Higher inflation means lower real returns on bonds. UK gilt yields look attractive on paper, but once you strip out inflation expectations, investors are getting less than 1% in real terms. For some, that's reason enough to look beyond the traditional 60/40 portfolio.
By Henry Cobbe CFA, Head of Research at Elston Consulting.
Elston Consulting provides asset allocation insights and fund research to UK-based investment managers and financial advisers as support to their investment committees. For UK investment managers and financial advisers only In this article we explore the Iran conflict’s impact on the economy and the stock market. In a related article we explore why Trump started the war with Iran. 
by Henry Cobbe CFA, Head of Research, Elston Consulting
by Henry Cobbe CFA, Head of Research, Elston Consulting
When we read the financial news, much of the commentary is around what is impacting different sectors. A commodities rally is good for Materials sector. Higher interest rates are bad for the Real Estate sector. Consumer Staples fare better during recessions. Rising oil prices is positive for the Energy sector. And of course valuations being stretched in the Technology sector. And so on. Yet when it comes to asset allocation, financial advisers and discretionary investment managers are anchored into countries/regions and try to get a look-through sector perspective as an afterthought. This is paradoxical. 
How to ensure portfolio resilience
We explored this topic in our recent CPD webinar - within and across each asset class. But given recent geopolitical events, it makes sense to look under the bonnet of the VT Avastra Global Diversified Assets fund (which we consult to), to consider what alternative asset class exposures can act as the best shock-absorbers to 1) structural change from AI, 2) rising geopolitical tensions in the Gulf and 3) the debasement trade. For these, we turn to what we have named the "COGs" for a portfolio - Copper, Oil and Gold. 
Ensuring portfolio resilience begins with recognising the shifting macroeconomic backdrop and understanding how different asset classes respond under stress. Dispersion has become a defining feature—across regions, sectors, and asset types—so a one‑size‑fits‑all approach no longer suffices. Instead, resilience requires a dynamic assessment of risk, correlation, and forward‑looking inflation and productivity expectations. The core idea is to construct portfolios that are not only diversified in name but diversified in behaviour, particularly in periods of market strain when correlations can spike unexpectedly. This means focusing on selective equity exposure, balancing duration and real yields in fixed income, and embedding genuinely diversifying assets and strategies that behave differently in different market regimes.
Are equity markets in an AI bubble? Is AI a bubble? These questions crop up everywhere – from client meetings to magazine covers – and reflect a broad sense of unease. When people ask about “bubble trouble,” what they really want to know is whether markets have become dangerously detached from reality. Here’s how we at Elston think about it: what the data shows, what history suggests, and – crucially – what we’re actually doing in portfolios.
What is co-manufacturing, what are custom or tailored model portfolio and what are the risks and benefits?
by Hoshang Daroga CFA, Investment Director, Elston Consulting
Is the AI boom starting to look like a bubble? 
A multi asset fund is a single fund which includes within it a ready-made portfolio of funds from two or more of the 4 key asset classes: Equities, Bonds, Alternatives and Cash.
One way to imagine them is a Burrito with a little bit of everything: meat, veg and sauce (a diversified meal), wrapped up in a tortilla (a single fund wrapper) for convenience and ease of transportation!
Equities have recovered strongly from the tariff shock earlier in the year. Dollar weakness vs Sterling has weighed on the relative performance of US equities; however, this was a step-change and there are concerns for Sterling too. Gold has continued to perform very strongly on the “debasement trade” and Central Bank buying. Within Bonds, Emerging Markets are in better shape than Developed Markets, in our view.
 Elston Consulting has launched the Elston World Equity Factor Equal Weight Index (ticker ELSFEW).
The index represents an equal weight allocation to six London-listed world equity factor-enhanced ETFs from BlackRock’s iShares:including world equity exposures for six different factors: Value, Quality, Size, Momentum, Minimum Volatility and Yield. The index is available for research purposes and also for potential fund manufacturing by asset managers looking to enter the systematic investing space as a half-way house between traditional active and traditional (market-cap) passive. An active factor allocation strategy is one of the fund innovations featured on Elston’s Research & Development Wish List, the firm writes. The fund format is more readily accessible than ETFs to the approximately GBP900 billion AUM platform-based UK IFA market – a fact lost on many US-based ETF issuers who have been waiting over a decade for ETF connectivity on UK platforms to be resolved to unlock that market. Elston was an early pioneer of “fund of ETFs” to resolve this, with its first fund-of-ETFs launched in 2020. The new factor index is a sibling index to the Elston World Equity Sector Equal Weight Index launched in 2022 (ticker ELSWES) which was built with London-listed sector ETFs from SPDR. This sector equal weight index is used as a benchmark for an active sector allocation fund launched by Foster Denovo in 2023 and managed by State Street Global Advisers. Henry Cobbe, Founder & Head of Research at Elston Consulting, says: “Many UK advisers are aware of the Fama-French three factor model, and see that as a so-called “evidence-based approach”. The reality is that there are more discernible factors beyond the Fama-French model alone. So, if advisers are looking at the evidence, they need to consider all the evidence. Whilst some factors like Value may show strong performance over the very long run, the performance gap between best (Momentum) and worst (Value) factors over the last five and 10 year performance has been huge. Active factor selection, and “tilting” to prevailing market regimes is key. A buy and hold approach is really unhelpful if you’ve “set and forget” the wrong factor for a decade or so.” Hoshang Daroga, Investment Director at Elston Consulting, says: “The concentration issues for traditional world equity indices are well documented. We see active factor and sector selection as having a key role to play in tilting portfolios to different styles and exposures in different market regimes, and for style diversification purposes. The challenge is how to evaluate those factor and sector selections given market-cap weighted indices have high concentrations and a resulting inherent bias. We built the World Equity Factor and Sector Equal Weight indices to help asset allocators evaluate to what extent their active factor or sector selections have added value against a simple equal weight approach.” Scott Adams, Head of Adviser Relations at Elston Consulting, says: “Elston was one of the early pioneers of index-of-ETFs in 2014 and fund-of-ETFs in 2020. A rules-based systematic index-of-ETFs helps asset allocators readily evaluate strategies in real time via their preferred data vendor or analytics provider.” Read the article in ETF Stream 
The US equity market has pushed on higher this year fuelled by the AI boom, and investors are beginning to question whether the environment resembles the latter half of the 1990s with its dotcom boom (and subsequent April 2000 bust). While valuations in certain areas look stretched, the broader market picture is more mixed.
As asset allocators we are aware of the surplus of funds in some areas, and glaring gaps in others. That’s why we maintain a wishlist which we share in our catch ups with fund houses. We are now making this public to drive industry engagement.
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