Investment Update – October 2025

What happened in markets?

October was another strong month for global stock markets, which rose to new all-time highs in some cases, with technology stocks and the “Magnificent 7” (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla) yet again leading the US stock market higher. We’ve recently written about these companies in an article titled “Have AI stocks entered bubble territory?” so we won’t elaborate too much further, other than to say that the share price gains we have seen this year reflect continued strong earnings growth for these businesses.

At a regional level, emerging market and Japanese equities were the strongest performers, delivering returns of 6.7% and 5.9% respectively, with UK and European stocks lagging. The appointment of a new Prime Minister in Japan galvanised investors, who believe she is likely to encourage a package of expansionary fiscal and monetary policies, and accelerate corporate governance reforms. The Japanese yen weakened, which is usually beneficial for shares in Japanese companies, many of which derive a substantial proportion of their earnings

from overseas; a weaker yen effectively makes Japanese products and services cheaper for these companies’ international customers.
It was a good month for gilts (UK government bonds), but a negative one for sterling, as weaker-than-expected inflation and a continued softening in labour market data provides some headroom for the Bank of England to resume monetary easing through measures such as cutting interest rates. Ahead of the UK Budget, there was also a growing sense that the Chancellor’s attempt to raise enough additional tax revenue to satisfy the bond market will be to the detriment of the future growth outlook.

However, it wasn’t all plain sailing during the month. President Trump and his Chinese counterpart, Xi Jinping, met for the first time in six years in an effort to de-escalate trade tensions which resurfaced earlier in the month when China threatened to impose export controls on rare earths, which are critical for global supply chains.
Corporate bond markets were also rattled by the sudden collapse of First Brands, a US car parts supplier, which followed the bankruptcy of another US company, Tricolor, in September. This has sparked concern that the rapid growth of private credit, defined as lending outside of traditional banks and bond markets, is a growing risk for the global economy, prompting recent warnings from the Bank of England and the International Monetary Fund.

What did we do in the funds?

With gold continuing its frenetic rally and rising by nearly 5% again in October, we reduced the exposure to the yellow metal in VT Esprit Careful Growth on two separate occasions, with the proceeds of the sales of gold recycled into global bonds. Whilst most asset bubble concerns are focussed on AI stocks, we’re more concerned that gold is exhibiting bubble characteristics after its latest leg up, at least in the short term.

We continue to believe that bonds have an important role in portfolios, given attractive starting yields and low defaults, with empirical evidence supporting our view that high starting yields and interest rates are reliable predictors of stronger long-term real returns (i.e. returns after the effects of inflation are taken into account). Bond yields move inversely to bond prices, and so falling yields generally imply rising prices.

The overall exposure to stock markets was modestly increased in VT Esprit Tactical Balanced and VT Esprit Tactical Growth through purchases of US and emerging market equities. Within VT Esprit Tactical Alpha Plus, the equity weighting was raised via an increase to UK equities.

What is the Outlook?

Following the US Federal Reserve’s October interest rate cut, commentary from Fed members has been on the ‘hawkish’ side, leaving the prospect of a further interest rate cut in December in the balance. The US central bank’s ability accurately to gauge the health of the economy is further complicated by the ongoing US government shutdown, which is delaying the release of timely economic data such as the widely followed monthly non-farm payroll reports.

We have stronger conviction that the Bank of England will reduce interest rates in December, having digested the Budget and assessed the potential implications of it for the UK economy. Nonetheless, recent economic data have strengthened the case for a resumption of rate cuts, and inflation is forecast to move closer to target next year.

The Budget will be delivered on 26^th November with the anticipated OBR productivity downgrade providing some political cover to break the Government’s manifesto pledges.  With the Chancellor setting the scene for meaningful tax increases, the event has the potential to unlock some value in UK-related assets such as gilts and smaller UK listed companies. UK bond yields still appear too high relative to peers and the growth outlook, whilst UK equities could benefit from renewed interest from domestic and overseas investors.

Given the strong year-to-date returns from global stock markets, it’s only natural to expect some steam to come out of the recent rally, or even an equity market correction. Whilst companies are delivering strong earnings growth, we acknowledge that share prices in some pockets of the market may have run-ahead of themselves, although we expect any setback to be short-lived in an environment of positive global economic growth, falling inflation and lower interest rates.

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Important information:

This document is issued by Shackleton, which is a trading style of Shackleton Advisers Limited. Shackleton makes no warranties or representations regarding the accuracy or completeness of the information contained herein.  We have prepared the following document based on our view of the current market. Nothing in this document shall be deemed to constitute financial or investment advice in any way. We recommend you speak to your adviser before making any decisions.  This document shall not constitute an invitation or inducement to any person to engage in investment activity. Past performance is not a guide to future returns and the value of capital invested and any income generated from may fluctuate in value. 

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