Whilst we enjoy a summer of sport, with triumphs for the English Lionesses and the British Lions, the markets retain an air of cautious optimism. Investors are navigating a complex environment shaped by geopolitical tensions, shifting monetary policies, and evolving economic dynamics.
Markets have settled somewhat since the sharp volatility triggered by the US President’s “Liberation Day” announcement in April. Trade negotiations have since progressed, with many countries securing agreements which, although below initial proposals, still represent notable increases on pre-Trump levels.
Inflation continues to retreat in both the UK and the US, prompting expectations of interest rate cuts from the Bank of England and the Federal Reserve. Such moves would offer welcome relief to markets, consumers, and governments alike, as we move from the post-COVID era of elevated inflation and interest rates, into a more stable and measured monetary environment.
Equity Markets: A Mixed Mid-Year Picture
After two consecutive years of 20%+ gains — a feat not seen since the late 1990s — the S&P 500 has paused for breath, posting a modest pullback year to date. Notably, nearly 75% of this recent performance was driven by the “Magnificent 7,” a group of tech-focused giants whose dominance reflects both their scale and the accelerating integration of AI across industries like commerce, healthcare, and education. Whether current valuations are justified remains a subject of debate, but their influence on broader markets is undeniable.
Closer to home, the FTSE 100 is up more than 14% this year, breaking through the 9,000 mark in July. For the first time in many years, it has outperformed the S&P 500, posting a 2% gain at the time of writing. We believe this divergence is driven more by investor appetite for stability and a weakening dollar than by any fundamental shift in the strength of the UK economy.
The new Labour Government’s focus on “fixing the foundations” has brought a more decisive policy tone. As the term unfolds, the key question is whether its emphasis on fiscal restraint and stability can translate into long-term, sustainable growth. While the UK’s domestic outlook remains modest, global-facing FTSE firms continue to offer valuable diversification for UK investors.
Navigating a Year of Transition
With many variables still in play, 2025 looks to be a transitional year rather than one of boom or bust. For UK investors, it is important not to let domestic noise drown out the broader global picture. Diversification — across geographies, sectors, and investment styles — remains your most powerful tool.
Staying informed and adaptable will be key to navigating this evolving market landscape. Our Flagship Investment Portfolios are designed with this in mind: vigilant, balanced, and built to manage risk while seeking out opportunity. The goal is always to protect on the downside while remaining positioned to capture upside potential.
A Long-Term Perspective
Long-term investing continues to reward patience. Historical data from the MSCI World Index (1999–2024) shows average annual returns of just over 7% — but achieving those returns requires staying invested through inevitable market swings. Volatility is part of the journey, and riding out cycles is key to compounding success.
At Aquila, our Investment Committee meets regularly to assess global developments and make thoughtful adjustments when appropriate. As non-discretionary managers, we prioritise agile, risk-aware fund selection.
We favour a blend of best-in-class, actively managed funds alongside passive structures that provide low-cost market exposure. This approach allows us to identify undervalued opportunities, avoid overpriced assets, and pursue consistent long-term outcomes for our clients.
We are pleased to report that the Aquila Flagship Portfolios have continued to deliver above-average returns. Please refer to your latest valuation pack for detailed insights into your individual portfolio.
If you have any questions or would like to discuss your investment strategy, we’re here to help.
