Video transcript
Speakers
- Olivia Marlow – Senior Investment Director, Rathbones
- James Ayre – Head of Investments, Charities, Rathbones
- Kate Elliot – Head of Responsible Investment Centre of Excellence, Rathbones
Transcript
Introduction and market overview
Olivia: Hello and welcome to our latest quarterly market update for charities. The second quarter was a reminder of how quickly market sentiment can change. After a turbulent start to the year, markets recovered strongly as geopolitical tensions eased, energy concerns moderated and investors refocused on economic fundamentals.
I'm joined by James Ayre, who will talk through markets, performance and positioning, and Kate Elliot, who will bring a responsible investment perspective to some of the longer-term themes shaping portfolios.
James, let's start with the market backdrop. After a difficult start to the year, markets recovered quite strongly during the second quarter. What's changed?
James: The main shift was that investors became more comfortable looking through some of the geopolitical concerns that had dominated headlines earlier in the year. Energy prices fell back from their peak levels, concerns about disruption to global supply routes eased somewhat and confidence gradually returned to markets.
Importantly, investors also began to focus once again on the underlying fundamentals. Corporate earnings generally remained resilient, economic activity held up reasonably well and many companies continued to demonstrate an ability to grow despite the uncertain backdrop.
What was particularly striking was that this wasn't simply a relief rally driven by sentiment. Many businesses continued to deliver solid results, especially those exposed to long-term structural trends. Artificial intelligence remained a significant driver of investment, with companies across semiconductors, digital infrastructure and automation benefiting from continued demand.
While geopolitics certainly influenced markets, the quarter ultimately reminded investors that earnings, innovation and long-term growth trends still matter most.
The expanding impact of artificial intelligence
Olivia: AI continues to be one of the major themes shaping markets. Did we see that theme broaden out over the quarter?
James: Very much so. Earlier in the AI story, much of the attention focused on a relatively small number of technology companies. Increasingly, we're seeing the impact spread across a much wider part of the economy.
Building AI capability requires semiconductor manufacturing, testing equipment, network technology, sensors, power infrastructure and industrial automation. Many of the companies we invest in are involved in enabling that ecosystem.
At the same time, the quarter reinforced why diversification remains so important. While technology continued to perform strongly, financials recovered well, infrastructure assets delivered another solid set of returns and bonds continued to provide both income and diversification.
Markets can move quickly between sectors, regions and investment styles, often with little warning. For charity investors with long-term objectives, trying to predict the short term is very difficult. We believe maintaining exposure across multiple sources of return remains the most effective approach.
Market outlook and portfolio positioning
James: Looking ahead, we're constructive but realistic. The global economy remains resilient and we continue to see attractive long-term growth opportunities. However, risks have not disappeared. Inflation, interest rate moves, government borrowing and geopolitics all remain factors investors need to monitor closely.
That's why maintaining a disciplined investment process and diversified portfolio remains so important.
Olivia: So despite the volatility, the underlying message for charities remains clear: stay focused on your long-term objectives, remain diversified and avoid being distracted by short-term themes.
Responsible investment and long-term structural themes
Olivia: Kate, I'd like to bring you in on the responsible investment perspective. One of the themes running through the quarter was the tension between short-term market pressures and long-term structural change. How do we think about the opportunities and risks through a responsible investment lens?
Kate: That tension was really the story of the quarter. Markets were absorbed by day-to-day geopolitics, oil prices and interest rate expectations. But beneath that noise, capital continued flowing into long-term structural themes that are likely to shape the next decade, including the energy transition, digital infrastructure, AI and a wave of industrial investment across major economies.
To give a sense of scale, global energy investment is expected to reach around $3.4 trillion this year. Roughly two-thirds of that is being directed towards clean energy and electricity grids as electrification gathers pace. At the same time, spending on AI, semiconductors and the digital and physical infrastructure supporting them continued to accelerate.
These themes create both opportunities and risks. Examples include grid bottlenecks, the water and power intensity of AI, human rights issues in supply chains and governance challenges facing businesses that scale rapidly.
That's why a disciplined ESG approach is so important. It helps us identify companies that are genuinely well positioned for long-term success. Stewardship and engagement enable us to maintain a dialogue with management teams on ESG issues, encouraging stronger disclosure and better management of emerging risks.
In a noisy market environment, that combination helps keep portfolios anchored to long-term objectives.
What responsible investment means for charities
Olivia: How should charities think about responsible investment when markets are moving quickly and geopolitical risks remain elevated?
Kate: The message is simple: don't allow short-term noise to pull you away from your long-term plan.
It's important to anchor discussions in your mission and investment policy statement. That framework helps trustees focus on what genuinely matters instead of reacting to every headline.
Responsible investment is often most valuable when markets and headlines are moving quickly because it keeps portfolios aligned with the long-term themes shaping the economy. Viewed in that way, responsible investment can become a source of resilience within investment portfolios, even in a fast-moving world.
Why diversification matters more today
Olivia: James, why is diversification becoming more important again for investors?
James: We're moving into a very different investment environment from the one many investors became accustomed to over the previous decade. For much of that period, falling interest rates, low inflation and the strong performance of a relatively narrow group of companies meant returns were often concentrated in a small part of the market.
Today, we're seeing a wider range of factors influencing outcomes, from government policy and geopolitics to infrastructure investment, energy security and fiscal pressures.
That doesn't mean opportunities are disappearing. In fact, we believe the opportunity set may be broadening. However, investors may need to rely less on a single source of return and more on a balanced combination of growth assets, income-generating assets and diversifiers capable of performing across different market environments.
Olivia: What does diversification mean in practice for charity portfolios?
James: For us, diversification is about much more than simply holding a large number of securities. It's about ensuring portfolios have exposure to different sectors, geographies and asset classes that can respond differently as conditions evolve.
During the second quarter, equities performed strongly as market sentiment improved. Bonds continued to provide income and diversification, while infrastructure and other real assets also contributed positively. That combination helped portfolios remain resilient amid ongoing uncertainty around inflation, interest rates and geopolitics.
Diversification is becoming increasingly important because the world appears more fragmented and more capital intensive than in the past. Governments are investing more in infrastructure, energy systems and strategic industries. Fiscal pressures are becoming more significant, and different countries and sectors are likely to experience very different outcomes.
In that environment, active management and diversification become powerful tools for reducing reliance on any single market or theme.
Closing remarks
Olivia: The second quarter was a reminder that markets can recover just as quickly as they can become unsettled. While geopolitical developments, inflation and interest rate expectations continue to create uncertainty, the resilience of the global economy and the strength of long-term themes such as artificial intelligence and digital infrastructure remain important drivers of opportunity.
For charity investors, the key message is to stay focused on long-term objectives, remain diversified and avoid being distracted by short-term market noise.
Thank you for joining us.
