The W1M Investment Barometer – October 2026

October has seen volatility in equity markets, continuing geopolitical issues, oil prices remaining at elevated levels and interest rates set to rise owing to persistent inflation. Concentration risk, with market indices being dominated by a relatively small number of stocks, is at extreme levels. This means that indices can be around highs with most of their constituents being down 20% or more from their peaks. The need to be properly diversified in this environment remains clear.

Narrowness of US equity market leadership is very unusual​

Rolling 26-week correlation of price change in S&P500 and S&P500 Equal Weight indices​

Source: Bloomberg, W1M. As at 16.10.26​

Index concentration has been driven by the outperformance of AI related stocks. The chart above shows how extreme the divergence between the (commonly mentioned) market-capitalisation weighted US S&P500 index and its equally-weighted equivalent has been; the correlation between the indices has got to extreme levels because a few large stocks (megacaps in technology) have dominated indices based on the size of companies. The graph below shows the Bloomberg AI Enablers Index which consists of 72 US companies across industries which are particular beneficiaries of AI spending; between January 2023 and June 2026, that index rose around 430% - massively outperforming the Bloomberg US 500 index excluding those 72 companies massively. Taken together, it is clear that simply buying the S&P500 index may not be investing in as diversified a list of stocks as intended but actually taking significant exposure to technology stocks.

Artificial Intelligence related stocks have led the market but have been volatile​

This chart shows the performance of an index created by Bloomberg called the US Artificial Intelligence Enablers & Adopters Index. The chart also shows the performance of the Bloomberg US 500 excluding the AI Enablers & Adopters. ​

Bloomberg US Artificial Intelligence Enablers & Adopters Index and Bloomberg US500 Index (2 January 2023 = 100)​

Source: Bloomberg, W1M. As at 22.10.26​

Looking more broadly at global equities, around a third of market value is now in AI-related stocks with a fifth in direct hyperscaler capex beneficiaries. This means that buying a global equity index is also choosing to take a significant level of technology sector risk that may not always be intended.

AI narrative has driven market performance since the launch of ChatGPT​

Over a third of global equities is now in AI-related stocks, with 20% in direct hyperscaler capex beneficiaries​

Performance of AI and non-AI segments vs. MSCI ACWI %​

Source: MSCI, Factset, W1M. As at 19.10.26.​

Definitions: AI capex beneficiaries include companies for which a significant proportion of revenues is derived from datacentre build-out, and where this expenditure is a key driver of share price performance. This group includes semiconductor and semiconductor equipment companies, as well as a selection of industrial and technology hardware businesses that are direct beneficiaries. *Total AI also includes the hyperscalers, Chinese internet and cloud platforms, and a selection of software companies directly involved in AI. *** Memory includes 8 companies: Samsung, SK Hynix, Micron Tech, Kioxia Holdings, SanDisk, Lam Research, Seagate, Western Digital. ​

Despite global equities reaching highs, it is striking that over half of stocks are in a “bear market” being down 20% or more from their peaks. Such narrow leadership in indices is highly unusual and, history suggests, is unlikely to be sustainable.

Market Concentration: Index returns mask wide dispersion beneath the surface​

Over 50% of global stocks are 20%+ below their 52-week highs, despite indices trading at record levels. History suggests such narrow leadership is typically followed by a broadening of market participation and reflected in our positioning. ​

Percent of global stocks below their 52-week highs*​

Source: *W1M, Bloomberg World Index, 53% of stocks are trading >20% below their 52-week highs.

Data to 30.09.2026​

S&P 500 52-week market breadth**​

Source: W1M, Goldman Sachs. Market breath: % below 52-week high, S&P 500 index less median stock​

W1M equity portfolios are global, active and directly invest typically in 40-50 stocks. Looking at market concentration levels, discussed above, it is important to realise that if indices can be driven to highs by a few stocks, they can also be dragged down by the same few stocks. We choose not to have technology exposure based on the size of companies but to create well diversified portfolios which meet our long-term criteria. We aim to deliver consistent real returns over the medium to long-term.

Highly selective in our approach

We own AI companies that meet our long-term investment criteria

• The Dot.com bubble showed us that corporate fundamentals and valuation DO MATTER
• Durable and/or improving competitive advantage
• Rational competitive landscape
• Strong free cash flow generation over the medium to long-term
• Sustainable or improving ROIC
• Management alignment
• Attractive valuation for the growth/risks

We invest in technology stocks; we are not anti technology in any way. Our holdings include AI capex beneficiaries such as AMD, a US chip designer, and Taiwan Semiconductor the leading global semiconductor maker. However, we believe portfolios should not be dominated by a few megacap stocks. Furthermore, given index performance being driven and dominated by technology megcaps, we find some very attractive medium to long-term investment opportunities in less fashionable sectors.

