Shares magazine 31 July 2025

HOW AI IS SUPERCHARGING THE SECTOR

Temple Bar Investment Trust is managed by Redwheel’s Ian Lance and Nick Purves, who have more than fifty years of investing experience between them.

Experts in the UK stock market, Ian and Nick are classic value investors, looking to build a diversified portfolio of the most compelling undervalued companies they can find.

With the UK stock market currently among the most attractively valued assets that investors can buy anywhere in the world, they are currently very excited about the potential opportunity that lies ahead for the Trust.

Think value investing Think Temple Bar

“UK stocks look very attractively valued in a global context and when compared to history. Overseas businesses are already recognising this potential through acquisitions, and management teams are buying back shares at a record pace. These could represent meaningful catalysts for unlocking the inherent value in UK stocks. The long-term opportunity for UK value investors is significant.”

Ian

Lance,

Portfolio Manager

Temple Bar Investment Trust

For further information, please visit templebarinvestments.co.uk

Trump hails EU-US trade deal as greatest in history

Second-quarter dividends dip on fewer one-offs and strong pound

Turnaround in progress at The Works

Marshalls shares crash to 18-month low after disappointing update 09 Can drinks giant Diageo raise investors’ spirits? 10 Second-quarter earnings from bellwether Caterpillar will be closely watched

IDEAS

How AI is supercharging the sector 26 UK bank results suggest consumers are ‘resilient’ for now despite sluggish economy 21 INVESTMENT

TRUSTS

Renewed focus from F&C as it looks to navigate turbulent markets

EMERGING MARKETS

Meet the big hitters driving the Brazilian stock market / Emerging markets: diversifying out of the US, tariff deadlines, Latin America

Active funds break records in 2025, both good and bad

COATSWORTH

Trump six months on: where next for markets, tariffs, crypto and more? 35 ASK RACHEL

What are the rules on receiving income if I have several different pension schemes?

Shares, funds, ETFs and investment trusts in this issue

Three important things in this week’s magazine

Why biotech stocks are set to soar

In the stampede to buy everything AI (artificial-intelligence)- related, investors have overlooked one sector where this new technology could supercharge progress.

to navigate

Renewed focus from F&C as it

F&C’s

Paul

Niven chats with Shares

The lead manager of the 157-yearold trust discusses growth investing, performance, the importance of diversification and what today’s geopolitics mean for markets.

Visit our website for more articles

Did you know that we publish daily news stories on our website as bonus content? These articles do not appear in the magazine so make sure you keep abreast of market activities by visiting our website on a regular basis.

Over the past week we’ve written a variety of news stories online that do not appear in this magazine, including:

Six months of Trump – what next?

AJ Bell’s Dan Coatsworth looks at the ups and downs of the president’s first six months in office and weighs the implications for stocks, bonds and cryptocurrencies.

Hubble bubble? Strategist warns S&P 500 has moved into ‘sell’ territory

Investors should consider shifting their focus to ‘old economy’ stocks rather than technology

At the beginning of July, strategists at Bank of America, led by Michael Hartnett, suggested if the S&P 500 index traded above 6,300 points this month it would trigger a ‘sell signal’.

Though he added the proviso that ‘overbought markets can stay overbought as greed is harder to conquer than fear’.

A week later, the team described fund manager sentiment as measured by their monthly global survey as the most bullish since February due to a ‘record surge in risk appetite’ since mid-April, profit optimism, allocation to tech stocks and shorting the US dollar.

They also flagged investor cash levels falling to below 4% as another ‘sell signal’, but suggested with equity positioning not at extreme levels, and bond volatility still low, investors would ‘more likely stick to a summer of hedging and rotation rather than big short bets and retreat’.

So, here we are at the end of July, with the S&P 500 firmly above the 6,300 level having made more than 10 new highs in the space of 20 trading days, and not a whiff of retreat.

As the old saying goes, no-one rings a bell at the top of the market, so what signals should investors look for to protect themselves, if indeed markets are due a fall?

The sudden return of ‘meme stocks’ is a sure sign of market mania, but that in itself is no reason to be worried.

These are typically beaten-down stocks where retail investors are amusing themselves trying to squeeze out professional short sellers and make a quick killing, they aren’t big-name companies being pushed to extreme valuations.

It may sound pat, but at the end of the day fundamentals matter, and as the earnings season starts we are already seeing a number of companies warning on profits and/or lowering

their guidance.

We wrote recently that Wall Street analysts have consistently low-balled estimates in order for companies to beat them by a few percent, but investors no longer seem willing to play the game and chase up their shares.

Therefore, the more companies which fall by the wayside, the greater the onus on the rest to deliver, and the narrower the market leadership becomes.

Year-to-date, the best-performing sector hasn’t been technology – which is third on the list – but capital goods, followed by business services.

After technology come more ‘old economy’ sectors like consumer and retail, then basic materials.

Investors need to watch for signs of weakness across these sectors, as tech will likely get a ‘free pass’ – until something blows up spectacularly, by which time it will be too late to worry.

Trump hails EU-US trade deal as greatest in history

The agreement is worse than the status quo, but better than initially feared

Markets are all about pricing in expectations, so when the range of potential outcomes narrows, there is naturally some relief that the worst case didn’t materialise.

That helps explain the positive reaction to the framework trade agreement announced at the weekend (27 July) between the European Union and the US.

Futures markets gapped higher at the start of trading in Asia which followed through when Europe and the US opened, although gains were quickly eroded suggesting much of the news was anticipated.

The EU-US agreement follows quickly on the heels of a similar deal struck between the US and Japan, which was also well received by stock markets.

President Trump and European Commission President Ursula von der Leyen have agreed across the board 15% tariffs on all goods exported from the EU to the US, including the politically sensitive pharmaceutical, autos, and semiconductor sectors.

The levy is half the threatened 30% rate which was due to begin on 1 August, but twice the rate levied on the UK. Trump said the EU would open its markets to US exporters with zero levies applied.

To sweeten the deal, the EU has agreed to increase US spending by $600 billion including armaments and by $750 billion on US energy to

wean itself off Russian oil and gas.

This pledge may prove hard to deliver on in practice as UBS economist Paul Donovan explained: ‘President von der Leyen made vague pledges to buy stuff from and invest in the US, without the necessary authority to make those pledges reality.’

That said, the US administration has previously said it does not differentiate where the money comes from, so private capital is not excluded.

Around a third of global trade takes place between the two trading blocks and in 2024 the US imported around $606 billion of goods from the EU. This means the US treasury could rake in around $90 billion in levies from the deal.

In terms of sector moves, European semiconductor shares shone with ASM International (ASM:AMS), ASML (ASML:AMS) and STMicroelectronics (STM:STMPA:EPA) topping the leader board with gains of between 3% and 4%.

Moving in the other direction were some of the hitherto best performing European and UK defence names, including German armaments company Rheinmetall (RHM:ETR) and BAE Systems (BA), dropping around 2%.

Meanwhile, China and the US have begun another round of trade discussions, this time in Stockholm, Sweden. There are growing hopes the two sides can agree a three-month extension to the truce in trade talks, with the current extension due to expire on 12 August. [MG]

Second-quarter dividends dip on fewer one-offs and strong pound

After a year-on-year decline of 4.6% in the amount of dividends paid out by UK firms in the first quarter of 2025 (to £14 billion), there was another drop in the total payout in the second quarter according to the latest report by global financial services company Computershare.

However, before income investors throw their arms in the air, the headline decline of 1.4% to £35.1 billion masks respectable underlying growth of 6.8% on a constant currency basis and median growth of 4.1% which is an improvement from 3.3% in the first quarter.

Most of the year-on-year drop was due to a halving in one-off special dividends to just £2 billion, while the strength of the pound against the dollar also hit the headline total wiping off close to £1 billion of payouts.

There was, however, an increase in the number of companies reducing their payouts, as only 78% of companies maintained or raised their dividends during the quarter compared with 88% in the first three months of the year.

The largest contributor to growth in the second quarter was aero engine maker Rolls-Royce (RR.), which returned to the dividend list for the first time since the pandemic.

The firm’s turnaround has led to higher margins across its civil, defence and power systems

businesses, leading to a substantial increase in free cash flow, and its £508 million payout represented nearly a quarter of the underlying growth in dividends during the quarter.

