Waverton Multi-Asset Income Fund: half year review

Key takeaways

The fund managers of the W1M Waverton Multi-Asset Fund (MAIF) review the fund's positioning and performance during the first half of 2026.

• Global growth has proven more resilient than expected, despite prolonged Middle East disruption and significant energy market volatility, with the US economy continuing to lead the way.
• Investment is broadening beyond AI and technology, with industrial and manufacturing businesses increasingly committing capital, supporting a more diversified and sustainable growth outlook.
• Equities represent the largest allocation of the fund and were the primary driver of returns, however the Fund remains diversified across asset classes.

MAIF six-month investor letter

Six months ago in our 2025 Investor Letter, we wrote:

Major market inflation will remain stable at these levels in the first half of 2026; liquidity will continue to improve; growth will remain strong (below the exit-rate of 2025, which is tracking at 4%+ real in the US, but strong) driven by persistent AI investment with the potential for a broader pick-up in capital spending courtesy of the generous depreciation terms in the OBBA; resilient consumer and a positive fiscal impulse. We expect a dovish new Fed Chair to be announced early in the quarter.

Today, the core of that thesis still stands (notwithstanding a round-trip in inflation expectations following the outbreak of war in the Persian Gulf). The main exception is a more hawkish sounding Federal Reserve, although we suspect this may reflect a desire to preserve credibility and policy flexibility rather than a genuine shift towards tighter monetary policy.

Longstanding investors will know that we conduct our macro analysis through a framework centred on liquidity, growth, inflation and rates. Alongside this, we assess the market environment through the lens of fundamentals, valuations, positioning and technicals. Taken together, these factors help us distinguish signal from noise, assess where we are in the cycle and guide our tactical asset allocation decisions. Below is an output of where we find ourselves (see appendix for further detail of the moves this year).

Environment vs opportunity

Source: Bloomberg, W1M

If we had known at the onset of the Iran conflict that disruption in the Straits of Hormuz would persist for more than 100 days, few would have expected the global growth backdrop to prove as resilient as it has. The US in particular has shown remarkable strength, much of which can be attributed to the AI-led investment cycle, though the US consumer did benefit from the OBBA tax refund provisions, which all but paid for the hole that higher gasoline prices would have blown in household budgets.

Encouragingly, we are seeing signs that capex is broadening beyond technology, with industrial and manufacturing businesses demonstrating growing confidence in the domestic opportunity set. This shows up not only in the data but also through the commentary of companies we own (e.g. Canadian Pacific, IHI Corp, Visa, American Express), as well as insights from our Equity team’s recent trips to the US, where they noted the breadth of company management teams highlighting the strength in the domestic industrial base. One comparison made was to the early stages of the US shale boom, where spending was evident across entire supply chains. Outside the US, energy price headwinds are reversing, leaving the outlook for Europe, the UK and parts of Asia also on an improving trajectory (this is of course dependent on the Middle East, and as consecutive nights of attacks continue at the time of writing, the risk of further disruption cannot be dismissed, although we suspect negotiations will resume if oil moves higher). Another positive impulse comes from the global liquidity picture; there is money on the sidelines, with US bank deposits, money market assets and commercial bank lending continuing to expand at a healthy pace.  Loan growth in both the Eurozone and the UK has begun to improve and falling commodity prices are a further boost.

Despite significant volatility in energy prices (oil surged by as much as 76% during Q1, the largest increase since the Gulf War, before retracing 38% from its peak in Q2, marking the sharpest decline since the pandemic-driven collapse in demand), our base case is that inflation should track lower through H2. We view much of the recent uptick as temporary energy-related pressures, rather than the beginning of a renewed inflationary cycle. That said, there are reasons to remain cautious. Easing Middle East tensions is part of the equation, but resilient labour markets and the possibility that AI-related investment proves inflationary in the near term are upside risks. Rising electricity demand (+270% electricity prices reported in some data centre heavy US regions), pricing in technology related goods (an iPad will cost you £100 more than it did a few months ago), and tight supply demand dynamics in parts of the industrial economy all have the potential to keep inflation stickier. In other words, the same forces supporting growth and earnings today could also delay the return to target. We remain cognisant of this, but our base case remains that inflation should track downwards.

Against this set up, we expect central banks to keep interest rate policy broadly where it is. Whilst Kevin Warsh has been more hawkish than initially anticipated, the economic incentive for the US Treasury to bring rates down is enormous given current Treasury financing dynamics. Should inflation continue to moderate, the close personal relationship between Treasury Secretary Bessent and Warsh raises the probability of this happening.