Some of the best opportunities are outside of AI in our view ​

History shows that market leadership will broaden and quality factor will be a key driver of performance​

Source: W1M. Google Images. As at 30 September 2026.​

Risk warning: The securities listed are for example purposes and should not be considered as advice or a solicitation to buy or an offer to sell a security.​

High levels of concentration risk might mean people are significantly less diversified than they expect to be when investing passively; they may have a much “bigger bet” on AI-related megacaps than they intend.  The chart below shows the characteristics of the W1M  Strategic Equity Fund compared to the MSCI AC World index; while choosing not to have market-cap weighted exposure to technology megacaps, our portfolios have superior growth, cash generation and profitability expected for next year,  when compared to the index. This is the result of active research looking for companies with good medium to long-term opportunities, with durability in their competitive advantages and attractive valuations.

The outcome of our equity investment process​

Fund characteristics: higher growth, higher return with less financial leverage for a modest valuation premium​

Source: MSCI, Factset, W1M. As at 30.09.26​

Waverton Strategic Equity Fund data is the size-weighted average based on the fund’s holding. Protection Strategy and hedging is excluded from the analysis.​

*Gross Margin, FCF Conversion, Net Debt/EBITDA and FCF Yield excludes banks and other financials (Interactive Brokers, SMFG, Capital One, Shinhan Financial, HDFC)​

Risk warning: Past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise. ​

Diversification within equity portfolios is very important, as discussed above, but also more widely across asset classes. Real assets not only diversify portfolios but add inflation resilience, growth opportunities and income.

Inflation Resilience Matters: Real Assets – investing in the future – power, grid, and decarbonisation​

Positioned across key areas benefiting from power demand, grid modernisation, and the renewable buildout​

Source: W1M. As at 31.12.25​

Risk warning: The above is for example purposes only and should not be considered a solicitation to buy or sell a security. Differing market conditions may mean the above weightings will decrease or increase tactically.  ​

Given extreme dispersion and concentration observable in indices, in an environment with persistent inflation and interest rates rising, few would be surprised by further market volatility. W1M portfolios actively seek to protect portfolios by deploying protection strategies we design.

If you expect Volatility, do you have a Protection Strategy?​

How Did it Perform During Covid-19 Crisis?​

Actual PS performance vs S&P 500 (TR)

Back-tested returns in previous crises​

*Inception: 19th April 2016 Data to from 31.12.19 to 31.03.20​

Source: Goldman Sachs, Bloomberg, W1M.​

Figures are calculated on a total return basis, net of fees.

Risk Warning: Past performance and simulated past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise. ​
You may not get back your initial investment. Capital security is not guaranteed.​

Absolute return strategies aim to improve diversification and resilience in portfolios. Historically, our Absoute Return Fund (ARF) has benefited our multi asset solutions in times of market stress.

Preserving capital during market stress​

Historically, ARF has exhibited materially lower drawdowns than traditional asset classes​

Peak-to-trough drawdowns across major market sell-offs​

Source: Bloomberg, W1M. As at 30th June 2026. Maximum peak-to-trough drawdowns based on total returns over the periods shown.

Summary

Dispersion and concentration within equity indices are at extreme levels, geopolitical risks continue so oil prices remain elevated and drive inflation persistence;  interest rates are expected to rise modestly in the next year to contain inflationary pressures. However, global growth remains robust and company earnings are expected to be very strong this year. In the current market environment, we are modestly overweight our selected equities given corporate profits are strong; we remain underweight fixed income as rates are expected to rise; we stay overweight real assets for the inflation resilience they add to our portfolios and we implement bespoke protection strategies in case volatility spikes. Risks clearly remain, both in terms of geopolitics and index concentration. The importance of being properly diversified, actively choosing what to own and what not to own, having inflation resilience in portfolios and protection strategies, as we go into the fourth quarter, is key in our view.

W1M asset allocation positioning​

October 2026​

As at 23.10.26​

Risk warning: This allocation should be used as a guide only. Differing market conditions may mean the above weightings will decrease or increase tactically.