by Marina Gardiner, Research Editor, Elston Consulting
 
Since the “polycrises” of recent years, we are learning to live with inflation and live with volatility.  Ensuring that a portfolio is sensibly allocated and diversified should help to mitigate the adverse effects of political or economic shocks.
 
A properly diversified approach designed to fare reasonably in all market conditions is known as an ‘All-Weather’ strategy. ​

​The original “all weather” strategy was the “Permanent Portfolio” developed by Harry Browne in 1981 consisting of an equal weight allocation to equities, bonds, cash and gold.
 
The best known “all weather” strategy was pioneered by Ray Dalio of Bridgewater Associates in 1996 and consisted of an equal risk contribution (also known as risk parity) to core asset classes.
 
In the UK, Targeted Absolute Return (TAR) funds are also often described as “all weather” strategies because they are aiming to give positive rolling returns over a given time period.

Elston consults to the managers of the VT Avastra Global Diversified Assets fund and provides asset allocation research ideas, correlation analysis and risk analytics to aid that quest for diversification. The fund provides both asset-based and risk-based diversification to deliver an all-weather style approach.  It provides a one-stop-shop for an alternatives allocation. It is actively managed allocating between alternative assets and alternative strategies outlined above. The underlying holdings are all daily dealing and highly liquid to avoid any valuation mismatches or liquidity traps common to other types of alternative funds.
That liquidity also gives the fund the agility to adapt, when the facts change.  It currently has exposure to property, commodities, absolute return strategies, and money market instruments.

For advisers looking to introduce an all-weather diversifier into a multi-asset portfolios, we propose that they look at the Targeted Absolute Return sector and evaluate based on the following metrics

1. Consistent rolling positive return premium to SONIA hurdle rate over last 3 and 5 years
2. Consistent rolling positive returns relative to sector over last 3 and 5 years
3. Limited downside risk/Value at Risk – at similar or lower level than main Bond exposure
4. Low beta/low correlation to both equities and bonds for true diversification

 
We are learning to live with volatility.  That means frequent changes of the market weather.  In that context, investing part of the non-equity allocation in an all-weather strategy seems prudent.  But strategy selection is key.

In the first quarter, the value of having incorporated portfolio resilience proved valuable.
Similar to the Russia/Ukraine war and energy shock of 2022, the combination of recession risk and energy-driven inflation drove both equities and bonds down.  Bonds failed as a diversifier.
In 1Q26 World Equities were down -3.86%, Gilts were down -1.80%, diversified Alternatives were up +3.34% all in GBP terms (see notes).

Notes
​For 1q26 and 2q26, Equities are represented by a world equity index fund, Bonds by a a gilts index funds, and Alternatives by a Diversified Asset Fund.  Return figures in the charts are in GBP.
Ffor 4q73 figures, equities are represented by S&P 500 Index bonds by US 10 Year Treasury Index and Alternatives by the Bloomberg Commodity Index.  Return figures in the chart are in USD.

Reflections on a keynote address by Sir Richard Moore, Former Chief (‘C’) of the UK Secret Intelligence Service (2020–2025) (MI6) in conversation with Emma Walden at FundsForum Monaco 2026. ​

Investors today operate in a world that is increasingly shaped by geopolitics rather than economics alone. The assumptions that underpinned markets for much of the post-Cold War era - relatively stable international relations, predictable trade flows and established institutional frameworks - are being challenged by conflict, rivalry between major powers and rapid technological change. In this environment, understanding uncertainty has become as important as forecasting growth or inflation.

One useful way to think about geopolitical crises is through the lens of imperfect information. Decision-makers rarely possess complete knowledge, whether in government, intelligence or investment. The challenge is not simply gathering information but making decisions despite uncertainty. Markets often expect clear outcomes and linear narratives, yet geopolitical developments tend to unfold in complex and unpredictable ways. Investors therefore benefit from focusing less on precise predictions and more on understanding possible scenarios, risks and consequences.

The conflict involving Iran illustrates this challenge. While the political and military situation remains fluid, the broader economic implications are easier to identify. Strategic waterways such as the Strait of Hormuz remain critical to the global economy, giving regional actors leverage that extends far beyond their borders. Disruptions to energy supplies can ripple through inflation, transportation networks and industrial production. Similarly, interruptions to fertiliser supply chains can have delayed but significant effects on agricultural production and food security. Such shocks rarely affect all countries equally. Energy producers and nations with strong domestic resources may prove more resilient, while import-dependent economies can experience more immediate pressure on growth and living standards.

