The FIFA World Cup is drawing to a close, with only 6 matches left [Ed – only if you include the rather anticlimactic third place play-off!] but it seems a shame the same cannot be said for the two most prominent wars directly affecting us. The on-off-on nature of the US-Iran conflict pushed oil prices back up, but peaking this week at just under $76 a barrel this hardly seems consequential compared to the nigh-on $113 a barrel it reached in April. 

As Peter Smith from Aviva Investors says: Markets spent much of this week navigating two powerful themes that have become increasingly familiar in recent months: geopolitical tensions in the Middle East and an artificial intelligence (AI) investment boom that continues to drive and reshape global markets. The result was a week of sharp swings, although one that ended with investors largely looking through the noise and refocusing on growth.

Let’s take a look in our usual eclectic mix of topics!

Chart of the Week

Recent performance of the Mag 7 from Quartet Investment Management.

Source: Bloomberg , Apollo Chief Economist

Investors have continued to rotate away from the most crowded US mega-cap names, and the Mag 7 have been underperforming the S&P 500 recently as leadership has broadened beyond the biggest growth stocks. That shift has helped parts of cyclicals, industrials defence-related names, even as overall sentiment remains cautious.

Ad-Hoc Update

Louis Coke, Director of Private Clients at Charles Stanley, gives us his latest views on what is going on.

Since my last update on 19th June, the situation in the Middle East appeared to settle somewhat, offering a brief period of relative calm. However, recent developments have again brought the region back to the front of investors’ minds, and I wanted to share our latest thoughts with you. Sending an update like this on a Friday afternoon can feel slightly risky given how quickly events can unfold over a weekend, but I hope the perspectives below prove useful.

Since my last writing, the ceasefire between the US and Iran appears to have broken down, with both sides engaging in retaliatory strikes despite US president Donald Trump’s declaration last month that hostilities had ended. Speaking at this week’s Nato Summit in Turkey, Mr Trump said an interim deal aimed at ending the war with Iran is “over” and that American forces would probably launch further strikes.

Investor sentiment had been buoyed in recent weeks by reports of an interim agreement and ceasefire, but the foundations of any lasting truce always appeared fragile, as I had mentioned in my prior notes. As tensions rise again, Iran seems increasingly unlikely to reduce its influence over the Strait of Hormuz, raising the risk of renewed disruption to global energy markets and adding another layer of uncertainty for investors.

Unsurprisingly, oil prices have moved higher as concerns about shipping through the Strait of Hormuz return to the forefront of investors’ minds. With a significant proportion of the world’s energy supplies passing through the waterway, geopolitical risk is once again becoming a key driver of market sentiment.

The critical issue is that any further escalation in the conflict – particularly one that disrupts traffic through the Strait of Hormuz – could drive energy prices higher and create wider supply-chain disruption. This comes at an uncomfortable moment for policymakers, with economic growth already slowing and inflation remaining stubbornly persistent. A fresh energy shock would further complicate the outlook for central banks, forcing them to balance weakening economic activity against the risk of inflation becoming more deeply entrenched. In effect, this puts central banks back to where they were a few months ago.

We continue to believe tensions across the region will remain elevated, while a broader and more durable resolution is likely to remain elusive given the range of geopolitical interests involved. Investors (and investment managers!) will therefore be watching closely for signs that the conflict could widen or become more prolonged.

Several key questions remain. Will oil prices return to levels that reignite inflation concerns? Could central banks be forced to reconsider the path of interest rates? Which sectors are most vulnerable to disruption in global shipping and supply chains? And will markets begin to price in a more pronounced slowdown in global growth?

These questions are unlikely to be answered quickly. Instead, they are likely to influence market sentiment and investment decisions for several months ahead.

If oil prices remain elevated for an extended period, the effects could ripple throughout the global economy, increasing fuel, transport and potentially food costs. The first time around, the worst of this effect was arguably avoided through the running down of strategic energy reserves both in the West, and notably, in China. Those reserves have yet to be restocked. With inflation already proving more persistent than many central banks had anticipated, policymakers may be forced to reassess their outlook, strengthening the argument for keeping interest rates higher for longer.

For now, markets appear to be pricing in slightly weaker global growth, higher energy costs and increased geopolitical risk, but only to a limited extent. Investors have become accustomed to a near-constant stream of geopolitical shocks, meaning many events are increasingly viewed as part of the new normal rather than catalysts for a significant market repricing. A brave new world, but one that we have grown quite used to. 