Markets continue to be supported by earnings. Indeed, the Q1 results season was record-breaking, with S&P 500 earnings growth reaching its highest level in more than two decades (ex-Covid recovery). This marks a key distinction from previous periods of market exuberance, such as the TMT boom, when expanding valuations were the primary driver of returns. Forecasts remain exceptionally strong, but they are increasingly concentrated in a narrow group of companies, and expectations may well be fully priced into the best-performing names. Investor enthusiasm remains undiminished, with record capital flows into the tech hardware space, however, positioning has become increasingly crowded in these areas, leaving markets more vulnerable to periods of synchronised profit taking. Encouragingly, just as we are seeing with economic activity, there are also signs that market breadth is beginning to improve, evidenced by the equal weight index making new highs. A more balanced market backdrop should support a wider opportunity set for active investors and provide a firmer foundation for returns over the remainder of the year.

Performance

The Multi-Asset Income Fund returned 2.5% across the six months to 30 June, bringing one-year returns to 11.0%. All asset classes contributed positively to returns.

Despite delivering positive absolute returns and outperforming our objective of CPI+2.5%, the Fund has underperformed its peer group. It is difficult to attribute this precisely, but we believe the highly concentrated nature of global returns has been a headwind. Performance has increasingly been driven by a narrow group of large growth stocks, particularly within the Technology sector, which we are underweight given the low/no income offered by many of these names.

Dividend paying companies are more commonly found outside the US and in sectors where income forms a deliberate component of capital allocation, often at the expense of higher growth. As a result, constructing an income portfolio can naturally result in lower exposure to some of the fastest growing areas of the market. Though we are total return investors, clearly income is a central part of the mandate, and we aim to pay out a consistent yield to investors (see chart below for capital and income returns).

We remain optimistic on prospective returns. In an increasingly concentrated and, in parts, more speculative market environment, discipline and diversification remain paramount. Periods characterised by concentration and elevated valuations can be uncomfortable, but we believe they are best navigated with a combination of pragmatism and patience. Our focus is anchored in the fundamentals; owning businesses we understand well, with resilient earnings and strong balance sheets which enable them to compound over time. Whilst this approach may lag in the short term amid more exuberant times, we believe it is the most reliable way to protect and grow capital across the cycle, whilst also delivering an income – our key objectives.

MAIF P performance since inception (16.10.2014)

Source: Morningstar, W1M

MAIF P value on £100,000 initial investment

Source: Morningstar, W1M

Six-month top contributors:

Taiwan Semiconductor Manufacturing (TSMC, +60% total return, +0.7% contribution):

TSMC manufactures approximately 90% of the world's leading-edge chips, acting as a critical partner to firms such as Nvidia, Qualcomm and AMD. Increasingly, the hyperscalers are also relying on TSMC as they accelerate the development of their own custom chips. Given this position at the heart of the semiconductor value chain and as a key bottleneck in the global AI infrastructure build out, it is perhaps unsurprising that the company has been our largest contributor year to date. Recent results were exceptional, with revenue reaching the top end of guidance and high utilisation rates across its most advanced manufacturing nodes driving meaningful margin expansion. In short, TSMC remains the undisputed technological and scale leader in a compute industry that is clearly extremely under-supplied.  

Interactive Brokers (+37% total return, +0.5% contribution):

Interactive Brokers is the lowest cost global automated electronic broker, providing custodian and trading services for individual investors, hedge funds and introducing brokers. Their proprietary technology provides a significant cost advantage, making its platform ~5x cheaper than the competition, meaning it benefits from a scale economies shared flywheel. There is a long-term runway to grow customers at 20% per annum, as they continue to take share in a growing market (they only have c.4.5m accounts versus Schwab & Fidelity at >30m). Results during the period confirmed this, with their most recent monthly metrics showing +34% YoY client account growth and +53% YoY trading volumes.

ASML (+85% total return,+0.6% contribution):

See detail below.

Six-month bottom contributors:

IHI Corp (-37% total return, -0.4% contribution):

IHI, Japan's leading aerospace and defence manufacturer, was the bottom contributor. The share price decline appears largely driven by profit taking across the defence sector rather than any deterioration in fundamentals. Following a recent meeting with management at our offices, we remain encouraged by the outlook. The company is benefiting from strong demand across aerospace, where its high margin engine maintenance business is becoming a larger contributor and increased Japanese defence spending provides a further tailwind. In addition, ongoing corporate simplification, planned property disposals and substantial hidden real estate value offer further scope to enhance shareholder returns. We have used the weakness to add to the position.

