Quarterly Market Report Q2 2025
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Outlook
As we move into the second half of the year, we continue to monitor how inflation, monetary policy and growth interact. While inflation is moderating across most developed markets, central banks are showing little urgency to accelerate rate cuts. Hard data has remained resilient thus far, but we expect the full impact of tariffs to become clearer over the next six months. The Federal Reserve remains firmly on hold for now, but we expect a more dovish stance from the ECB and possibly the Bank of England in the coming months, assuming inflation pressures remain contained.
We see room for earnings growth to remain resilient, particularly if global economic data continues to hold up. However, valuations, especially in US large-cap equities, are elevated, and we would view a broadening in market leadership as a positive development for long-term sustainability.
Geopolitical risk remains an ever-present source of uncertainty. While markets absorbed the initial shocks in Q2, tensions in the Middle East, domestic political risk in Europe, and upcoming state and congressional elections in the US all have the potential to drive renewed volatility. That said, recent fund flow data suggests appetite for risk assets is returning, particularly in areas outside the US.
In fixed income, falling yields have supported returns year-to-date, but the path forward is likely to be more nuanced. Real yields and fiscal dynamics, particularly in the US, will play a growing role in bond market pricing, and we expect opportunities to emerge selectively.
More broadly, we continue to view the investment environment as one that is gradually shifting away from a liquidity-led regime to one driven by fundamentals. In our view, this favours a more selective and active approach to portfolio construction, with a greater emphasis on quality, resilience, and valuation discipline.
Positional Changes
During the quarter, we took profits on Australian equities following a period of strong performance and increased our allocation to broader commodities. This shift not only positions the portfolios to benefit from any renewed geopolitical uncertainty but also helps maintain exposure to the commodity theme, given Australia’s partial role as a proxy for the sector.
In the CC portfolios we reduced our exposure to gold, as momentum appeared to be fading, and reallocated the proceeds into a money market fund offering a positive real return, providing a more defensive and liquid position within the portfolios.
Attribution
Jupiter Merian Global Equity Absolute Return rose 3.15% and was the highest contributor to the Cautious Portfolio. The fund benefitted over the quarter from increasing their weight towards the value component back in March.
Redwheel Next Generation Emerging Markets was the top contributor to the Balanced portfolio in Q2 2025, returning 6.49%. A key driver of performance was the weakening US dollar, which provided a tailwind for emerging market assets. The strategy also benefited from improved risk sentiment and strong stock selection in regions such as Latin America and frontier Asia, where falling inflation and renewed investor interest supported returns.
Artemis SmartGARP returned 8.81% over the quarter in the Opportunistic portfolio, making it the largest contributor. Unlike previous periods where US equity gains were concentrated in a handful of mega-cap growth stocks, performance this quarter was driven by broader market participation, which played to the strategy’s strengths.
The largest detractor from performance across our active range was AQR Managed Futures which fell 2.16% over the Quarter. Losses were mainly driven by trends in fixed income and currencies as US employment data positively surprised.
iShares MSCI EM Asia returned 5.98% and was the top contributor to the CC Cautious Portfolio, benefiting from the same tailwinds as Redwheel—including a weaker US dollar, improved sentiment toward emerging markets, and strength in select Asian economies.
SPDR MSCI World rose 5.03% over Q2 and was the top contributor to both CC Balanced and CC Opportunistic portfolios, reflecting strong performance from global risk assets. The largest detractor from performance across our CC range was Vanguard USD Treasury Bond which declined 5.02%. Again, this was driven by trends in fixed income and currencies as US employment data positively surprised.
Quarter in Summary
Markets endured a volatile second quarter, initially rattled by a sweeping tariff announcement from the US administration on 2 April, dubbed “Liberation Day.” While recession concerns briefly spiked, the suspension of most tariffs and the reopening of trade negotiations helped restore investor confidence. Equities ultimately delivered strong gains, led by technology and AI-linked sectors. In fixed income, investor attention shifted from interest rate cuts to growing concerns over fiscal sustainability, particularly in the US.
World stock markets returns
US
US equities rebounded after a sharp early-April selloff with the S&P 500 returning 10.9% and the NASDAQ 100 returning 17.86%. Technology and communication services led the gains, supported by renewed enthusiasm for artificial intelligence and strong performance from mega-cap growth stocks including the “Magnificent 7.” Corporate earnings for the first quarter were generally positive, while healthcare and energy sectors underperformed.