Banks and insurers also contributed to the rise at an underlying level, with bank payouts rising just over 8% and contributing a third of the increase while insurers raised their payout by 15% thanks to higher premiums and accounted for a fifth of the underlying increase.

As in the first quarter, miners were the big disappointment with payments generally sharply lower, although silver producer Fresnillo (FRES) stood out from the crowd, increasing its regular payout and paying a special dividend.

Due to the dramatic fall in special payments and the strength of sterling, Computershare has trimmed its full-year headline forecast by £1.8 billion and now sees total dividends dipping 1.4% to £88.3 billion.

Computershare’s Mark Cleland, CEO of issuer services for the UK, Channel Islands, Ireland and Africa, commented: ‘2025 is anticipated to be the third year of stagnation as slow underlying dividend growth, the strong pound, and lower special dividends as well as the drag caused by significant share buyback activity, are all combining to keep pressure on the amount companies are opting to distribute as dividends.’ [IC]

Turnaround in progress at The Works

CEO is solving the retailer’s profitability puzzle and the shares have almost tripled this year

Shares in TheWorks.co.uk (WRKS:AIM) have nearly tripled yearto-date, rallying 185% to 58.25p on signs chief executive Gavin Peck’s new ‘Elevating The Works’ strategy is delivering a step-change in performance.

Full-year results (22 July) from ‘The Works’, which sells affordable, screenfree activities for the whole family, showed an adjusted pre-tax profit surge from £3.2 million to £4.6 million, supported by cost savings and expanding product gross margins.

additional trading week.

However, the company finished the year ended 4 May strongly, with a net cash balance sheet, and has seen continued like-for-like sales and margin improvement in the first quarter of the current year.

This confirms The Works’ refreshed growth strategy, with plans to increase sales to more than £375 million and EBITDA margin to 6%plus within 5 years, has traction.

Peck says customers are ‘clearly loving our new Spring and Summer product ranges’, and sees scope to expand The Works’ store footprint and grow its brand ‘fame’, thereby attracting even more customers.

While sales were down 2% to £277 million, this reflected the fact the prior year benefited from an

With a 73p price target on the stock, Singer Capital Markets believes The Works’ ‘clearer position in the value sector with greater all-year-round appeal focused on

Marshalls shares crash to 18-month low after disappointing update

Building materials firm sees no immediate solution to its problems

Companies which miss earnings forecasts or lower their full-year outlook are feeling the full wrath of the market this summer, as construction materials group Marshalls (MSLH) found out last week.

Having said the market would ‘strengthen progressively’ this year when it posted its 2024 results in March, and having talked up its performance over the first four months at its trading update in May, investors were

understandably miffed when the Yorkshire-based group lowered its guidance for 2025 (25 July).

At one stage the shares were down as much as 66p or 25%, and they ended the day down 53p or 20% at an 18-month low of 210p on more than 10 times the normal daily volume of shares traded.

Although first-half sales were better than the previous year, it was all down to pricing as volumes and product mix were worse, with the firm flagging a slowdown in its key end markets from the end of May and ‘no sign of any immediate catalyst for improvement for the remainder of 2025’.

screen-free activities for all the family should continue to resonate with shoppers’.

While the retailer is leaning into cost headwinds and fragile consumer confidence, the broker believes ‘driving like-for-like growth and margin expansion should translate into operationally geared pre-tax profit and earnings per share growth, and improved free cash flow.’ [JC]

UK landscaping end markets in particular are ‘challenging’ due to structural overcapacity, while inflation in other building materials is driving contractors to use cheaper products where they can, which means a worse product mix and a worse outlook for the full year. [IC]

UK UPDATES OVER T HE NEXT 7 DAYS

FULL-YEAR RESULTS

5 Aug: Diageo INTERIMS

1 Aug: Intertek, IMI, International Consolidated Airlines Group (IAG)

4 Aug: Kosmos Energy

5 Aug: Fresnillo, Travis Perkins, GlobalData, SIG, International Workplace Group, Serica Energy, Keller Group, Smith & Nephew, InterContinental Hotels Group

6 Aug: Tritax Big Box Reit, Georgia Capital, Legal & General, 3i Group, Quilter, Ibstock, Vesuvius, Glencore, 4Imprint

7 Aug: Serco, Harbour Energy, Spectris, Hikma Pharmaceuticals, Morgan Advanced Materials, Mears Group, Burford Capital

Can drinks giant Diageo raise investors’ spirits?

Expectations are subdued ahead of full-year results from the FTSE 100 distiller in search of fresh leadership

volatility and headwinds from tariffs following Donald Trump’s election as US President.

Younger people showing less interest in drinking alcohol and wealthier individuals cutting back on luxury goods - volumes of distilled spirits remain weakalso dented Diageo’s sales, while mismanaged inventory in Latin America and missed targets ultimately put paid to Crew’s hot seat tenure.

Investors will want to learn more about the expected impact of tariffs on the business and see evidence of ongoing organic sales improvement when spirits leader Diageo (DGE) serves up full-year results on 5 August.

Still nursing a post-pandemic hangover, the alcoholic drinks giant is now in the market for a new chief executive following the departure (16 July) of Debra Crew after a tough two years at the helm.

To her credit, Crew steered the Guinness-to-Johnnie Walker maker through a challenging post-Covid aftermath of slowing spirits sales, geopolitical and macroeconomic

Diageo’s highly-regarded chief financial officer Nik Jhangiani looks a safe pair of hands to steady the ship as interim CEO while the board searches for a new leader, and is allegedly a candidate for the top job, but whoever is appointed will need to bring new energy to the Crown Royalto-Captain Morgan maker.

Decisions will need to be made faster, asset sales are on the cards and the balance sheet needs strengthening.

Saying that, analysts at Jefferies don’t anticipate a significant deviation from the current strategy, since Diageo has already launched the first phase of its Accelerate programme to sustainably deliver roughly $3 billion in free cash flow from full-year 2026, ‘increasing as performance improves’, with its third-quarter results (19 May).

These showed organic sales bubbling up 5.9%, and Diageo insisted it was ‘on track to deliver on our guidance of sequential improvement in organic net sales performance’ in the second half of FY25 (ie the first half of calendar 2026). [JC]

Second-quarter earnings from bellwether Caterpillar will be closely watched

Analysts have raised their price targets sharply suggesting growing optimism

Irving, Texas-based construction and mining equipment-maker Caterpillar (CAT:NYSE) has always been regarded as something of a bellwether, not just for the state of the US economy but for the global economy, given its industry-leading position and its end markets.

However, dealers and stockists can often influence the top line depending on whether they are building inventory or reducing it, and that was readily apparent in the firm’s first-quarter earnings report.

Sales for the first three months of the year were down 10% to $14.2 billion due, with $1.1 billion of lower sales volumes caused by changes in dealer inventories and $250 million due to what the firm called ‘unfavourable price realisation’.

That meant the operating margin fell sharply to 18.1% against 22.3% in the first quarter of 2024, and EPS (earnings per share) were down 27% to $4.20 against $5.75 last year, marginally

Source: LSEG

below the $4.30 consensus forecast. With its second-quarter results due on 5 August, as well as the situation with inventories analysts will be closely watching what the firm has to say about the construction segment, as the mining and oil and gas businesses are expected to be relatively stable.

In anticipation of a better Shares has noticed half a dozen leading brokers have upgraded their share price targets for the stock.

Some, such as Baird, JPMorgan and Oppenheimer, have raised their targets quite significantly, from $445/share, $395/ share and $395/share to $500, $475 and $483 respectively, so with the stock currently trading at $427 there is a fair degree of optimism being built in ahead of the release. [IC]

US UPDATES OVER THE NEXT 7 DAYS

QUARTERLY RESULTS

1 Aug: Exxon Mobil, Chevron, Linde, Colgate-Palmolive, Kimberly-Clark, T Rowe, Moderna, Franklin Resources

4 Aug: Berkshire Hathaway, Palantir, Vertex, Williams, Simon Property, Axon Enterprise, Diamondback, ON Semiconductor, Tyson Foods, Loews

5 Aug: Caterpillar, Amgen, Eaton, Pfizer, Arista Networks, Gilead, Duke Energy, Marriott International, Duke Energy, Zoetis, Yum! Brands, Gartner, Fox Corp, Devon Energy, Match Group

6 Aug: Walt Disney, McDonald’s, Uber Tech, Shopify, DoorDash, Airbnb, Fortinet, AIG, Dayforce, MetLife, Occidental, Iron Mountain

7 Aug: Occidental, Iron Mountain, Eli Lilly, ConocoPhillips, Constellation Energy, Vistra Energy, Warner Bros Discovery, Expedia, Ralph Lauren, Evergy, Datadog, Expedia, GoDaddy

Why Verizon Communications could add valuable predictability to portfolios

Mobile network giant has a terrific dividend track record and 6.5% yield

Market cap: $178.6 billion

For most of this year, shares of US mobile network giant Verizon Communications (VZ:NYSE) have acted as a valuable hedge against volatility, trundling along slowly but steadily when wider US markets were bouncing around like a rubber ball.