Tencent (-27% total return, -0.4% contribution):

Tencent, China's leading digital platform, delivered double digit earnings growth during the period but de-rated on concerns that advances in AI could undermine the company's dominant position in social media, gaming and online advertising. We believe these fears are overdone. At the heart of Tencent's ecosystem is WeChat, a super-app with over 1.4 billion users spanning messaging, payments, e-commerce, advertising and entertainment. This wide user base combined with their proprietary data and integrated ecosystem provides a highly attractive platform through which to deploy and monetise new AI capabilities over time.  The shares currently trade on a NTM PE of just 13x and the company is likely to continue to grow earnings at a low double-digit rate.

Equity

Our Equity allocation delivered +2.4% (contribution 1.5%), with performance led by Europe and the US.

Across the period, activity continued to be driven by our fundamental bottom-up analysis. We are not thematic investors, nor do we target specific regions, sectors or otherwise. That said, a series of geopolitical and economic shocks have led to a renewed focus on greater national and regional self-sufficiency across energy, defence, technology and supply chains, catalysing a wave of new investment across value chains (see Treasury Secretary Scott Bessent's America 250 Address (Economic Statecraft, Tariffs, and the Dollar to The Economic Club of New York here; a reminder of the seriousness of the US’ agenda).

In our view, these dynamics can be summarised into three powerful long-term themes: Technological Superiority, Strategic Autonomy and Power and Energy. A selection of our activity across these areas is highlighted below. Whilst not exhaustive, these examples illustrate how we are expressing themes within the portfolio.

Technological Superiority: ASML (position top-up)

ASML is the world’s leading supplier of lithography systems, critical equipment used by semiconductor manufacturers to pattern circuits onto silicon wafers. In particular, they are the sole provider of Extreme Ultraviolet (EUV) lithography technology, which is essential for producing the most advanced chips used in AI and high-performance computing. Without these machines (each costing c.€200m and occupying a footprint comparable to half a tennis court), leading-edge semiconductors cannot be produced. As a result, an AI world is fundamentally dependent on ASML’s technology.

Recent results have continued to exceed expectations, with guidance raised as demand remains robust across end markets. Customers are responding to growth by accelerating capacity expansion, underpinning a substantial order backlog for ASML that provides visibility into 2027 and beyond. An increased installed base also supports higher service revenues in the years to come (customers pay €15 to €20 million per upgrade cycle to keep their machines running at peak output). Reflecting our conviction that this demand environment will persist, we added to the position in mid-May. The shares performed strongly, rising 85% (c.30% since our top-up).

Strategic Autonomy: Vulcan Materials (position top-up)

Vulcan Materials is the largest US producer of construction aggregates. The market is defined by many small local monopolies, as transport costs are high and their competitive advantage comes from owning quarries close to high demand locations. Onerous planning hurdles make it difficult for new entrants which means that rising demand gives them exceptional pricing power. Indeed, they have achieved consistent price increases for the past 40 years.

A renewed focus on strategic autonomy is driving a wave of onshoring across manufacturing, alongside significant investment in grid infrastructure and energy security, as well as US public infrastructure spending under the IIJA*. These trends are inherently construction-heavy and aggregate-intensive at the outset, positioning Vulcan as a direct beneficiary of this demand. With both company commentary and macro data supportive of a broadening of economic activity in the US, we topped up our position in May.

*Infrastructure Investment and Jobs Act: a bipartisan bill signed into law in the US in November 2021, authorising approximately $1.2 trillion on infrastructure spending.

Power & Energy: Technip Energies (new holding)

Technip Energies is an engineering and technology company that designs, engineers, procures, and manages the construction of large onshore and offshore facilities, with core strengths in LNG, carbon capture, and an expanding portfolio of energy transition projects. The investment thesis centres on structurally rising global energy and infrastructure spending. While the business is experiencing some near-term disruption linked to the Middle East, we look through this volatility and expect it to benefit from both rebuilding activity and incremental demand driven by the increasing focus on energy security. LNG remains a key driver of earnings in the near term but under a highly regarded management team, Technip Energies is well positioned to diversify into attractive adjacent growth areas over time.  As the CEO remarked during a recent visit to our office this year, “we consistently underestimate thirst for energy supply across the world,” a view that reinforces our conviction in the long-term opportunity set.