Geopolitical crises are impossible to predict and even harder to navigate, which is why diversification remains one of the most effective tools available to investors, even in markets that are sometimes driven by a narrow band of sectors or single equities. A well-balanced portfolio spread across different asset classes, regions and sectors can help cushion the impact of market shocks when geopolitical events unsettle financial markets. 

Rather than trying to anticipate every twist and turn in world affairs, I would like to take this opportunity to remind clients that we manage your money by constructing a diversified portfolio capable of weathering a wide range of economic and political outcomes. At times like these, I hope that these efforts will be especially valuable.

And the Team at Tatton have their usual Tatton Weekly, covering the following:

• Markets keep calm and carry on with business – The flare-up of hostilities in the Strait of Hormuz did not go unnoticed by markets but, bit by bit, investors are finding different themes.
• UK 1840’s Railway Mania: takeaways for today’s AI boom – Huge capital investment financed the building of the UK’s railways, changed society, with a legacy that persists to this day; but it also showed that the path to valuable innovation can still have painful stretches
• European banks, what European banks? – Italy’s UniCredit takeover of Germany’s Commerzbank is hurting national pride but offers great insights into persistent deficiencies of EU bank regulation

In the latest Rathbones’ Weekly Digest, Head of Market Analysis John Wyn-Evans reflects on why people’s personal ‘lived experience’ matters in sport, war and financial markets alike. From England’s remarkable victory over Mexico to the scars left by the 1987 Black Wednesday crash, the dot.com boom, and the global financial crisis, he explores how formative market memories can shape investor behaviour for decades. He also weighs today’s debate over whether AI-related capital spending is a sustainable new growth engine or a capital spending bubble at risk of unravelling. With US households heavily exposed to equities and market commentators still hunting for signs of a peak, the message is not to assume every strong market is 1999 all over again, but also not to bet the farm on a single AI outcome.

And Head of Market Analysis, Janet Mui at RBC Brewin Dolphin examines new U.S. labour force data and what this could mean for interest rates.

Key highlights

• U.S.-Iran ceasefire ends: The U.S. responded with strikes as Iran harassed ships along the Strait of Hormuz’s southern route, ending the ceasefire.
• How long can hyperscalers maintain AI investment momentum? As the market increasingly looks to AI as a bellwether, the question remains of how long hyperscalers will continue investing significant sums into their AI infrastructure.
• U.S. jobs growth stalls as AI drives layoffs: The U.S. only saw 52,000 new jobs created in June, while AI has been named the most common reason for layoffs throughout 2026.

Football Crazy

Dan Coatsworth, head of markets at AJ Bell, comments:

“For investors looking for ways to make their money work hard during the upcoming football World Cup, it might seem like common sense to invest in the host country given the economic benefits from people spending on travel, hotels, food and drink, and infrastructure upgrades to put on the games. But looking at history, they may want to think again.

“New analysis by AJ Bell finds that investing in funds tracking the host country’s stock market delivered a worse return on average than backing the two sides that reached the World Cup final since 1990. In fact, the runner-up proved to be the best investment.

“We analysed performance data for tracker funds related to each World Cup host country, winner and runner-up going back to 1990. We compared performance if you had bought each relevant fund the day after the World Cup final and sold on the day before the next tournament began four years later.

“Investing in the second-place country for the relevant four-year periods between 1990 and the present day would have returned 61% on average. In comparison, investing in the winner produced a 59% average return versus just 27% from the host country.

Event Year	Host country	Total return over next 4 years	Winner	Total return over next 4 years	Runner-up	Total return over next 4 years
1990	Italy	11%	West Germany	29%	Argentina	250%
1994	United States	156%	Brazil	32%*	Italy	92%
1998	France	7%	France	7%	Brazil	42%
2002	South Korea/Japan	21%	Brazil	255%	Germany	31%
2006	Germany	18%	Italy	-29%	France	-3%
2010	South Africa	26%	Spain	24%	Netherlands	42%
2014	Brazil	-2%	Germany	44%	Argentina	40%
2018	Russia	7%	France	28%	Croatia	22%
2022	Qatar	1%	Argentina	112%	France	36%
Average		27%	Average	59%	Average	61%
Source: AJ Bell, FE Analytics, LSEG. Performance data in pounds sterling. 2022–2026 data runs until 1 June 2026. *Data only available from 3 Nov 1994. Indices used for calculations: MSCI Italy, MSCI Germany, S&P Merval, S&P 500, MSCI Brazil, MSCI France, Nikkei 225, MSCI South Africa, MSCI Spain, MSCI Netherlands, MOEX Russia, MSCI Croatia, MSCI Qatar. Returns from indices used as a proxy for performance and do not factor in fund or platform charges.