The war in Ukraine continues to demonstrate the long-term economic consequences of sustained conflict. Modern warfare increasingly combines traditional military power with technological innovation, particularly in areas such as drones, cyber capabilities and intelligence gathering. Economic endurance has become as important as battlefield success. Prolonged conflicts place growing strain on government finances, labour markets and productivity, raising questions about sustainability over time. For investors, the key lesson is that geopolitical events cannot be viewed as short-term disruptions alone. They often reshape industries, supply chains and national priorities for years.

A defining feature of the current era is the growing sense of global disorder. During previous periods of international tension, competing powers often operated within clearer frameworks and institutions that helped manage risk and reduce uncertainty. Today those structures appear less robust. As a result, governments, businesses and investors face a broader range of potential outcomes and must be more selective about where they focus their attention.

This environment rewards prioritisation. Organisations that attempt to respond equally to every headline risk can become distracted by short-term noise. Instead, successful decision-makers identify the issues most likely to shape the future and allocate resources accordingly. The same principle applies to investment portfolios. Not every development deserves a portfolio adjustment, but the most significant structural trends require sustained attention and analysis.

Technology sits at the centre of many of those trends. It has become a source of economic power, a competitive advantage and a strategic asset. Advances in artificial intelligence, data analytics and computing are transforming industries while simultaneously creating new vulnerabilities. The same technologies that enable better decision-making can also increase transparency, accelerate competition and expose weaknesses more rapidly than before.

Artificial intelligence in particular is increasingly viewed not as a future possibility but as a present reality. Like electricity or the internet before it, AI is becoming part of the infrastructure of modern economic life. Its influence extends beyond productivity gains and corporate earnings to national competitiveness, security and geopolitical influence. This has elevated technology from a sector-specific theme to a broader strategic consideration for investors.

The rise of technology also highlights the shifting relationship between governments and the private sector. Much of today's innovation originates from private companies rather than state-funded research programmes. This creates new forms of interdependence in which governments rely on commercial innovation while businesses operate within increasingly strategic and politically sensitive environments. Understanding this relationship may become a crucial component of long-term investment analysis.

Perhaps the most important lesson for investors, however, concerns decision-making itself. Perfect information is unattainable. Waiting indefinitely for certainty is rarely an option because inaction is itself a decision. The challenge is determining when the available evidence is sufficient to act.

One useful framework distinguishes between decisions that are easily reversible and those that are not. Reversible decisions can be made quickly because mistakes can be corrected. Irreversible decisions require greater caution, more information and deeper analysis because the consequences are harder to unwind. Applying this distinction can help investors allocate time and attention more effectively.

Equally important is organisational culture. In uncertain environments, success depends on the free flow of information, particularly negative information. Leaders who encourage honest discussion and constructive challenge create organisations that are better equipped to identify risks before they become crises. Whether in government, business or investment management, resilience often depends less on predicting every danger than on ensuring that people are willing to report problems when they emerge.
​
The modern investment landscape is unlikely to become simpler. Geopolitical rivalry, technological disruption and economic uncertainty are set to remain defining features of the decade ahead. The most successful investors may not be those who predict every outcome correctly, but those who develop robust processes for navigating uncertainty, prioritising risks and making thoughtful decisions when complete information is unavailable. In a disordered world, adaptability may be the most valuable asset of all.

The discussion explored how the ETF industry has transformed investing over the past two decades by democratising access to markets, asset classes and investment strategies that were once difficult or expensive to access. Today, investors can build globally diversified portfolios more efficiently than ever before.
However, as Andrea highlighted during the session, the challenge has shifted. The problem is no longer access - it's selection.
With more ETF launches than ever before, and in some markets more ETF tickers than listed stocks, investors have unprecedented choice. While that innovation is overwhelmingly positive, it also creates a significantly greater due diligence burden. Building portfolios has become easier; building good portfolios has arguably become harder.
Another key theme was the distinction between access and diversification. Different ETFs can often provide exposure to many of the same underlying companies or factors, meaning portfolios that appear diversified on the surface may still contain significant hidden concentrations. As Andrea noted during the discussion, the ETF wrapper itself is not the risk - the concentration inside the wrapper can be.
The panel also explored how ETF innovation is evolving beyond traditional passive strategies to include active ETFs, options-based products, defined outcome strategies and private market exposure. While these developments continue to broaden the investment toolkit, they also raise an important challenge for investors and advisers alike.
One of Andrea's key observations was that "innovation is moving faster than investor education." As investment products become increasingly sophisticated, understanding how they behave within a portfolio is becoming just as important as accessing them in the first place. The focus for selectors is no longer simply identifying the newest ETF, but determining whether it genuinely improves portfolio outcomes.
The discussion concluded that the next phase of ETF growth is unlikely to be defined by the number of new products launched, but by the quality of implementation. As the ETF universe continues to expand, robust due diligence, thoughtful portfolio construction and a deeper understanding of underlying exposures will remain central to delivering better long-term investment outcomes.

