience alongside income delivery.
Since launch, the income models have delivered strong relative performance with a better risk adjusted profile vs the peers, and with that back over to you Mike.
Mike Kempster: Thank you Ronelle, now we’re going to answer some questions.
Question: Investors have been driven into passive exposure as a function of cost and performance. Do the recent market drawdowns and the level of volatility and dispersion in sector returns we’ve seen this year change this cost and value trade off?
We show the return profile of the S&P 500 versus the equal weighted over three months on a daily returns - total return basis, and there's a 5% return difference in the first three months of the year. This is an important point to note when looking at active vs passive in portfolio management strategies.
Question: What should advisers be telling their clients now?
Let’s take a look at the Historical one year rolling performance of our 2plan Moderately Cautious model vs. cash from the 30/09/2023 to the 31/03/2026). The percentage of rolling one-year periods since the fund has started, moderately cautious has outperformed cash by 90% over that time frame reinforcing the investment principle of staying invested over the long-term and through periods of market volatility.
History consistently shows that investors who stay disciplined through volatile periods are far more likely to achieve better long-term outcomes than those who try to time the markets.
Question: In their conversations with clients what should advisers be communicating now in light of geopolitics?
Geopolitical events are hard to predict. History tells us that these events typically have a short lived impact on markets. In the chart we highlight that on average, markets have fallen by 8% in the shorter term but over a full 12-month period, they generally end up positive. Hence the best response to geopolitical shocks is not to react but to stick to a long-term investment plan. However, we remain vigilant - closely monitoring the sustained impact.
Thank you again for joining us today and for your continued support. If you have any questions, please reach out to your usual Business Development contact or alternatively, you can get in touch via the email address on screen.