“The results counter common wisdom and highlight the potential benefits of going against the crowd. That’s something many people find to be the winning strategy with investing in general, and is a strategy applied by some fund managers or more experienced investors looking to beat the market.

“Returns were much more consistent among World Cup second-place countries, whereas the average return for the hosts of the past nine tournaments was skewed by a blockbuster showing from the US stock market after the 1994 event.

Still, I’d take a win for the England team, right now!!

Favourite motorway services?

It’s a key small talk topic for summer BBQs or Christmas drinks. Well at the 7IM ones!!

Now, if you’ve been to a motorway service station in the UK recently, you might have noticed that SPEED is being prioritised. More Starbucks and McDonalds drive-throughs. More Greggs and Cornish Pasty stalls outside the main hall so that you don’t even have to go inside. And that seems sensible enough. Efficiency does matter.

But. There IS another, more profitable perspective being demonstrated in the US at the moment. Let us introduce you to Buc-ee’s (and their beaver mascot).

Buc-ees started in Texas 1982, with a really simple selling point – CLEAN BATHROOMS. They focussed on the key part of the experience that people hated (dirty toilets) and made it worth stopping for …

And actually, worth staying for. If the toilets are spotless, you’re more likely to trust the food. If you trust the food, you’ll hang around to eat. While you’re waiting for your food, you might as well browse and get a photo of the kids with the giant Beaver. 

A trip to a normal American convenience store lasts about three and a half minutes. At Buc-ee’s, people routinely spend 30 minutes wandering around. The locations are huge; hundreds of petrol pumps and toilets, open round the clock, serving 20,000+ people per day. 

Buc-ees has turned into a cult phenomenon – families plan their road-trips around stopping there. Which turns into real money. The average gas petrol station in the US makes about $5.5m per year in sales, mostly from the fuel itself. A Buc-ee’s site makes close to $100 million and sometimes sells the fuel at a loss because it can make it back inside the building. They pulled off an amazing trick. Rather than minimising the wait-time, they monetise it.

Now, in the UK, more and more people are buying electric vehicles. Charging takes longer than filling up (even with super-fast chargers). What if, instead of spending more and more on building out the grid infrastructure, service stations decided to turn an annoying 30-minute wait into something worth stopping for?

Not every great business is about removing friction. Sometimes it’s about giving people a reason to stay!

Poor Terry Smith

With Terry’s net worth reportedly estimated between £300m to £1bn, that’s clearly tongue-in-cheek from James Baxter, Founder at Tideway Wealth! However, Terry Smith’s annual letter to Fundsmith investors caught his attention this week, to the extent that he uses it to explore several investing and fund manager selection issues.

With Terry’s net worth reportedly estimated between £300m to £1bn, that’s clearly tongue-in-cheek from me! However, Terry Smith’s annual letter to Fundsmith investors caught Nick’s and my attention this week, to the extent that I am going to use it to explore several investing and fund manager selection issues.

Fundsmith Background

Terry’s Fundsmith Equity fund launched in 2010 and shot the lights out in terms of performance and funds attracted. At one point, the fund managed £29bn and was the largest UK retail investment fund.

The first decade for Fundsmith went very well!

Source: Morningstar, Total Return in GBP, 01/11/2010-31/12/2020

A 458% return in a decade, more than twice the global equity index return, it seemed Terry had cracked the code for active investing based on his three mantras lifted here from his recent newsletter:

1. Buy good companies
2. Not overpay
3. Do nothing

It has been a very different picture in the last 5 years.

Source: Morningstar, Total Return in GBP, 10/07/2021-09/07/2026

Fundsmith Equity has made just 10% in the last 5 years versus a global equity index return of just over 80% and investors are voting with their feet. Despite making 10% in growth, the fund’s assets have dropped more than half from £29bn to £12bn.

What the Investor Letter Says

Terry’s most recent letter is a defensive response to a -2.9% decline against an +11.2% MSCI World gain for the last 6 months – underperforming yet again.

Terry notes a strategic shift towards increased portfolio turnover and sensitivity to momentum while maintaining a focus on quality companies. He reveals a massive 52% turnover in the fund portfolio in just 6 months.

Terry also highlights market distortions from passive flows, momentum traders and AI enthusiasm quoting heavily from Simon Evan-Cook’s recent Substack post and warns of the potential for an ugly end or reset in passive investing.

