Pensions investment update – July 2025

Kully: Hi, Hiroki. Nice to see you. Could we start with a summary of what investors might've experienced over the past six months?

Hiroki: Thanks, Kully. If you have to choose one word to describe what's happening in the market this year, it's really erratic. You had unpredictable announcements from President Trump's policy around tariffs and geopolitics really dominating the market. That's quite unusual because it usually should be dominated by the macroeconomic data or company fundamentals, and that's very challenging markets because it really highlights that the markets are efficient, perhaps in pricing new information, but they are very much emotional. So as an investor, but also as somebody else who's monitoring investment, you need to ensure that you don't get sucked in by the emotions. That's where the investment processes backed by decades of research comes and supports you.

Kully: Thanks, Hiroki. You and the team have often talked about the power of diversification, one of the key areas of the different asset classes that you all invest in. Are there any particular asset classes that stood out over the past few months that you might want to focus on?

Hiroki: So first of all, diversification is about balancing the risk and reward trade-off, but also improving the resilience in your portfolios. Over the last couple of years, global equities have done well thanks to handful of US, large technology companies, which have been able to capitalise on the AI demand. One thing as a UK investor we need to be aware of is more than 60%, around 70% or so of the assets are in US dollar denominated assets. And what that meant was actually this year, despite the headlines you're seeing in the markets where, yes, the S&P is back to all-time highs, for UK investors, they are lagging the UK and European equities in sterling terms by more than 10%. That's because dollar’s been very weak and caused by the decision-making by President Trump and also the attack on the Fed and fiscal sustainability concerns. And therefore having more diversified approach than just relying just on US equities it will be a good starting point when it comes to the portfolio to improve diversification. You have other tools like commodities and commercial property also to improve resilience too.

Kully: Great, thank you. So your least favourite question, as a money manager, what can we expect over the last few months of the year?

Hiroki: Right, okay. So, we are still expecting the global economy to slow from last year but to avoid recession. But we don't know what the end tariffs will look like. We still don't know what the impact on business it will have because of uncertainty. And as a result, it's very wide-ranging outcomes still possible from no recession to severe recession. So again, back to the earlier point, you need to ensure that you've got broad range of asset classes that will do well in different market conditions, but also evolve your portfolio based on current market conditions as they become more visible over time.

Kully: Great. Thank you very much for your insight, Hiroki. Nice to see you.

Hiroki: Thanks Kully.