This is not surprising for a business with such predictable revenue and cash flow lines, thanks to millions of customers on annual subscriptions. The stock’s beta – a measure of how volatile it is versus the wider market – underscores the point, where its 0.38 rating, according to Stockopedia, effectively means Verizon shares move around almost twothirds less than the S&P 500.

The flipside to that is, while many stock valuations have raced ahead over the past couple of months, pushing the S&P 500 to new records, Verizon has failed to keep pace. Investors can buy Verizon shares today for roughly the same price as in early March 2025 and about 25% below the levels of five years ago.

HIGHLY RELIABLE

Verizon might be past the best of its growth years, and while it’s unlikely to be a highly-rated stock in future, it should remain a highly reliable one, offering something investors don’t want to ignore - a high dividend yield and a path to steady returns.

Between a near-6.5% dividend and a modest rebound in earnings, the stock could deliver solid double-digit annual returns without needing to go above and beyond current low expectations.

Verizon’s earnings have declined in recent years

due to weak performance in its wireline business, rising competition in wireless, and heavy spending on 5G infrastructure which pressured margins and increased debt. Sales have been pretty much flat in the past few years, but EPS fell substantially with margin compression.

Crucially, that earnings pinch may be coming to an end. Analysts expect Verizon’s earnings to grow

over the next three years as the company expands its broadband and fibre footprint, drives higher wireless service revenue through premium plans and improves operational efficiency to grow margins.

This earnings growth is likely to be driven by a combination of a few things: network advantage, subscription-based revenues and the defensive nature of the business.

For example, Verizon has consistently invested in its network infrastructure, positioning it well for the ongoing 5G rollout and future connectivity demands, 6G and beyond.

This is important because it helps cap churn, or the number of customers who switch away to a rival service provider. For many, reliable coverage trumps cost, which should allow the company to raise prices beyond inflation, bolstering margins and driving profits, cash, and dividend growth.

Verizon’s second quarter churn was 1.56%, lower than the 1.64% in the previous quarter and below full year 2024’s 1.59%. Churn in 2023 was 1.63%.

Getting that figure lower still will be among the firm’s challenges moving forward, which makes price locks and broadband bundles something worth watching.

IS VERIZON’S DIVIDEND SAFE?

If the dividend is such a crucial part of the investment

A decade of safe dividends

case, how safe is it? Two things provide reassurance. First, Verizon hasn’t reset its shareholder payout since 2006, when it held its $1.62 annual payment flat, and data from the company shows it hasn’t lowered the dividend this century.

Second, Verizon has a long track record of generating free cash flow above the cost of dividends, barring the pandemic-hit years of 2021 and 2022. Free cash flow cover of dividends recovered to 117% in 2023 and 168% in 2024. Dividends are forecast to grow about 2% this year and next year.

Verizon shares are currently trading on a rolling 12-month PE (price to earnings) of nine times, according to Stockopedia data. We believe that looks too wide a discount for a near-6.5% income yield, and where even modest earnings growth should further bolster total returns.

A last thing for UK investors to consider is US withholding tax. This is what overseas investors must pay on US stock dividends, and is set at 15% if held in an ISA, although there is an exemption if investors use a SIPP to invest.

Even so, it would still imply an annual income yield of more than 5.5%. That, coupled with a PE of 10, could imply a share price north of $50, and with some analysts calculating a fair value at $55, means 25% to 30% upside from current levels. [SF]

Buy earnings compounder Inditex while it is going cheap

Growth should re-accelerate at this Iberian fashion giant with a fortress balance sheet

Inditex

(ITX:BME) €43.6

Market cap: €136 billion

A15% year-to-date share-price decline presents a buying opportunity at Inditex (ITX:BME), the Spanish clothing colossus with a strong long-run track record and the balance sheet strength to tough out what should prove a short-term growth slowdown.

While the Zara brand owner faces intense competition from H&M (HM-B:STO), Next (NXT) and Shein to name a few rivals, Inditex has shown resilience in tricky periods past and management remains confident the company can continue to deliver growth and take share in a fragmented apparel industry.

Inditex is trading on a forward price-to-earnings ratio just north of 20 times, cheap relative to this compounder’s own history and suggesting scope for reversion to the mean with the retailer lapping softer sales comparatives and margin-enhancing COGS (cost of goods sold) deflation still to come.

Galicia-based Inditex opened its first store in La Coruña fifty years ago and in the intervening half-century has morphed into a global retail titan with 5,562 stores at last count and a portfolio of brands including Bershka, Massimo Dutti, Pull & Bear and Stradivarius.

Inditex is renowned in retail circles as a master of efficiency, able to leverage its scale and agility to win market share. Having fine-tuned its operations, the €136 billion (£118 billion) cap is able to get new designs onto the shop floor rapidly so it can stay on top of the latest fashion trends.

Source: LSEG

not entirely unexpected, since it followed an exceptional post-pandemic spending boom buoyed by consumers’ Covid-19 savings and a shift towards affordable brands during the cost-of-living crisis.

In the first quarter to 30 April 2025, sales rose by a slower-than-expected 1.5% to €8.3 billion, pretax profit came in flat at €1.7 billion, and investors were disappointed by news of a slower start to the summer selling season, not helped by weatherrelated disruption in Spain and tariff-related noise draining shopper confidence in the group’s second-biggest market, the US.

This reinforces its unique market position and has translated into dependable earnings growth, robust cash generation and rising dividends over time.

Admittedly, a recent sales growth deceleration spooked investors, yet this moderation was

Nevertheless, Inditex insisted its Spring/Summer collections continued to be ‘very well received’ by customers, while analysts noted the company should benefit from weaker comparatives and an accelerated store refurbishment programme.

Inditex also guided for stable gross margins this year, which implies management will stay disciplined in terms of promotions, and unusually for a retailer, Inditex was flush with €10.8 billion in net cash at the end of the quarter, lending it the balance sheet strength to weather any downturn in consumer spending. [JC]

Investors should stick with UK property portal Rightmove

Tech innovation and ability to attract new customers will reap future benefits for investors

Rightmove (RMV) 796p

Gain to date: 30%

In January last year, we argued investors should snap up FTSE 100 property portal Rightmove (RMV) as the stock offered resilient growth and a bargain-basement valuation.

Eighteen months later, Rightmove’s shares have gained 30% and it has rebuffed four takeover attempts from Rupert Murdoch-owned Australian property listings company REA Group (REA:ASX).

The current share price sits just above REA’s final offer of 780p, which Rightmove rejected last September saying it ‘materially undervalued’ the company.

‘Shareholder interests would be better served through the execution of Rightmove’s standalone strategic plan,’ said the UK property portal at the time.

WHAT HAS HAPPENED SINCE WE LAST SAID BUY?

Since these four failed attempts, Rightmove’s share price has gone from strength to strength gaining 21% year-to-date.

Despite the firm expressing caution recently about slower revenue growth in the second half of the year, Shares believes the FTSE 100 firm still has promise.

The company reported sustained traffic growth in the first half of the year (25 July) with a total of 9.1 billion minutes spent on the platform in the period, up 10% and the second-highest on record.

The firm also said technology innovation and AI usage had accelerated in the period, and it had launched a new top-end product called Ascend to help developers of new builds compete for buyers.

WHAT SHOULD INVESTORS DO NOW?

Although the stock dipped slightly after the first

Source: LSEG

half results, we think investors should stay put at Rightmove.

Not only is there every chance the Bank of England will lower interest rates this year, Rightmove has already increased shareholder returns by £112 million with buybacks and dividends.

