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The Investment Committee met on Monday 29 September. A summary of the topics covered is below.
As a result there are no changes to the TCFP model portfolio.
Economic Outlook
Markets remain finely balanced. Short-term interest rates are coming down, providing a tailwind for equities, particularly smaller companies. However, longer-term rates remain high due to sticky inflation and widening fiscal deficits, creating a headwind. The US Federal Reserve appears willing to accept inflation above the 2% target (in the 2–3% range) in order to prioritise employment and growth.
Valuations are described as “toppy” with equity markets at all-time highs. While not inherently a warning sign, it reflects strong recent performance and leaves less margin for error. After all, as economies grow you should expect plenty of stock market all time highs.
Inflation & Policy
UK inflation sits around 4%, notably higher than the US and Europe (~3%). Governments are leaning on growth, rather than austerity, to address debt burdens. The US, in particular, is focused on tax cuts and incentives to stimulate business investment, which should help extend the cycle.
Trade & Geopolitics
Tariff negotiations continue with very many countries on very many fronts. Some are easier to conclude than others, but even the easiest take time and rumble on.
Negotiations with China remain the most complex and market-sensitive, particularly around technology and electric vehicles. Other deals (with South Korea, Taiwan, Switzerland, etc.) are progressing more smoothly. The US is pressing surplus countries to reinvest reserves directly into its economy, a shift that could subtly influence bond markets.
Risks
The principal concern is limited policy headroom in the event of a downturn: central banks’ balance sheets are stretched and government deficits are already high. While a recession would not be unprecedented, the recovery may be slower and less supported than in 2020. Models put US recession risk at ~28% within 18 months (vs. a 15% baseline).
Portfolio Positioning
Portfolios remain diversified and resilient. Bond exposure is tilted away from the long end of the curve and focused on regions with more stable conditions, particularly the US. Equity allocations are spread across large caps, small caps and emerging markets, avoiding concentration in the most overvalued areas.
The upcoming transition from our four fund model portfolio to a broader structure of 15–20 “fund of funds” will maintain the current overall risk/return profile while offering greater flexibility. Over time this will allow the committee to mitigate more risks and capture targeted opportunities (e.g. high-yield bonds at 7–8%).
Recap
In summary, the portfolio is well positioned for the current environment. No significant changes are planned until the new fund structure goes live, at which point diversification and flexibility will improve further.
The next Investment Committee Meeting will be the first to discuss the new TCFP funds. It will take place on Friday 17 October, and every third Friday in the month thereafter.