Tideway’s Dissection of the Letter and Lessons Learned / Reinforced

1. We agree with Terry and Simon Evan-Cook’s assessments and warnings of the distortions caused by passive investing. Passive investors are now the largest equity market participants and along with momentum traders of various sorts dominate daily trading and don’t care about the quality of a business or its valuation.
2. We do think there is a substantial risk that the increase in passive investing will at some point lead to, at best, a period of relatively poor returns from the indices versus good active managers, and, at worst, a market crash.
3. We are not convinced blaming poor returns entirely on passive and momentum investors holds water. We have several active managers who have outperformed the world index in the last 5 years and several who have kept pace with it, none of whom have ‘hugged’ the index as the only way to generate great returns. The lack of humility to admit mistakes made is typically Terry, but probably not great news for his investors.
4. We do think it’s the No 3 mantra – ‘Do nothing’ which has been the undoing of the fund. The rationale to invest in the 2010 portfolio was clearly good. The subsequent return on that portfolio with the swelling of Fundsmith and other ‘quality growth’ managers pouring money into the same companies was fantastic. But with the benefit of hindsight, it is easy to see that this pushed those companies values too high and, without a valuation discipline to take profits, the fund has suffered, as those valuations have returned to earth, as reported profits disappointed versus the earlier expectation of accelerating profits.
5. The change in strategy and portfolio turnover is a huge red flag to us. This is not style drift, it is Terry’s style falling off a cliff! This is exactly the sort of thing we watch for closely with our managers and we don’t buy Terry’s reasoning behind the changes. If we owned the fund in 2026, we would certainly be selling after this letter but would have hopefully picked up the ‘off piste’ activity well before the letter.

It is point 4, combined with the impact of a fund, which turns from cash flow positive to cash flow negative and becomes a forced seller every day, that are the two big tells as to what could ultimately happen to passive index investors one day.

Miscellaneous

A new wave of younger investors, led by Gen Z, is driving a shift in the UK from saving to investing, according to Vanguard’s inaugural British Money Mindset Report. At an event held in partnership with Spotify and Goalhanger on Monday this week, the report revealed that more than a third (37 per cent) of Gen Z investors — equivalent to almost 780,000 people — took their first step into investing within the past two years, contributing £25bn in new investor inflows.

The research also highlighted important differences in how people choose to start investing. One-third (33 per cent) of Gen Z investors chose crypto as their first investment, which Vanguard said highlighted the importance of continuing to provide clear guidance and support on the principles of long-term, diversified investing and the benefits of lower-risk options. This guidance will help people distinguish between long-term wealth building and more speculative forms of investing, it explained. 

The government has announced a significant increase in probate costs as part of a wider rise in court and tribunal fees reports the Law Gazette. The new fees largely mirror inflation rises and come into force on 13 July, subject to parliamentary approval. But around 27 fees are increasing by around a third: the probate application fee is an outlier as it goes up by 75%, from £300 to £526. The Ministry of Justice said this jump ‘recovers the cost of an ever-improving service, and the new cost accounts for rising inflation as well as investment in delivering an efficient and modern service’. The increase will partly be offset by the creation of a separate, reduced fee for when someone requests copies of probate documents concurrently with their probate application, so that, instead of £16, the fee will be only £2. Ian Bond, a solicitor specialising in wills, trust and probate and a member of the Law Society’s wills and equity committee, said the increase comes at a time when the probate service backlog is increasing and the service levels on complex matters are regressing.

Tens of thousands more households could be dragged into paying the ‘mansion tax’ under rumoured plans, if [Ed – ???] Andy Burnham becomes the new Labour leader reports MoneyWeek. The prime minister-in-waiting could potentially lower the threshold at which people start to pay the High Value Council Tax Surcharge from £2 million to £1.5 million, according to reports in The Mail on Sunday. An estimated 150,000 additional households could be pulled into paying the surcharge if the levy was brought down to the reduced amount, based on calculations done by think tank Tax Policy Associates.

The inheritance tax raid on pensions will “cause chaos for executors and grieving families’’, a leading lawyer has warned. Sarah Conner, partner at Hodge Jones & Allen, also cautions that the changes could be ‘disastrous’ and result in fewer people becoming executors. “Levying inheritance tax on unused pensions is going to cause chaos for executors when dealing with a deceased estate, as they will be responsible for paying inheritance tax on pensions they do not control.” It’s why consolidating your pensions into the minimum number of arrangements is probably the most important thing anyone can do.

Its time again to oversee [Ed – hide from?] another children’s birthday party. A skateboarding party. I know I’ve commented in the past that I’m definitely not taking part for fear of ending up looking like Rodney Trotter in that episode of OFAH, but if I’m honest, I’m more likely to end up like L B ‘Jeff’ Jeffries!

I hope to catch up with you next time.