Moreover, new estate agencies are being created at levels not seen since 2022 and completions are up 22% on last year making it a healthy market for the company. [SG]

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THE BIG BIOTECH OPPORTUNITY

HOW AI IS SUPERCHARGING THE SECTOR

Martin Gamble Education Editor

The stark contrast between the excitement surrounding everything AI and the depressed state of the biotechnology sector tells a lot about the current polarisation of investor sentiment.

Putting the numbers into context, the total value of the biotechnology industry is a mere

‘drop in the ocean’ $1.5 trillion compared with the $16 billion to $18 trillion market capitalisation of the Magnificent Seven.

The Nasdaq Biotechnology index has gone nowhere over the last five years, losing 2% of its value, and sits 18% below its 2021 peak, while the S&P 500 has almost doubled and trades at all-time highs.

DISCOUNTS ON OFFER

Listed UK biotechnology companies trade at an average 14% discount to NAV (net asset value) according to the AIC (Association of Investment Companies) despite three of the seven listed vehicles delivering gains in NAV over the last five years.

The only trust to register a gain in share price total return over the last five years is Polar Capital Healthcare (PCGH), notching up an annualised 6% return.

One standout victim of the malaise in the sector which we discuss in more detail later, is specialist developer of UK intellectual property assets Syncona (SYNC) which trades at a whopping 44% discount to NAV.

If more evidence were needed, fund managers Ailsa Craig and Marek Poszepczynski at International Biotechnology (IBT) point out that nearly half of US-listed biotech companies with a market capitalisation under $1 billion were trading below the value of their cash in early April.

The managers do not claim to be able to time the markets, but they conclude: ‘When we look at what’s happening in the sector today – the indiscriminate selling, the dramatic divergence between sentiment and fundamentals – we believe this could represent a rare and powerful opportunity.’

Craig and Poszepczynski said they are ‘increasingly excited by the progress in rare

genetic disease treatments, where scientific and biological understanding of the fundamentals of the diseases allows for personalized treatments.’

‘Advanced modalities such as gene therapies and RNA-based treatments are at the forefront, offering the potential to treat previously untreatable diseases, added the managers.

Fund manager James Douglas at Polar Capital Global Healthcare believes the sector has reached ‘peak fear’ with sentiment ‘on its knees.’ Douglas says previous periods of significant underperformance were followed by a bull market in healthcare stocks.

‘Today we see another attractive entry point into a sector that we feel is strongly dislocated from its fundamentals,’ added Douglas.

A FUNDAMENTAL DISCONNECT

All this suggests a fundamental disconnect and misunderstanding of the significant impact biotechnology innovation could have on humankind over the next few years, and the scale of shareholder value it could create.

Ultimately, the potential market value of the companies developing cures for major diseases such as cancers, cardiovascular disease and neurodegenerative disorders could rival the value of today’s AI ‘picks and shovels’ companies.

The one area within biotechnology which has generated significant excitement in recent years is the revolution in the treatment of obesity, brought about by the development of GLP-1s (Glucagon-like peptide-1 receptor agonists) which mimic the body’s natural appetite and blood sugar hormone.

Woody Stileman, managing director, business development at RTW Biotechnology Opportunities (RTW) told Shares: ‘Obesity is one of the most urgent global health challenges, affecting over one billion people and driving trillions in healthcare costs.

‘In the UK, obesity costs the NHS £6.5 billion annually and is the second biggest preventable cause of cancer, so the potential impact of reducing the incidence of obesity is enormous.’

The second wave of development will see next generation drugs on the market as early as 2026.

‘What makes next-generation treatments so exciting is their ability to target the biological roots of obesity with unprecedented efficacy, delivering weight loss and improving outcomes across diabetes, cardiovascular disease, and more,’ explains Stileman.

With peak sales forecasts reaching as high as $150 billion, next-generation obesity treatments represent an unprecedented scientific breakthrough - and for investors, a significant investment opportunity.

RTW has two irons in the fire in the next generation weight-loss space, through portfolio companies Corxel and Kailera. The former is developing an improved efficacy obesity drug and the latter an oral solution, which would be the first of its kind.

Psychedelics are another area of the biotech market seeing a lot of change and are no longer considered ‘fringe’ science in psychiatry among practitioners and regulators. These drugs, derived from plants or synthetically manufactured, alter a person’s perception of reality.

medicine where it’s optimised maybe overnight by an AI system for your personal metabolism to be perfect for you,’ explained Hassabis.

In March, Isomorphic Labs raised $600 million in its first ever external funding, with Alphabet (GOOG:NASDAQ) supported Google Ventures also participating in the fund raise.

‘As Stileman explains: ‘Medicine is entering a new era in psychiatric care, with the potential to transform treatment for conditions like depression and PTSD.’

SPEEDING UP DRUG DISCOVERY

Drug discovery has historically been like trying to find a needle in a haystack, as well as costing billions of dollars in research and development spending.

That equation is changing fast. For example, Google-backed Isomorphic Labs has built an AI system which predicted the structure of virtually all the 200 million proteins ever identified.

That is something which would have otherwise taken a billion years of research time according to Demis Hassabis, CEO of Google DeepMind, which spun-out Isomorphic Labs.

At the 2025 World Economic Forum in Davos, Hassabis told the audience the company planned to have drugs in clinical trials by the end of the year. Isomorphic Labs is focused on oncology (cancer), cardiovascular, and neurodegenerative diseases.

In 2024 Hassabis and DeepMind senior research scientist John Jumper shared the Nobel Prize for Chemistry for their work on AlphaFold, an AI system which can predict protein structures. The next goal is to reduce the time taken from a target to a candidate protein to a matter of months or weeks.

‘Eventually you could imagine personalised

‘This funding will further turbocharge the development of our next-generation AI drug design engine, help us advance our own programmes into clinical development, and is a significant step forward towards our mission of one day solving all disease with the help of AI,’ said Hassabis.

Hassabis is one of a growing number of scientists who believe AI could have an even greater impact on society than the internet or mobile telephony, comparing it to an ‘electricity or fire kind of impact.’

In 2024, Isomorphic secured high-profile collaborations with Eli Lilly (LLY:NYSE) and Swissbased Novartis (NOVN:SWX), snaffling $1.7 billion and $1.2 billion of funding, respectively.

In June, leading diabetes and weight loss drug specialist Novo Nordisk (NOVO-B:CPH) became the first customer of Danish AI supercomputer Gefion with the goal of transforming drug discovery and driving healthcare innovation. Gefion is Denmark’s first AI supercomputer and is powered by 1,528 Nvidia (NVDA:NASDAQ) state of the art H100 Tensor Core GPUs (Graphics processing units).

QUANTUM LEAP

Another exciting emerging technology in biotechnology is applying quantum computing to solving problems faster. Quantum computing harnesses the unique qualities of quantum mechanics to solve problems beyond the reach of classical computers.

It is estimated to become a $1.3 trillion industry by 2035 according to McKinsey Digital. In 2024, Novo Holdings, the controlling shareholder of Novo Nordisk, pledged $200 million to establish a quantum computing hub in Denmark.

Soren Moller, managing director for seed capital investments, said: ‘Combining Novo Holdings’ longstanding experience in developing

WHAT'S HAPPENING AT SYNCONA?

Syncona (SYNC) is unique in the biotechnology sector in that it aims to create, build and scale world class companies around exceptional UK scientific research.

At the full-year results on 19 June the company announced it is considering a threeyear wind down of its circa £1.1 billion portfolio to provide accelerated liquidity to shareholders looking for an exit, while creating a private continuation vehicle for investors wanting to stay.

Peel Hunt analyst Miles Dixon believes the board should consider letting the portfolio run while seeking liquidity for shareholders. He reasonably asks if selling at the bottom of a bear market is the wisest decision for

the life sciences ecosystem in the Nordics with the quantum activities and commitment from the Novo Nordisk Foundation provides a very powerful platform for building quantum startups.

‘Our ultimate goal is to create, grow and develop strong quantum technology companies in the Nordics.’

WAYS TO GET BIOTECH EXPOSURE

shareholders in the long run.

Dixon argues his alternative solution would give Syncona the time it needs to deliver on its original strategy of achieving £5 billion of NAV by 2032, while also allowing shareholder exits more efficiently.

He estimates around 93.5% of the value in Syncona’s life sciences portfolio consists of investments held at cash (invested), quoted / mark-to-market, or tested with third party specialist money raises.