Alongside the lower Cash ISA allowance, the Government is proposing a series of anti-circumvention measures to prevent investors simply having large cash or cash-like holdings in Stocks & Shares ISAs.  Cash-like investments are defined as Money Market Funds.

1. A 22% Charge on Interest Earned on Cash Held in Non-Cash ISAs
Cash can still be held within a non-Cash ISA, but any interest paid on those cash balances will be subject to a 22% charge. The charge will be paid directly by the ISA provider to HMRC, meaning investors will not need to report it on a tax return.
In practice, our expectation is that many platform providers will to stop crediting interest on cash to clients altogether, retaining interest earned for themselves after accounting for the tax payment.
Notably, the proposals do not currently extend this 22% tax charge on interest earned from Money Market Funds (MMFs). Depending on the structure of the fund, MMF distributions may continue to be paid either gross or net of the standard 20% income tax deduction, depending on the structure of the fund.
2. Restrictions on Cash-Like Investments
The Government is also proposing that Stocks & Shares ISA portfolios invested entirely in cash-like assets will become non-qualifying investments.
A cash-like asset is currently defined as a Money Market Fund - a low-risk, highly liquid fund investing primarily in short-dated, investment-grade debt securities with maturities typically of less than one year and is governed by the FCA Money Market Fund Regulations (MMFR).
By contrast, individual equities, collective investment funds, investment trusts, ETFs, corporate bonds and government bonds, including UK gilts, will continue to qualify.
As a result, investors seeking a low-risk income portfolio within a Stocks & Shares ISA may need to include a meaningful allocation to another qualifying investment, such as a short-dated bond fund or equity income fund, rather than relying entirely on MMFs. Alternatively, portfolios of near-term direct gilts could provide a low-volatility qualifying solution.
3. Restrictions on Transfers to Cash ISAs
Under the proposals, transfers from Stocks & Shares ISAs and other non-cash ISAs into Cash ISAs will no longer be permitted.
However, transfers in the opposite direction - from Cash ISAs into Stocks & Shares ISAs - will remain available.
4. Special Treatment for Over-65s
Individuals aged 65 or over will continue to benefit from a £20,000 Cash ISA limit from the tax year that they turn 65.
Additionally, the proposed transfer restrictions will not apply to this group. However, the 22% charge on cash interest within non-Cash ISAs and the prohibition on portfolios invested entirely in cash-like assets will still apply.

The draft rules create several practical considerations for advisers ahead of April 2027.
Money Market Portfolios being held for income-generation with near-nil volatility are likely to require review. Based on the current proposals, advisers may wish to ensure that clients holding 100% MMF portfolios introduce a meaningful allocation - perhaps around 10% - to a qualifying bond or equity income fund prior to 6 April 2027. A token allocation of just 1% may not align with the spirit of the new rules and could attract scrutiny and tightening of anti-circumvention measures.
2% cash allocations within model portfolios are typical for liquidity, fees, and operational purposes, advisers may simply need to accept that these balances effectively become non-interest-bearing. This would be similar to the environment experienced during the ultra-low interest rate period between 2008 and 2021, when cash yields were negligible. Advisers and MPS providers still left a 2% allocation in place.  Moving to a fully invested approach may earn additional yield on that 2% holding, but this should be weighed against the importance for the smooth operation and administration of a model portfolio service.

Reviewing cash management arrangements: More broadly, advisers should begin reviewing client cash holdings,ISA and investment solutions well in advance of the implementation date to ensure their clients are not caught out.
The Government has indicated that a technical consultation on the draft legislation will commence shortly. Following consultation, regulations are expected to be laid before Parliament in the autumn, with the new regime taking effect from 6 April 2027.
For investors and advisers alike, the direction of travel is clear: future ISA policy is increasingly focused on encouraging participation in long-term investment markets, while reducing the tax advantages associated with holding large amounts of cash inside tax-exempt investment wrappers.

​With the Strait of Hormuz reopening and the war premium unwinding, markets have swung back to risk-on. Henry Cobbe and Hoshang Daroga discuss what the AI capex cycle, a fragile gilt market and a repriced gold trade mean for portfolios into the second half of 2026.