Power & Energy: Rotork (short lived new holding after receiving takeover bid)

Rotork was added to the portfolio in March. It is a global leader in mission-critical flow control solutions, supplying actuators and instrumentation that enable customers to safely open, close, regulate and monitor the flow of liquids and gases across pipelines and processing facilities. Its products represent a small proportion of overall project costs but perform critical functions, underpinning safety, reliability and operational efficiency. This creates significant pricing power, strong customer relationships and a resilient aftermarket business, with high reliability requirements limiting product substitution across its large installed base.

A meaningful proportion of earnings remains linked to oil and gas but Rotork is increasingly exposed to attractive structural growth opportunities in power generation, water infrastructure and broader industrial investment. Our view was that there was scope for earnings to grow above expectations through a combination of favourable end-market demand, increased adoption of higher margin electric actuators and an increasing contribution from the higher-margin service business. Combined with cash conversion levels >100% and a net cash balance sheet, there was also scope for further shareholder returns.  This value was recognised by others, with rival ABB announcing in July that it would acquire the company at 506p (503p + 3p dividend), representing a 63% premium to the 3-month average price. 

Portfolio holding examples:

Source: W1M

Fixed Income

Fixed income delivered +1.9% total return (+0.4% contribution). Both our sovereign and credit exposure performed, but it was the latter which drove returns.  

The top contributions came from our energy exposure, much of which is concentrated in the oilfield services space. Capacity remains constrained following a decade of underinvestment, supporting pricing discipline, cash flow generation and credit fundamentals. Balance sheets are also materially stronger than in prior cycles, with low leverage, ample liquidity and a focus on capital returns rather than expansion. We maintain selective exposure to low-levered issuers with resilient free cash flow.

MAIF - Oilfield Services Theme rolling 1 year total return

Source: Bloomberg, W1M

Across our sovereign bond exposure, we diversified away fromSource: UK Gilts through the addition of Australian and Canadian government bonds. Australia provides an attractive combination of elevated real yields, sound fiscal dynamics and the potential for future RBA rate cuts. The economy is particularly sensitive to monetary policy, reflecting both high household indebtedness (debt to income is around 2x that of the US) and the prevalence of variable-rate and short-duration mortgages.  As a result, we believe there is a risk that the full impact of the tightening already delivered by the RBA has yet to be felt, creating scope for a less hawkish policy path than markets currently anticipate. The case for Canada is similar. Hedged yields remain attractive relative to developed market peers, whilst subdued economic growth could create scope for additional rate cuts to be priced into 2027, assuming a more stable energy backdrop. Both countries benefit from strong fiscal fundamentals relative to developed market peers.

Alternatives

Alternatives delivered +3.0% (+0.6% contribution), with returns led by our infrastructure exposure.

Of note were HICL Infrastructure (+17%) and Gresham House Energy Storage (GRID, +13%). HICL owns a diversified portfolio of operational infrastructure assets spanning transport, electricity transmission, schools and hospitals, generating inflation-linked cash flows. The company delivered an above target 10% NAV return over the year, supported by strong operational performance and the successful disposal of a French motorway stake at a 21% premium to carrying value. Governance has also improved, following their decision to pull the TRIG merger announced last year and more recently at their capital markets day, management formally increased the target return from 8% to 10%, reflecting a greater emphasis on capital growth opportunities. Taken in combination, this has catalysed a closing of the discount.

Battery operator GRID has performed strongly since our purchase in Q4 2025. The shares benefited from growing recognition of the value embedded within the company's development pipeline, supporting the prospect of meaningful NAV accretion, alongside increasing pressure from activist shareholder PrimeStone Capital for a formal sale process to help realise the significant discount between the share price and underlying asset value — a key part of our original investment thesis.

Income

The Fund is managed with a total return mindset. Rather than seeking to maximise yield, our objective is to strike an appropriate balance between income generation and long-term capital growth, delivering what we believe to be a sustainable and competitive level of income for investors. Since inception, on average we have paid out 3.5%. Today, the annualised yield is running just shy of this at c.3.2%.