In other words, Syncona’s NAV is very real, so why wouldn’t investors want to hold out for NAV, or indeed, a premium, asks Dixon. Historically Syncona has traded at a premium of between 30% to 40% to NAV.

Given the specialist knowledge required to invest in the sector, and the high risks associated with developing new drugs, a diversified active fund or specialist index tracker is suitable for most investors.

The £383 million iShares Nasdaq US Biotechnology ETF (BTEK) aims to track the NBI (Nasdaq Biotechnology Index) at a cost of 0.35% per year. The fund has 261 holdings and gives investors access to some of the world’s biggest biotechnology and healthcare companies.

RTW Biotech Opportunities top holdings

Data at 30 June

(GILD:NASDAQ), Vertex Pharmaceuticals (VRTX:NASDAQ) and AstraZeneca (AZN).

With all the listed actively managed trusts trading at discounts to NAV, there is value to be found across the sector.

Bellevue Healthcare (BBH) and International Biotechnology (trading on a 2% and 11% discount) also pay a dividend and sit on trailing yields of 4.7% and 4.9%, respectively.

The latter is a running Shares Great Idea and despite all the recent market turmoil is only around 9% underwater since we pitched the idea in November 2024.

We like the fund’s ‘all weather’ appeal and its ability to outperform in both up and down periods for the sector. This reflects the team’s flexible value-driven approach and ability to adapt to evolving market conditions with a focus on capital preservation and selective risk-taking.

Commenting on two of the fund’s most exciting holdings, the managers told Shares: ‘Avidity Biosciences stands out in the neuromuscular disease space.

‘Its drug delivery platform – combining monoclonal antibodies with oligonucleotides –enables precise delivery of RNA therapeutics to muscle tissue, with late-stage programmes that suggest multi-billion dollar markets.

‘Similarly, Uniqure’s gene therapy for Huntington’s Disease, a devastating and fatal hereditary condition with no current treatments,

uses viral vectors to deliver silencing RNA, aiming to suppress the toxic Huntington gene expression. Early clinical data have been encouraging in stabilising disease progression.

‘Overall, innovation in rare disease therapeutics – especially those using gene and RNA technologies – remains one of the most promising areas in biotechnology today.’

In 2023, we pitched RTW Biotech Opportunities as a Great Idea and the shares are sitting around the same level ($1.30) today, although the discount has widened out to 25%.

Since launching in 2019, the company’s NAV per share has delivered an annualised return of 8.8% per year, outperforming the Russell 2000 Biotech Index (2.6%), the NBI (3.9%) as well as the AIC Biotechnology and Healthcare sector’s annualised return of 1.5%.

RTW is a full life cycle investor which means it can invest in different stages of a company’s development and has the flexibility to focus on the most attractive parts of the market.

Roughly two thirds of the portfolio is invested in public markets and just under a third in private companies. By therapy the portfolio is most exposed to rare diseases, cardiovascular, metabolic and oncology.

The managers recently noted M&A (merger and acquisition) activity has started to pick up, with total deal value to the end of June roughly similar to that for the whole for 2024.

Table: Shares magazine • Source: RTW

Renewed focus from F&C as it looks to navigate turbulent markets

Trade tariffs, the Russia-Ukraine and the Israel-Palestine crises are all issues F&C’s Paul Niven takes in his stride

As the oldest investment trust in the world, F&C Investment Trust (FCIT) has seen more than a few market corrections and crises in its time.

And despite a tricky macroeconomic and geopolitical backdrop, the trust has managed to deliver solid returns over a one-, three-, five- and 10-year period.

The trust’s success has been underpinned by a diversified approach with a portfolio comprising a broad spread of global companies which has helped to spread risk for investors. But recently the trust has reduced its number of underlying holdings. In this article Shares spoke to manager Paul Niven to find out why, and also, how he is navigating the current uncertainty.

F&C – detailed asset breakdown

Emerging markets (stock) (1.7%)

UK (large growth stock) (1.8%)

Japan (stock) (5.9%)

Asia (excluding Japan) (6.6%)

Europe (large cap) (9.7%)

Other (15.1%)

WHERE DID IT ALL BEGIN?

Founded in 1868, F&C is steered by global asset manager Columbia Threadneedle, has paid a dividend ever since its inception and, for the past 54 years, the FTSE 100 trust has delivered consecutive annual dividend rises.

It now has a market capitalisation of £5.3 billion and total assets under management of £6.2 billon. It trades at a 7.25% discount to its net asset value. Since 1942 it has been investing in private markets and one of its first equity investments was oil giant Shell (SHEL)

In a sign of the value placed on continuity, over its 150-year history it has had a total of 11 managers, and just three since 1969. Niven has been at the helm since July 2014.

HOW DOES THE TRUST WORK

The trust’s strategy involves owning quoted and unquoted companies with geographic exposure across North American, European and emerging markets.

UK (large value stock) (1.2%)

Source: AIC (Association of Investment Companies) 31 May 2025

North America (58.0%)

Performance of F&C versus wider AIC Global sector

Share price total return (%)

One-year performance

Three-year performance

Source: Association of Investment Companies, 22 July 2025

Niven coordinates a mix of external managers and internal managers from Columbia Threadneedle. So, Invesco runs the emerging markets strategy, while JP Morgan, Barrow, Hanley Mewhinney & Strauss and Columbia Threadneedle run the different elements of its US strategy. Finally, Pantheon Ventures runs the venture capital and growth private equity strategies.

By having a mix of external and internal managers the trust benefits from a broad range of expertise and ensures diversification of assets through its portfolios.

All main geographic regions in the trust’s listed portfolios gained in value last year with North America being the best performer at 27.7%, followed by global strategies with a 17.6% gain and Europe with an 11.3% gain.

A MORE FOCUSED APPROACH

While the trust remains highly diversified, the company has reduced its underlying holdings from 400 to approximately 350.

Niven says this has been a conscious decision. ‘For many years we have managed a diversified portfolio, but one has to be appropriately diversified. We invest using different strategies with growth, value, quality characteristics in the unlisted and listed space.

‘My belief is in the long run demonstrably high-quality companies outperform the market, companies which are cheap outperform and growth companies also outperform. But performance across these styles can be volatile and inconsistent in the short-term.

Five-year performance 10-year performance

‘By blending across these strategies [growth, value and quality] there is a better chance to deliver outperformance and a smoother performance journey [returns] to shareholders rather than over-buying one particular style or theme.’

HOW DOES F&C NAVIGATE

THROUGH DIFFICULT TIMES?

Niven tells Shares: ‘We have been combating volatility using diversification and [at the same time] we continue to focus on growth assets.

‘The trust does not invest into assets like government bonds, commodities, or gold, focusing instead on growth assets with exposure to economic and corporate earnings growth.’

Niven has made changes to the trust’s weightings recently including adding to its emerging market position and reducing the trust’s exposure to Japan through derivatives.

The trust’s emerging markets and China position performed well in June gaining from a deescalation in US-China trade tensions and optimism surrounding Asian technology.

In relation to the US, F&C has called into question whether US exceptionalism will last and thinks tariffs ‘will reduce economic and earnings growth and raise inflation’.

F&C observed in a recent factsheet ‘an erratic and inconsistent approach to US government policy will reduce consumer and corporate confidence and has the potential for lasting damage’.

F&C largest equity holdings

F&C largest equity holdings

Source: F&C, as of 30 June 2025

Source: F&C, as of 30 June 2025

HOW HAS THE TRUST BEEN DOING?

In 2024, F&C’s portfolio delivered a return of 19.1% to shareholders with the private equity side underperforming during the period.

The listed portfolio returned 20.5% and outperformed the market benchmark driven by a combination of stock selection and asset allocation. It may be the oldest trust in the world but that does not mean it hasn’t moved with the times. The trust has been investing in themes like AI for some time and this helped deliver strong gains in 2024.

Strong performers in this area include Palo Alto-based company Broadcom (AVGO:NASDAQ),

which operates across the semiconductor and infrastructure software space and contract chip manufacturer Taiwan Semiconductor Manufacturing Company (TSM:NYSE).

Niven says: ‘Artificial intelligence presents both opportunities and threats, with the potential to improve productivity but also disrupt existing business models.’

The managers explains the trust has shifted its stance to underweight on the ‘Magnificent Seven’ which, nonetheless, still dominate the trust’s top 10 holdings.

