MPS on Platform Quarterly Review - October 2025

Q3 returns for the W1M (Waverton) Managed Portfolio Service on Platform ranged from 3.1% to 7.9%.

Fixed Income

Global fixed income continues to offer attractive nominal and real yields relative to recent history. In the US, near‑term growth remains solid, supported by consumer spending and industrial capex, though the full impact of tariffs is yet to be felt. Coupled with a softening labour market, we expect growth to slow to a sub‑trend pace in the coming quarters. Fiscal strain and challenges to institutional independence should keep upward pressure on long‑end Treasury yields, while modest Fed easing supports curve steepening. We remain cautious on US duration. In the UK, a challenging growth‑inflation mix should ultimately lead to lower interest rates and flatter curves, reinforcing our preference for long‑end gilts. Credit spreads look vulnerable to widening, but elevated yields and strong corporate fundamentals provide solid technical support. We remain patient, awaiting more attractive entry points to increase corporate exposure.

Equities

September was a strong month for equities, with a clear bias towards Cyclical/Growth equities over Defensive areas. The strongest sector performance came from Technology, particularly Semiconductors, and defensive sectors such as Real Estate and Consumer Staples were weakest. Regionally, Emerging Market and Asia Pacific equities were strongest, with UK and Europe weakest. While WSEF overall delivered strong stock selection, particularly in Communication Services (primarily Alphabet), our underweight in Semiconductors, as well as stock specific underperformance from software company Synopsys (one-offs in results, complications from imminent merger) weighed on relative performance. In Q3 WSEF delivered strong stock selection in Asia Pacific ex Japan (particularly from industrial CATL, semiconductor manufacturer TSMC, and digital platform Tencent), but this was more than offset by weak stock selection in Japan (weak performance from defensive staples Asahi and Kobe Bussan), UK (weakness of LSEG, discussed below) and North America (driven mainly by Technology).

Top contributors in Q3 included Alphabet (+41%), also known as Google, the global cloud and digital advertising company, which rallied strongly in Q3 and became the second best performing Mag7 name year to date. Sentiment improved after the removal of a major legal overhang and better than expected Q2 results showing acceleration in Search, YouTube and Google Cloud Platforms. TSMC (+26%), the world’s leading semiconductor manufacturer, was a beneficiary of the favourable momentum in semiconductor names, driven by growth in expectations for AI-related demand. Tencent (+35%), the Chinese digital platform and gaming company, posted strong earnings driven by solid growth in advertising as well as enhancements in gaming from deployment of AI. This is simultaneously reducing development costs as well as improving engagement and in-game monetisation.

The bottom detractors in Q3 included LSEG (-20%), a global financial data and analytics company, which posted robust results and upgraded margin guidance. However, the market was disappointed by the slowing annual subscription value growth (c73% of sales), which management indicated was due to greater competition as well as the non-repeat of a large customer contract (Credit Suisse, following their merger with UBS). Management believed this to be short-term, with a trough likely in 3Q. Whilst product innovation continued, enabled by AI and the Microsoft collaboration, this was slower than hoped and the market increasingly worried about AI disruption and the need for more investment. Intercontinental Exchange (-8%), the first fully digital exchange and market leader for Brent Crude oil instruments, had lower trading volumes due to typical summer seasonality, as well as more stable geopolitics reducing demand for hedging products. Hitachi (-6%), the Japanese industrial and tech conglomerate, gave back some of the recent strong performance due to slight weakness in their digital business overshadowing healthy results in their energy business. We were encouraged at the recent investor day and following our meeting with the CEO at our offices, to hear that the business continues to focus on divesting the last of their low return on invested capital (ROIC) business units and set a new higher medium-term ROIC target. This aligns management's medium-term strategy closely with what we look for in our investments.

During the quarter we added positions in Intercontinental Exchange (ICE), WEC, and Capital One. We also removed positions in Waste Connections, TE Connectivity, Prologis, UPM, Apple, T-Mobile, Pepsi, Costco, AIG, AIA, American Express and American Water Works. The majority of these changes were driven by the restructure of the fund which reduces our requirement to hold low conviction ideas in order to maintain industry group allocations.

The quarter was defined by continued strength of the AI-driven technology rally. Nvidia’s $100bn investment into OpenAI underscored the scale of capital flowing into the sector, reinforcing the market’s confidence in the ongoing AI momentum and its ability to fund the high levels of investment needed. This propelled global equities to fresh highs. Despite ongoing political uncertainly, including now a US government shutdown, US equities outperformed UK and European markets in Q3, aided by the weaker US dollar, which provided a tailwind for US multinationals and emerging markets. Chinese equities delivered some of the strongest gains globally, also led by technology and semiconductor names. China is demonstrating to the world that they are rapidly moving from being technology adopters to innovation leaders. Despite concerns earlier in the year about tariffs and higher borrowing costs, the US consumer continues to demonstrate resilience. Spending patterns remain healthy, supported by a strong labour market and real wage growth. While some discretionary categories show signs of moderation, overall consumption trends have not deteriorated meaningfully.

