Capital market assumptions and strategic asset allocation

Much has changed in the post pandemic world. One obvious thing is that inflation is back and there has been a resultant, sharp normalisation in interest rates. Inflation may always and everywhere be a monetary phenomenon but it is not always a bad thing. If you are a government with a large debt pile, some inflation eroding the real value of that debt may be helpful.

High inflation is always economically and politically dangerous but deflation has significant costs too. Countries which had struggled with deflation, like Japan, benefit from more normal inflation because it can be like oil in the economic machine; consumers seeing nominal wage growth tend to feel happier than those seeing little or no increase in income. Consumers seeing prices for goods and services rising are also less likely to delay spending money than if they see prices falling.

Post the Global Financial Crisis, with quantitative easing policies in place. Major central banks were printing money to support government spending; this, unsurprisingly, ultimately was inflationary. “Financial repression” was obvious with negative real government bond yields observable but with inflation resurgent, bond investors demanded positive real returns; interest rates had to rise. This has led to government bonds now being much more attractive, i.e. giving investors a positive nominal return; W1M has responded by increasing our CPI+ targets for our multi asset solutions as shown below.

Updated CPI+ targets for W1M portfolios

W1M last updated these targets in 2022. Interest rates are materially higher today than they were then and to reflect that, we have raised our fixed income expected return. This has increased our long term return expectations by 0.5% across W1M Multi-Asset solutions.

Source: Waverton, Morningstar and Asset Risk Consultants. Model inception dates: Growth, Balanced, Cautious and Defensive, 31.12.11. Conservative, 31.12.13. Equity, 31.12.21.

† ARC Sterling PCI is estimated as at 31.12.2025.  ARC PCI is calculated on a net of fees basis. Please see Asset Risk Consultant slide for methodology. Please be aware that the ARC PCI will contain both Managed Portfolio Service (MPS) Portfolios (MPS) and direct investment portfolios.

Figures are calculated on a total return basis, net of an average fee of 0.5% per annum to 31 March 2014 and 0.4% per annum thereafter. The performance does not allow for platform charges such as trading charges.

‡ The MPS equity model was launched 31st December 2021. To extend the history a synthetic series has been created which consists of nominal fixed weights. From 08.11.21 to 31.01.21 the model consisted of 98% in the Waverton Strategic Equity Fund and 2% GBP cash. From 25.10.16 to 08.11.21 the model had a fixed 98% weight in the Waverton Strategic Equity Fund (formerly called the Waverton Tactical Equity Fund) and the Waverton Global Core Equity Fund, which was allocated on a weighted market value basis. From 31.01.11 to 25.10.16 the model consisted of 98% in the Waverton Strategic Equity Fund and 2% in GBP cash.

Our equity long run assumption has not changed (CPI+4.5%) but Multi-Asset mandates have seen a small, consistent increase across the solutions.

Multi-Asset: W1M mandates

The indicative long-term return targets were updated with effect from 1 January 2026.

Source: W1M

Time horizons matter, of course; the table below details the asset split in our solutions with relevant time horizons.

Multi-Asset: W1M mandates

Reference £ index:
Equities: MSCI AC World Index
Fixed Income: ICE BofA UK Gilt Index | ICE BofA Sterling Corporate Index
Alternatives: S&P Real Assets Index (Hedged) | Absolute Return Index**
Cash: ICE GBP SONIA 1 Month.

*Given the unprecedented interest rate and monetary policy environment, the range of outcomes is likely to be high.

**Absolute Return Index: 66.6% HFRX Global Hedge Fund Index, 33.3% ICE BofA 1-3 Year UK Broad Market Index

Source: W1M

In the post pandemic world, it is not just inflation which has just had a resurgence. Money printing, fear of fiat currency debasement and other structural demand drivers have, of course, led to a sharp increase in interest in precious metals and we remain positively positioned. We remain positive on equities with positive global earnings growth expected in all regions into next year. We retain absolution return and protection strategies to defend against market volatility ahead. While government bonds now offer a positive real return, we find other asset classes more attractive but within bonds, we have a preference for gilts over credit given falling inflation expected in the UK should be positive for gilts.

Positives global growth with interest rates set to fall

January 2026 asset allocation positioning

Positively positioned:

• Global growth is solid;
• Inflation expectations benign;
• Interest rate cuts are expected in the US and UK over the next 18 months;
• Sentiment not overly optimistic;
• Valuations not unattractive in most parts of equity markets.
• Government bonds appear more attractive than credit given narrow spreads.

Risks:

• Tariffs and resulting inflation risk are currently not concerning the market;
• US consumers yet to feel the impact of higher prices; demand could soften.

Source: W1M

Risk warning: The above should be used as a guide only. It is based on our current view of markets and is subject to change. As at 07.01.26.