In particular the trust is notably underweight Apple (AAPL:NASDAQ) and Tesla (TSLA:NASDAQ) which in turn have seen their share prices fall by double digits so far this year

RECENT CONTRIBUTORS TO PERFORMANCE

Niven said in his latest update in June the trust’s underweight position in Tesla was a positive contributor to performance.

‘Proposed legislation that was working through the US Congress during June planned to eliminate electric vehicle purchase credits, threatening to reduce Tesla’s profits,’ he says.

Stocks which have performed well in June include Carnival (CCL:NYSE) up 19.2% – a top contributor to excess returns in the trust. The cruise operator raised its annual profit forecast despite broader economic uncertainties.

Over three years the trust has delivered 44.8% to investors (share price total return), over five years 76.6% and over 10 years 202.2%, according to data from the AIC (Association of Investment Companies).

Ongoing charges for the trust have steadily decreased over the past half-decade, meaning a greater proportion of these returns are being enjoyed by investors. In 2024 charges were reduced to 0.45% from 0.49% in 2023.

The trust prides itself in rewarding shareholders and F&C’s board are committed to raising dividends in the long-term. In May, the trust proposed a final dividend of 4.8p, leading to a 15.6p annual payment – an increase of 6.1%.

By Sabuhi Gard Investment Writer

Emerging markets outlook

Sponsored by Templeton Emerging Markets Investment Trust

Meet the big hitters driving the Brazilian stock market

Financials and resources firms are among those with the largest weightings

MSCI Brazil – sector breakdown Financials (40.1%) Energy (15.1%) Materials (12.4%)

(11.0%)

(21.4%)

The Brazilian market has been a bright spot among global markets and emerging markets specifically in recent months but which are the names really driving this performance?

In this article we highlight the names in the MSCI Brazil index with the chunkiest weightings to discover what they do and what underpins their business. The financial and resources sectors dominate the index, with a combined weighting of nearly 70%.

NU HOLDINGS

This digital banking platform operates across Brazil, Mexico and Colombia and has upwards of 100 million customers. Earnings have been growing rapidly and the company reported revenue of $3.2 billion and net income of $557 million in the first quarter of 2025.

ITAU UNIBANCO

Formed through the merger of Banco Itaú and Unibanco in 2008, this is a more

established Brazilian banking institution. It posted 9.4% growth in operating revenue to $8.2 billion for the first three months of 2025.

PETROBRAS

This majority state-owned outfit is focused on the petroleum industry. The company’s operations run the full gamut from exploring for and producing oil and gas to refining, transporting and marketing hydrocarbon products. Its latest update in May 2025 revealed an improvement in cash flow.

VALE

Mining firm Vale is one of the largest producers of iron ore and nickel globally and also owns significant logistics infrastructure, including railways, in Brazil.

Sponsored

Emerging markets: diversifying out of the US, tariff deadlines, Latin America

Three things the Templeton Emerging Markets Investment Trust team are thinking about right now

1. Moody’s downgrades US credit rating: Questions over the safe-haven status of the United States as an investment market, a weakening US dollar and unpredictable policies have investors increasingly diversifying away from the United States. This may act as a catalyst for other asset classes, for example, emerging market (EM) equities. With this decision, Moody’s is the last of the three major agencies to downgrade the United States from the highest credit rating.

2.

Tariff deadline looms: At the time of writing, few countries have brokered deals with the United States on reciprocal tariffs. A pleasant surprise, however, was that China and the United States have reached a mutual agreement; this was once expected to be the toughest negotiation. The final days of June have seen an increase in diplomatic activity, but the pace of negotiations still remains drawn-out.

3. Latin America: Strong earnings results from several Brazilian heavyweight companies, despite high interest rates, peppered headlines. Brazil’s central bank continued to increase interest rates during the quarter, but this did not dampen investor sentiment for Brazilian equities. This positivity was also evident in Mexico, where the central bank lowered benchmark interest rates. Its benchmark rate now hovers at its lowest level in nearly three years. The region is also seen as relatively insulated from tariffs and major geopolitical conflicts.

Portfolio Managers

Chetan Sehgal Singapore

Andrew Ness Edinburgh

UK bank results suggest consumers are ‘resilient’ for now despite sluggish economy

Latest major sentiment survey paints a somewhat less rosy picture

Whereas the biggest banks in the US, such as JPMorgan Chase (JPM:NYSE) and Bank of America (BAC:NYSE), are heavily dependent on trading and investment banking for their profits, the UK’s big banks are mostly reliant on old-fashioned lending and deposit-taking.

Granted, both Barclays (BARC) and HSBC (HSBA) have sizeable investment banking operations, but generally speaking their results aren’t central to their parent companies’ overall performance.

That makes the Big Four, which includes Lloyds (LLOY) and NatWest (NWG), a good barometer of the health of the economy and the consumer. Typically, the more confident businesses and retail customers feel, the more likely they are to want to borrow money, while the less confident they are the more likely they will build up their cash and savings.

Consumer spending is worth around 60% of UK GDP (gross domestic product) – to put that into context if we each spent £1,000 more this year than we did last year the economy would grow by an extra 1% according to the ONS (Office for National Statistics).

So, what does the latest set of bank results tell us about how confident or otherwise people are feeling, and what might that mean for the economy?

BEARING UP

When Lloyds reported its interim results last week (24 July), they were so unexceptional one broker described them as ‘very in line’.

Underlying pre-tax profit was ahead of estimates but the majority of the beat came from the release of provisions for bad loans and lower remediation costs, so reported profit was 1% above the consensus.

Loan and deposit growth was pedestrian at 3% and 2% respectively, with the bank saying its retail

business continued to show ‘resilience’.

It also said credit quality was good, and consumers had shown ‘strength in the context of inflationary pressures’, although with regard to commercial lending it noted the relatively high level of interest rates could impact credit quality in sectors which rely on consumer discretionary spending, such as hospitality and retail.

NatWest’s results (25 July) were also flattered by provisions, although it reported a healthy increase in net interest income – the margin it makes on taking in deposits and lending that money out – and raised its revenue guidance while announcing an increased dividend a share buyback.

Non-interest income, such as fees and commissions, was above forecasts and also contributed to the results, which was just as well as growth in loans and deposits (excluding Sainsbury’s Bank) was minimal.

The bank’s base case is for the economy to slow

in the near term, while its downside scenarios –which it now gives a higher probability than its upside scenario – is for the lagged effect of inflation and geopolitical uncertainty to lead to a drop in business investment and consumer spending, or in the worst case ‘an extreme fall in GDP with policy support to facilitate a sharp recovery’.

Finally, Barclays beat expectations for the halfyear (29 July) thanks in part to its investment banking operations and promised to return £1.4 billion to shareholders through higher dividends and a share buyback.

However, once adjusted for the inclusion of Tesco Bank, performance in the core UK business looked softer than anticipated, while provisions for credit losses rose as a result of the acquisition.

Loan growth was minimal, led by mortgages and credit cards, while credit card impairment charges were more than three times the level of a year ago due to a worsening economic outlook and the Tesco Bank acquisition, although the bank also described customer behaviour as ‘resilient’.

Overall, we get the sense the banks are hoping for a recovery in the economy, and through that a pick-up in demand for new loans, while at the same time preparing for a slowdown and even notching down their outlooks, which may explain why the shares have lost momentum.

SO, HOW ARE CONSUMERS FEELING?

Earlier this month, consultancy PwC published its quarterly consumer sentiment survey which, if you had only read the headline, would suggest all is well.

After three quarters of back-to-back decline, sentiment has ticked up this summer and is now above the long-run average which the survey suggests is ‘encouraging for operators in the retail and leisure sectors’.

However, behind the headlines it turns out only one age group is feeling more optimistic than it was

"Thinking about disposable income in the next 12 months, will you be…?"

"How do you expect your spending to change over the next 12 months?"

Net spending (%)

this time last year, while most other groups feel less confident, with rising worries over either inflation or job security.

‘Only 25 to 34-year-olds and the most affluent are now better off than they were 12 months ago, with every other demographic and socioeconomic group feeling worse than last year,’ says the report.

‘In previous surveys there has been a steady improvement in household finances since 2022, but this has stalled since the start of 2024. Household finances are now worse than immediately after the general election as well as in the first half of 2024.