Despite the initial disruption from trade announcements, a 90-day suspension allowed markets to stabilise. The administration’s tax-and-spending package, which extended 2017 tax cuts, raised defence budgets and reduced spending on healthcare, was passed by the House of Representatives. This added to fiscal expansion but also raised questions over long-term debt sustainability. Moody’s downgraded the US sovereign rating, citing rising deficits and structural imbalances.
Bond markets reflected these concerns. Short-term Treasury yields were steady, while long-term yields rose, leading to a steeper yield curve. The US dollar weakened significantly over the quarter, reaching its lowest level in three years on the DXY index.
UK
UK equities posted modest gains, with the FTSE All-Share rising over the quarter by 4.4%. Mid-cap stocks outperformed large caps as the FTSE 250 benefited from lower exposure to the underperforming energy and healthcare sectors. Sectors including industrials, real estate, telecommunications and utilities contributed positively to performance.
The Bank of England cut interest rates by 25 basis points in May, bringing the base rate to 4.25%. Inflation remained above target but showed signs of easing, with a reading of 3.4% in May.
Europe ex-UK
European equities delivered positive returns as shown by the MSCI Europe ex-UK delivering 3.6%, supported by falling inflation and improving investor sentiment. Industrial and real estate sectors led gains, with defence-related names continuing to benefit from rising military spending commitments across the region.
The European Central Bank cut rates twice during the quarter, bringing its main policy rate to 2%. President Lagarde signalled that the rate cutting cycle was nearly complete. Eurozone inflation continued to moderate, with the annual rate falling to 1.9% in May.
European bond markets saw strong demand as yields declined and credit spreads tightened. Italian government bonds outperformed, while investment grade credit also delivered solid returns amid improving market sentiment.
Emerging Markets
The MSCI EM Index yielded 12.2% over Q2. Emerging markets outperformed developed peers, supported by a weaker US dollar and progress in trade discussions between the US and China. The temporary suspension of tariffs provided relief, and improved sentiment lifted equity markets through May and June.
South Korea’s KOSPI delivered particularly strong gains of 23.80% following the election of a new president, with additional support from stabilising politics and strong demand for technology exports. Taiwan also performed well, benefitting from continued enthusiasm for the artificial intelligence theme. Brazil’s central bank raised interest rates twice, which helped support the real and attract capital inflows.
MSCI India posted a return of 9.59% underperforming wider emerging markets, held back by growth concerns and high valuations. China posted a modest gain (5.82% according to Hang Seng Index and 2.38% according to CSI 300) as improving trade relations offset weak domestic data. Saudi Arabia declined over the quarter, with geopolitical tensions weighing on sentiment.
Japan
Japanese equities delivered strong performance, whereby the TOPIX delivered 7.5% and the Nikkei 225 delivered 13.83%. Growth stocks led the advance as concerns over trade eased. Sentiment was further supported by positive shareholder activity, with companies increasing dividends and share buybacks in response to ongoing corporate governance reforms.
Japanese government bond yields rose during the quarter, with the 30-year yield reaching a record high. This reflected global concerns about rising fiscal deficits rather than any material change in the Bank of Japan’s monetary stance, which remained unchanged.
Australia
The ASX 200 rose 9.50% in Q2, supported by global risk-on sentiment and a favourable interest rate environment. Inflation showed signs of easing, and the domestic economy remained relatively stable. Bond markets performed well, helped by softening yields and expectations that the central bank would maintain a patient stance on further rate changes.
Fixed income government bond returns
Fixed income sector returns
Fixed Income
Global bond markets were volatile during the quarter but recovered strongly after April’s tariff shock. The Bloomberg Global Aggregate Bond Index returned 4.4% over Q2. Investment grade credit performed well across regions, with spreads tightening as investor confidence improved. In the US, investment grade corporate spreads recovered to levels below those seen before the tariff announcement. European and UK credit markets followed a similar pattern.
Concerns over long-term debt trajectories, particularly in the US, became a dominant theme. The US tax and spending legislation passed in June raised questions about fiscal sustainability, prompting a credit rating downgrade and putting upward pressure on long-end bond yields. The result was a steepening of yield curves across major markets.
High yield credit delivered strong returns, outperforming investment grade in both the US and Europe (Europe high yield returned 2.1% and US high yield returned 3.6% over the quarter).