Annual dividend yield distribution since inception (16.10.2014)

Source: W1M, Caceis Investor Services

The income-generating role of our equity allocation has been a particular area of focus this year, where we aim to achieve a yield > MSCI ACWI yield. This is a target rather than a hard constraint as we have non-equity income options available to us, however we endeavour to ensure the income profile of the equities owned in the portfolio pay at least the dividend yield on the global equity market. We frame the allocation around two complementary buckets.

 -        Core: delivering reliable income through the cycle

This allocation targets companies with yields above the MSCI ACWI, delivering consistent, sustainable and reliable income. Backed by strong balance sheets and resilient cash flows, businesses demonstrate disciplined, dividend focused capital allocation and a track record of stable (and ideally growing) income through cycles.

-        Income Upside: shifts the focus from stability to the trajectory and growth

The focus shifts from current income to future income potential. This allocation typically offers a lower starting yield and may exhibit greater historical variability, but is typically characterised by stronger dividend growth prospects, supported by improving balance sheets and coverage metrics, creating scope for income to rise as fundamentals strengthen.

Our income assessment is centred on a dividend scorecard, designed to assess both the sustainability and growth potential of companies’ income profiles.

The output of this feeds into portfolio construction.  Today, our current positioning is as follows:

Coca‑Cola is a good example of a Core Income Compounder. It offers a c.2.6% dividend yield underpinned by resilient earnings, highly predictable free cash flows and a strong balance sheet. The company also boasts one of the longest and most consistent dividend track records in global equity markets, having increased its dividend for 64 consecutive years without a single cut.

By contrast, IHI Corp fits our Income Upside Improver category. Its starting yield is lower and its earnings, free cash flow and dividend profile are more volatile but it offers greater growth potential (3Y CAGR ~18%). Management's capital allocation framework is built around a multi-phase strategy in which dividend growth is a core objective. In the current phase, the focus is on delivering sustained growth in dividends and over the longer term they target a significant expansion of shareholder returns, therefore providing an income upside opportunity.

Asset allocation

Our overweight to equities has been the correct call. Several incremental adjustments were made, most notably taking risk off the table (-3%) via futures in February as US inflationary pressures began to re-emerge, a move that proved well timed ahead of the Iran conflict. As tensions escalated and disruption to the Straits of Hormuz increased risks, we took the total reduction to 5% before rebuilding following the ceasefire, helping to smooth returns during a period of heightened uncertainty. Against our constructive outlook outlined earlier, we enter Q3 with our equity weight towards the upper end of our 60% limit.

MAIF equity allocation and global equity market

Source: W1M, Factset

Equity allocation by sector (%)

Source: W1M, Factset

Equity allocation by region (%)

Source: W1M, Factset

Whilst equities have dominated much of this commentary, given they represent the largest allocation and were the primary driver of returns, the Fund remains diversified across asset classes. We have maintained an underweight to fixed income and have progressively reduced duration over the past 18 months to around 5.5 years today, positioning that has been rewarded as yields have moved higher (illustrated below). Within Alternatives, our exposure is primarily through Real Assets, many of which offer both inflation linkage and capital growth. This is complemented with an allocation to Absolute Return strategies, where our exposure is concentrated in trend following strategy Montlake Dunn. This has a long track record of generating uncorrelated returns to traditional equity and fixed income markets; a useful tool amidst a more volatile inflation backdrop where the diversification benefits traditionally associated with a 60/40 portfolio may prove less reliable.

MAIF duration and gilt yield

Source: W1M, Factset

Overall fund positioning can be seen below.

Asset allocation % (fund weight)

Source: W1M, Factset

As we enter the second half of the year, we remain excited about the opportunities ahead, with a supportive backdrop for asset returns. Whilst recent relative performance has been frustrating, it is important to retain perspective. The Fund has delivered 27% over the past three years (the time horizon of many of our holdings), remains in the top quartile since inception and has consistently beaten peers (9 out of 11 full years since inception). By maintaining the disciplined investment approach that has underpinned this track record, we remain confident in our ability to deliver attractive long-term returns for investors.

Having said this, we are acutely aware of the relative numbers, and while we believe that much of it can be attributed to a style which we under-index to (by nature of the income mandate), we are always challenging ourselves as to what we missed and how might we do better in future. We followed a similar period of introspection in 2017 and made changes to the portfolio which were substantially to the benefit of investors. Indeed, it was the 2017 performance which catalysed the first Investor Letter. We are focused on improving what we can control.

Thank you for the continued support and interest in the Fund. We look forward to investing with you through the remainder of the year and beyond.