‘Again, 25 to 34-year-olds buck this trend with stronger household finances than the UK average. Although encouraging, it’s been at the expense of under 25s and over 45s, who have all seen their finances deteriorate in the last 12 months.’

The survey suggests the 25 to 34-year-old group are an outlier because they benefit from National Insurance rate cuts, National Living Wage increases and more stable job prospects, while an increasing number have no mortgages or families to worry about.

This is in contrast with all the other demographics who face concerns around inflation, job prospects and worsening household finances, says the survey. Making things even worse, household finances have stalled since the beginning of 2024, particularly for older and less affluent consumers,

who are feeling the pinch.

As far as factors affecting confidence, 84% of consumers cited the rising cost of everyday things while 86% cited the UK economy as a worry.

Job security and progression was a concern for 39% of respondents, up from 36% at the start of 2025, with 60% of 18 to 24-year-olds expressing unease about their prospects which bodes poorly for businesses which rely on spending by millennials.

In terms of spending intentions, consumers now expect to pay more for groceries than they have previously, although that is a function of inflation rather than people buying more items, while fewer of us are looking to spend on items like holidays, appliances or furniture and even fewer expect to make large purchases.

Sam Waller, leader of industry for consumer markets at PwC, said: ‘Businesses in the consumer industry will need to be agile and pivot their offerings to target to their more confident customers given the current economic backdrop and how hesitant some consumers are about discretionary spending.’

By Ian Conway Deputy Editor

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Active funds break records in 2025, both good and bad

There has been a recent uptick in some geographies for actively-managed portfolios

It has been a pretty good year so far for active fund managers in 2025, according to AJ Bell’s latest Manager versus Machine report, which analyses more than 1,000 funds across seven key equity sectors. The report shows that 42% of active managers have outperformed a passive alternative so far in 2025. That may not sound like a lot, but it’s better than the 35% who managed the same feat in the first half of 2024 and is nudging up towards the 50% figure which might be considered a reasonable result in normal conditions.

GLOBAL AND US ACTIVE FUNDS SHINE

Active funds in the Global sector have had a particularly bright spell by their own standards, with 51% outperforming a comparable tracker in 2025 so far. This is a record high reading for this sector since AJ Bell launched the Manager versus Machine report in 2021. The strong showing is a

result of the fact the US has uncharacteristically lagged other regional stock markets since the beginning of this year. Most global active fund managers are underweight the US compared to their tracker competitors, a position which has been a powerful headwind for many years, but which has put some wind in their sails so far in 2025.

Indeed, it looks like Donald Trump has helped make (some) active funds great again, as his policies have weakened the dollar and dented confidence in US stocks, which has meant the S&P 500 lagging other global indices.

There has been a parallel disturbance within the US stock market itself, which has helped US equity fund managers outperform to a higher degree than we have seen in previous Manager versus Machine reports. Some of the Magnificent Seven have been a big drag on index fund performance so

Percentage of active funds outperforming the average passive alternative

Number of outperforming active funds

Source: AJ Bell, Morningstar total return in GBP to 30 June 2025

far this year, which has opened the door for active managers with broader portfolios to score some points against the passive machines; 44% of active US funds outperformed a comparable tracker in the first half of the year, again a record high since we started compiling the data in 2021.

TRACKERS DOMINATE IN THE UK

Active management in the Global and US sectors may have perked up in 2025, but it’s been a dismal year so far for active managers investing in the UK stock market, where only 29% managed to beat the average index tracker. This poor performance can largely be laid at the door of mid and small caps lagging behind the big blue chips of the FTSE 100, combined with the fact active managers tend to be underweight large caps compared to a plain vanilla index tracking fund.

But here comes the really bad news for active managers: despite a reasonable showing in 2025 so far, the long-term numbers are still bleak. Over 10 years, across all seven equity sectors analysed, just 30% of active funds outperformed a passive alternative, a record low reading in the Manager versus Machine report. It’s unfair to describe this latest low water as a step change in long-term

performance, given it’s only a few percentage points shy of what we’ve seen in recent years. However, it is a continuation and a deepening of a long-running trend.

IT WILL TAKE TIME TO OVERTURN PASSIVE DOMINANCE

The fact this comes against the backdrop of some brighter performance from active funds in the short term demonstrates that even if active managers start to turn things around, it’s going to take a considerable period of outperformance to overturn the dominance of index trackers in the long-term numbers. And in the meantime, tracker funds continue to hoover up fund flows at the expense of their active competitors. There are many reasons investors are mostly buying passive fund strategies, and performance is one of them. Our latest Manager versus Machine report suggests things have got a bit better for active funds on that front, but not enough to derail the juggernaut of demand for the passive machines.

DISCLAIMER: AJ Bell owns Shares magazine. The author (Laith Khalaf) and editor (Tom Sieber) of this article own shares in AJ Bell.

Trump six months on: where next for markets, tariffs, crypto and more?

Investors have a lot to think about as the president’s policies gather momentum

On his return to the White House in January, Donald Trump promised lower taxes, more jobs, a clampdown on immigration and a new trade policy which would see the US become less reliant on overseas-supplied goods.

Six months on, the US president has had quite an impact on business, consumers and financial markets, some of which has been positive and some negative.

It has been a whirlwind period and people are still trying to fathom the longer-term implications of his policies.

The One Big Beautiful Bill Act has been signed into law and made permanent Trump’s 2017 tax cuts, paving the way for extra spending in defence and immigration while cutting funding for health and accelerating the phasing-out of clean energy tax credits.

WHERE NEXT FOR TARIFFS?

Investor concerns are shifting from the structure of future tariff deals to how trade levies are starting to hurt corporate earnings.

For a while, it looked as though investors were becoming more relaxed about tariffs, because Trump has developed a reputation for having a bark worse than his bite, threatening to do something and not following through.

Having extended the 90-day negotiation period for tariffs from 9 July to 1 August, the market now expects more of the same, so 1 August could become 1 September and then 1 October.

Still, a multitude of foreign trade partners are in

talks with the Trump administration, hoping to get a framework agreement by 1 August.

The message from the White House is Trump is not in a rush to secure deals before the deadline, instead preferring to get each agreement right.

Yet the more Trump extends the deadline, the weaker his bargaining power to get a deal weighted in the US’s favour as trade partners could push for more time to negotiate.

Any deal which is higher than the 10% baseline tariff and less than the original Liberation Day tariff could be deemed a win by the foreign trade partner, whereas the US could be in a better position regardless of the final rate, so Trump would still have some way of claiming victory.

While the lacklustre response to recent tariff news might imply investors are cool as a cucumber towards trade talks, there has been a wake-up call in recent days.

The second-quarter earnings season has been soured by companies quantifying the impact of tariffs on their profit and loss account.

For example, car maker General Motors (GM:NYSE) revealed US tariffs have cost it $1 billion while sector peer Stellantis (STLAP:EPA) has taken a €300 million hit as tariffs have impacted trade.

Also, technology provider Nokia (NOKIA:HEL) said tariffs could impact its full-year operating profit by up to €80 million.

The more companies who say Trump’s trade

policies have or could hurt earnings, the more frustrated investors will be.

The impact of tariffs has already fed through to the monthly inflation print, meaning consumers and businesses are once again having to stomach greater costs.

That, in turn, has stoked concerns the Federal Reserve will be in even less of a rush to lower US interest rates – another negative for investors.

The next big test for markets will be countries who decide to retaliate rather than cave in to Trump’s demands.

That has the potential to cause turbulence in equity and bond markets as Trump doesn’t like to be the loser in a fight.

His natural reaction would be to jack up US tariffs further than before, which would only increase geopolitical tensions and bother investors.

WHAT IS THE BOND MARKET SAYING?

A bond tantrum immediately after Liberation Day forced Trump to take his foot off the pedal and allow time for trade negotiations, even though he may not admit it.

US treasury yields saw large swings in April and caused palpitations across financial markets. For a brief moment, there was panic, and investors certainly don’t want that to happen again.

There are two big risks to treasury yields. One

How the

is Trump interfering with the Federal Reserve and finding a way to sack Jerome Powell as chair, someone he dislikes because they don’t agree on interest rate policy.

The other risk is investors wanting a much higher reward for holding treasury bonds if the US debt continues to balloon at a rapid clip.

Trump’s new tax bill will add $3.4 trillion to the national debt over the next decade, according to analysis from the Congressional Budget Office.