Our latest markets discussion covers the shift back to a risk-on footing as geopolitical tension eases. Hoshang Daroga sets out why the AI trade still looks early rather than late, why real earnings separate it from the dot-com bubble, and why dispersion across winners and losers creates a role for active positioning. We also cover a sticky inflation backdrop with 2% as a floor not a ceiling, a UK gilt market now carrying emerging-market style risk, and a gold price driven less by geopolitics and more by real yields. This is market commentary for professional advisers and discretionary managers. It is not a recommendation and does not constitute personal advice.

Andrea Acimovic, portfolio strategist at Elston, was a panellist at FundForum 2026 - the world’s largest investment fund conference. In her panel discussion she explored the key drivers and obstacles to ETF adoption in the UK retail market.

Read more here.

Elston Consulting is an investment consulting firm established in 2012 supporting UK Financial Advisers.

Elston Consulting provides research, analytics and insights to investment managers and financial advisers. Our powerful risk analytics system - Minerva™ - helps quantify different aspects of risk and informs how investment strategies are managed and reported.

Elston Consulting consults on approximately £6bn of assets with professional clients including
1) discretionary investment managers providing a Managed Portfolio Service (MPS
2) financial advisers providing their own Advisory Portfolio Service (APS)
3) asset managers managing Collective Investment Schemes (Funds)

Elston has a comprehensive set of capabilities to research, design and develop custom multi-asset investment solutions, delivered as Portfolios, Funds and Indices.

If you are a confident seasoned direct investor, decide on whether and to what extent you wish to participate in the IPO or in the secondary market, and size your position according to your capacity for loss.

We explore this further in a separate article: What does Space X IPO mean for fund and MPS providers?
 
Sources:
https://www.bloomberg.com/news/articles/2026-06-04/s-p-dow-jones-keeps-megacap-ipo-rules-as-is-after-consultation
https://www.investorschronicle.co.uk/content/109a8673-a86c-428e-b260-9b4f996b6983

Other risks for retail investors are behavioural.  Investors can be their own worst enemy by giving into behavioural biases which lead them to chase winners too late, sell losers too early, and attempt to time the market.  These actions can prove value destructive as evidenced by repeated Dalbar studies refreshed annually.  According to the latest report, cited in Forbes magazine, the average US retail investor portfolio has delivered +9.8%pa, lagging the S&P500 index +13.0%pa return over the past 10 years.

SpaceX and subsequent "mega-cap" IPOs are drawing attention to the equity market.  We do not consider them appropriate for a first-time direct equity investor.  Investment managers and financial advisers typically look to diversify away company-specific risk, not concentrate on it.

We explore this further in a separate article: Should I buy SpaceX IPO?

Just as major supermarkets achieve better consumer value by manufacturing their own white-label goods, discretionary managers can utilize proprietary fund structures to lower institutional costs and improve execution agility. However, smaller arrangements lacking scale risk running afoul of regulatory standards on product governance and distributor-influenced rules. 

by Henry Cobbe, Head of Research, Elston Consulting

Just as large supermarkets can get better value for money by manufacturing their own breakfast biscuits (often with a contract with the same wholesale factory), so too can MPS providers do the same with inhouse funds.

​​A focus on the use of inhouse funds is something we called for in our analysis What to expect from the FCA's MPS review  in July 2025.

Done properly and professionally, there are can be a strong rationale for using own/related funds within an MPS, and many of the larger MPS providers do so with good reason.

Advantages can include: 1) agility - being able to implement asset allocation changes swiftly within a fund, that would take longer across multiple platforms; 2) access - the ability to access instruments that cannot readily be traded on platforms such as Gold ETCs, Commodities ETCs; and 3) economies of scale - access to institutional share classes of both active and index funds that are even lower cost to what is available via platforms.

Where there is potential risk is smaller managers or advisers setting up their own funds for inclusion in a MPS, which may not have sufficient AUM to achieve economies of scale.  Where advisers are involved in the design or governance of the fund, they should refer back to FCA FG12/04 on Distributor Influenced Funds.  The guidance is slightly dated, and requires a refresh, which is why this question needed to be included.

Funds are governed by the Consumer Duty as well as Product Governance obligations that require Assessment of Value reports.  The ultimate litmus if the overall cost/benefit assessment to the end investor.

Under any scenario, having a clear documented conflicts of interest policy should be standard for MPS providers and Fund Managers alike, and for those providers this question should come as no surprise.

See Henry quoted by Citywire's article on this topic