The Fed’s first rate cut in September marked an important moment and helped to boost risk appetite and a rally in US cyclicals sensitive to economic growth and lower funding costs. While the key market debate in Q2 was on the potential end to US exceptionalism, the key debate today is whether we are entering or already in an AI-driven technology bubble with comparisons being made to the Dot.com bubble in 2000. Generally, our view is that it’s right to be cautious on the AI/technology sector but it’s not sufficiently clear to us that we are in a bubble that we have fully exited all our technology names. This cautiousness is reflected in our underweight positioning within technology. While there are some (and growing) similarities to the dot.com bubble, the key differences are: (i) capex is being funded out of free cash flows not debt, (ii) they are not selling a commoditised product, (iii) headline P/E valuations are less than 50% of the Dot.com peak.

AI will likely lead to profound changes overtime and prove a revolutionary technology, but as we learnt with the dot.com boom it can be hard to foresee the winners and losers at this stage. Where we have higher confidence (and majority of our exposure today) is that the future winners will likely run on the AI infrastructure of the hyperscalers with their chips being manufactured by TSMC. While there are pockets of the market starting to look overvalued, mostly in the technology space, elsewhere equity markets are mostly trading at reasonable valuation levels and the reason why we are still finding interesting new ideas. There continues to be heightened macro uncertainty from unpredictable politics, including global trade policies and ongoing wars, and we expect the remainder of the year to remain volatile. The biggest risks we see to equity markets are a global trade war, a spike in inflation, and a cooling of AI demand. While we stay aware of the macro environment, we do not allow it to dictate our stock picking decisions. We prefer to run a diversified portfolio across countries and sectors, where stock selection will be the primary driver of performance over the medium and long term.

Alongside the higher volatility in the market, we are also witnessing a market that is becoming increasingly short-term in nature. The growth of multi-manager hedge funds (or “pod shops”) has resulted in them becoming the marginal price setters of equities. Their average investment timeframe is the next quarter. This dynamic is driving share prices to over-weight the short-term and upcoming catalysts, often with little regard for the long-term fundamental outlook or intrinsic value of a business. This trend is further amplified by the growing prevalence of passive investing, which does not allocate capital based on fundamentals but instead invests a larger share of incremental flows into stocks that have gone up. We are fortunate to have a patient client base that understands the merits of long-term thinking, with many of our clients that think in decades rather than months. This allows us to stay true to our process and exploit this volatility when dislocations occur.

Absolute Return

We had positive contributions from across all three exposure types within the fund over the quarter. As might be expected in a more positive backdrop for risk assets, our defensive equity positions across structured opportunities all contributed positively to returns. Perhaps less expected but certainly very welcome was the marked improvement from our trend holdings within the absolute return strategies. Our long short holding, Lancaster, also posted a strong quarter, up +4.4%, ensuring our aggregate absolute return strategies bounced back strongly from a lacklustre first six months of 2025.

On the negative side, it was our hedging positions which primarily detracted from returns. The majority of these positions would all benefit from a rise in volatility, and given we witnessed precisely the opposite, many of these holdings declined in value.

Real Assets

The quarterly returns were in large part driven by the performance from the commodity exposure, where physical gold, gold miners, and the resource companies performed particularly strongly. It was great to note recent additions across platinum and uranium contributed positively to returns, while long-term holdings in both physical gold and gold miners had an exceptional quarter. The top five contributors to returns on the quarter all came from the commodity exposure, led by Newmont, which rose +47.6% over Q3.

Elsewhere, infrastructure continued to perform strongly, and we have many holdings which are benefiting from what we see as multi-year tailwinds across the grid, power, and decarbonisation thematics.

What is promising, in spite of the strong performance delivered year to date, is that we continue to see very attractive value on offer across the portfolio. The investment companies held, which represent approximately 33% of the fund, remain cheap by historical measures, trading at a weighted average discount of 16%, while we have one-third of this exposure (10% of the fund) in play with regards to capital returns from corporate activity or managed realisations over the next 6–12 months.

The property exposure appears under-owned and unloved, with the potential for rate cuts (most likely in the UK) to boost the appeal of income-producing assets with strong operational credentials. Equally, in spite of the moves witnessed over September, we believe the resource sector is early in a multi-year bull market, with many investors underweight. It is interesting to note that it is the metals and mining sector which is leading the US market year to date, not technology or Magnificent 7 AI hyperscalers.