Credit markets were supported by strong demand, high all-in yields, and relatively limited net issuance.
The US dollar weakened significantly, whereby the US Dollar Index (DXY) fell from around 107 to 97 over the quarter, which helped boost returns on international bonds for dollar-based investors, but led to relative weakness for sterling-based investors.
Asset class and style returns
Commodities
Commodities posted mixed performance over the quarter. The Bloomberg Commodity Index declined 3.1% in Q2 2025. Oil prices were volatile, briefly spiking on heightened tensions in the Middle East before retreating on news of additional production increases from OPEC+. Brent crude finished the quarter at 68 dollars per barrel.
Precious metals advanced, supported by safe-haven demand and a softer US dollar. Industrial metals and livestock posted moderate gains, while cocoa prices surged within the agriculture space.
Q2 LT Performance
All London Tyne portfolios continue to make positive, absolute gains in Q2 2025.
London Tyne Cautious returned 1.37%, underperforming its benchmark over the quarter which returned 2.20%.
London Tyne Balanced returned 1.67%, underperforming its benchmark over the quarter which returned 3.12%.
London Tyne Opportunistic returned 2.07%, underperforming its benchmark over the quarter which returned 3.85%.
Q2 LT Performance (CC)
All London Tyne portfolios continue to make positive, absolute gains in Q2 2025.
London Tyne CC Cautious returned 0.57%, underperforming its benchmark over the quarter which returned 2.20%.
London Tyne CC Balanced returned 1.03%, underperforming its benchmark over the quarter which returned 3.12%.
London Tyne CC Opportunistic returned 1.47%, underperforming its benchmark over the quarter which returned 3.85%.
LT Performance YTD
All London Tyne portfolios continue to perform well against their respective benchmarks since YTD.
London Tyne Cautious returned 4.18%, outperforming its benchmark over the quarter which returned 2.65%.
London Tyne Balanced returned 4.79%, outperforming its benchmark over the quarter which returned 3.32%.
London Tyne Opportunistic returned 5.20%, outperforming its benchmark over the quarter which returned 2.59%.
LT Performance Since Launch
All London Tyne portfolios continue to perform well against their respective benchmarks since launch.
London Tyne Cautious returned 17.13%, outperforming its benchmark over the quarter which returned 12.76%.
London Tyne Balanced returned 19.91%, outperforming its benchmark over the quarter which returned 15.34%.
London Tyne Opportunistic returned 22.73%, outperforming its benchmark over the quarter which returned 17.57%.
LT Performance Since Launch (CC)
Launch: 13/03/2025
London Tyne CC Cautious returned 1.30%, underperforming its benchmark over the quarter which returned 2.60%.
London Tyne CC Balanced returned 1.83%, underperforming its benchmark over the quarter which returned 3.44%.
London Tyne CC Opportunistic returned 2.16%, underperforming its benchmark over the quarter which returned 4.01%.
Returns Disclosure
Figures refer to model past performance and that past performance is not a reliable indicator of future performance. Returns are net of holdings’ management fees and expenses based on the cheapest share class available; however, they do not include the fees charged by the manager (estimated to be 0.35% per annum), the adviser or the Platform. Returns are calculated assuming a single trading date in relation to any changes to underlying holdings which will not necessarily be the date that actual platform transactions occurred. Therefore, platform performance may vary from actual performance. For periods longer than one-year, cumulative performance has not been annualised. Movement in exchange rates may affect the value of some underlying investments.
Disclaimer: This document is intended to be communicated solely to persons that fall within the FCA classification of Professional Client. This document is for information and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase interests in any portfolio managed by Sturgeon Ventures LLP trading as London Tyne. Nothing in this document should be construed as a recommendation, representation of suitability or endorsement of any particular security or investment. Prospective investors should seek their own legal or tax advice. The information contained in this document has been compiled from sources believed to be reliable, but which have not been independently verified. Forward looking information is provided for illustrative purposes only and is not intended to serve as and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Simulated and actual past performance is not a reliable indicator of future performance. All marketing materials are distributed in the United Kingdom to professional investors by London Tyne, a trading name of Sturgeon Ventures LLP utilised under license. Sturgeon Ventures LLP (FRN: 452811) is authorised and regulated by the Financial Conduct Authority (FCA).
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