Higher bond yields would push up the cost of servicing the debt interest bill, putting even more pressure on the administration.

WHAT’S HAPPENING WITH SHARES?

Two of the three main US stock market indices are higher than at Trump’s inauguration (the S&P 500 and Nasdaq Composite), but only by a small amount and the interim period has been volatile, while the Dow Jones index has made little progress.

In other words, investors hoping Trump’s second term would lead to stock market riches are still waiting for big rewards.

Not everyone is sticking around. Investors took £622 million out of North American equity funds in May, the first outflows in six months, according to the Investment Association.

Some investors believe the US is now a much higher-risk investment prospect under Trump and

US stock indices have performed since Trump

they’ve taken money off the table and reallocated to other parts of the world including Europe.

This is a dramatic shift in thinking given the US has for years been a top place to make money.

Dollar weakness will have also spurred UK investors to look closer to home for opportunities as a weak dollar versus the pound makes US assets less attractive.

For example, since Trump’s inauguration an S&P tracker fund priced in dollars would have generated a 5.7% positive return including dividends but excluding fees, whereas a sterling-denominated version would have lost 4.5%.

There are clear themes among the winners and losers on the US stock market over the past six months. The best performers in the S&P 500 include Palantir Technologies (PLTR:NASDAQ), which is helping the Trump administration to collect data on all Americans, while Super Micro Computer (SMCI:NASDAQ) and Seagate Technology (STX:NASDAQ) have soared thanks to AI-related exposure.

The biggest losers are all down on Trump-related factors. Stocks such as Centene (CNC:NYSE), United Health (UNH:NYSE) and Molina Healthcare (MOH:NYSE) are set to lose out from cuts to healthcare as a result of the One Big Beautiful Bill Act.

Nearly $1 trillion is set to be cut from Medicaid over the next decade, meaning fewer people will have healthcare coverage.

On the other hand, shares in sportswear groups such as Deckers Outdoor (DECK:NYSE) and Lululemon Athletica (LULU:NASDAQ) have crashed as they source products from parts of Asia which will be subject to the new tariff regime.

The 2025 consensus earnings forecast for the S&P 500 has fallen by 2% since Trump began his second term as president. However, forecasts have gone up by 1.2% for 2026’s earnings, which suggests that analysts are becoming more comfortable with the potential new landscape and how companies might deal with tariff-related issues.

WHAT ABOUT CRYPTO AND GOLD?

While US shares have gone into the slow lane, albeit still making new highs, cryptocurrencies have shown greater price action.

Bitcoin is up by 13% since Trump returned to the White House as bullish investors take the view cryptocurrencies will become more relevant in the global financial system.

Trump has talked about making America the crypto capital of the world, and now the market is hoping those words become reality.

US lawmakers recently discussed various acts which could pave the way for a regulatory framework. Further debates will no doubt follow but corporate and investor interest in all things crypto is growing.

More impressive is the price action of gold and other precious metals. Gold is up 26% since Trump’s inauguration for multiple reasons, the obvious one being investors are looking to add protection to their portfolios. Gold has historically been a safe haven during uncertain times.

There are other reasons to explain the metal’s galloping performance this year. Consider the fiscal incontinence of the One Big Beautiful Bill Act, how DOGE only achieved tiny savings, and how the federal debt continues to pile up.

Rising federal debt undermines investor confidence in the long-term value of the US dollar. Note the US dollar index – which measures the value of the dollar against a basket of six foreign currencies – has fallen by 11% since 20 January.

The gold price has also risen due to Trump’s pressure on Powell and the Fed for lower interest rates, and central banks buying gold to diversify their reserves away from the US dollar.

Finally, Trump’s rule by executive order worries a lot of people and gold is their safety blanket.

Source: LSEG

What are the rules on receiving income if I have several different pension schemes?

Most pensions work separately from each other so accessing one shouldn’t affect the others

I’m a member of a defined benefit scheme which has my normal retirement date as my 62nd birthday.

If I start to receive income from this scheme from this date does this crystallise the funds in my company defined contribution and personal pension schemes?

Neil Rachel Vahey, AJ Bell Head of Public Policy,

says:

In this post-automatic enrolment world, it is very easy to build up different pensions of varying types.

As a reminder, a defined benefit (DB) scheme is one which pays out an income based on your salary and how long you have worked.

Most public sector workers have a defined benefit scheme, but they are far less common in the private sector, and of the few which remain, almost none are open to new members.

Instead, private sector workers will likely have a workplace defined contribution (DC) pension, where you and your employer pay in contributions and these are invested to build up a pension pot.

People could also have an individual pension –such as a SIPP or personal pension – which works in the same way.

In other words, you won’t be alone in having several different types of pension.

To some extent, these different pension schemes can operate independently of each other. If you take income from your defined benefit scheme, that shouldn’t affect your other pensions – the investments will continue, and you are not forced

to take an income from those pensions at the same time or stop contributing.

This means you can stagger when you start your income from different pensions. If you take out drawdown from your SIPP (and possibly from your workplace defined contribution pension, depending on whether it offers it) you can control when you take an income and how much you take.

For example, you may want to take some of the income from your SIPP to boost your retirement income until the state pension kicks in and then stop it.

But you need to be careful as your annual allowance usually caps contributions from both you and your employer and tax relief at £60,000. If you access flexible pension income (like drawdown), this drops to £10,000 per year.

You don’t always have to take your income from your defined benefit scheme on the ‘normal pension date’. You may be able to delay it or take it earlier - but it’s always worth checking with the scheme what flexibility it offers and then working out if it’s worthwhile for you.

If you take your defined benefit scheme pension, you can carry on paying contributions into your personal pensions and possibly also your workplace pension (but check when your normal retirement date is and the scheme’s rules).

Any individual contributions you pay into your personal pension will receive tax relief up to age 75. Theoretically, you can contribute beyond that date,

Ask Rachel: Your retirement questions answered

but as you won’t receive tax relief, most pension providers won’t accept contributions beyond age 75.

Tax relief is available on individual contributions up to £3,600 per year (including tax relief) or 100% of earnings, whichever amount is greater.

The total annual allowance limit is £60,000, which covers personal contributions, employer contributions and tax relief.

The definition of earnings excludes pension income, such as income from a defined benefit scheme pension.

If you do want to continue contributing more than £3,600 you will need an income from another source.

Finally, although I said pensions often work independently of each other, it’s important to remember pension limits and allowances are measured at an individual level, so these limits apply across all your pensions.

That will include the limit on tax-efficient contributions I covered above, but it also covers the

tax-free lump sums you can take out of pensions. This limit – the lump sum allowance (LSA) – is usually set at £268,275 and covers all the tax-free lump sums you can take from all your pensions in your lifetime.

Anything over this will be taxed as income, so if you think you might reach this limit you may want to think about the order in which you take your tax-free lump sums and whether your pension schemes can offer any flexibility.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to askrachel@ajbell.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

Money & Markets podcast

featuring AJ Bell Editor-in-Chief and Shares’ contributor

Dan Coatsworth

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WHO WE ARE

EDITOR: Tom Sieber @SharesMagTom

DEPUTY EDITOR: Ian Conway @SharesMagIan

NEWS EDITOR: Steven Frazer @SharesMagSteve

FUNDS AND INVESTMENT

TRUSTS EDITOR: James Crux @SharesMagJames

EDUCATION EDITOR: Martin Gamble @Chilligg

INVESTMENT WRITER: Sabuhi Gard @sharesmagsabuhi

CONTRIBUTORS:

Dan Coatsworth

Danni Hewson

Laith Khalaf

Russ Mould

Laura Suter

Rachel Vahey

Hannah Williford

Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852.

All Shares material is copyright. Reproduction in whole or part is not permitted without written permission from the editor.

Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. Comments published in Shares must not be relied upon by readers when they make their investment decisions. Investors who require advice should consult a properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions.

Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it will be disclosed. Shares adheres to a strict code of conduct for reporters, as set out below.

1. In keeping with the existing practice, reporters who intend to write about any securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor agrees that the

reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, selfselect pension funds, self select ISAs and PEPs and nominee accounts are included in such interests.

2. Reporters will inform the editor on any occasion that they transact shares, derivatives or spread betting positions. This will overcome situations when the interests they are considering might conflict with reports by other writers in the magazine. This notification should be confirmed by e-mail.

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