Aviva (AV:LSE) Q2 2026 earnings call transcript

the Aviva Investors House View for Q2 2026. We're glad you're here. I'm Nicole Lowe, an Investment Director with Aviva Investors, and we have some great insights to share with you today from our Aviva Investors panel, who are here with me in the studio. Here with me, I have Vasilios Ionakis, the Senior Economist and Strategist, Harriet Ballard, a Multi-Asset Portfolio Manager, and David Head Allen, Head of Private Market Strategy and Research.

Now, today, we will take a quick look back at markets over the past quarter, which has been quite a time, one of the most eventful quarters we've probably seen in a while, but then we'll pivot and look to see what we see as the key investment themes to keep an eye on for the remainder of the year. And finally, we will have a look at how we are positioning our portfolios for those expected opportunities and risks. Now, before we get started, some important points to note about the dashboard in front of you. I'm going to focus on the first three items that you see on the slide in front of you.

First, we would love to hear from you, so feel free to ask questions using the Q&A widget on the bottom left-hand side, and we will do our best to cover those questions over our time together.

Second, the presentation and house fee document are both available for download in the resource list at the bottom right of your screen. And finally, and importantly, this webcast does qualify for 45 minutes of structured CPD credit. So after this session, you'll be able to download your certificate from the certification widget. All right, that's it. Let's go ahead and dive in. Let's start with Q1. Now, it's definitely been a lively quarter, to say the least. Harriet, I'm going to ask you to walk us through what's happened in markets. We have a chart showing us here the major asset classes in GBP, and the charts will help viewers get a sense of the investor journey.

Thanks, Nicole. So I think it makes sense to break the market performance down into three distinct time periods. The first one is the one we can see on the screen, which was the market performance between the beginning of the year and the end of February. Then I'll move on and talk about what happened in March and then finally bring us up to date today.

So in terms of the first two months of the year, they were far from quiet. The US carried out a military operation in Venezuela. Trump's rhetoric on Greenland caused diplomatic friction with Denmark and NATO partners. Donald Trump nominated Kevin Walsh as the next Fed chair, and that led to questions about Fed independence. The AIPA tariffs were overturned by the US Supreme Court. And then increasingly, the market became concerned about the implications AI was going to have for certain sectors of the business world, in particular software. And despite all of that, as you can see here, The majority or all of the asset classes listed here had positive returns over those two months.

But on the final day of February and after the market closed, the U. S. and Israeli forces launched military strikes on Iran. And that would drastically change the direction of markets for Q1. So if we look then and add in what happened in March, you can see here a lot more dispersion. But you may have noticed there is one asset missing, and that is oil. And if we add that in, you can see that the move in oil completely dominates what happened.

With the Strait of Hormuz effectively closed, the shock to oil supply led to a rapid increase in energy oil prices. and investors had to re-evaluate their expectations for inflation, what that would mean for the growth outlook, and grapple with ongoing geopolitical tensions. And the end of Q1 marked below in the vast majority of asset classes. And so I think that's why it's sensible to also mention what has happened so far in Q2. So if we add in a more full picture of where we are today, you can see that after the ceasefire that was announced in early April, there was a significant relief rally.

Crucially, oil prices are obviously still significantly higher than where they are at the beginning of the year, but not as high as they were at the end of March.

Perfect. Obviously, an incredible journey. Interestingly, though, we even saw last week S&P 500 surpassing 7,000. thousands, so hitting all-time highs. I'm going to turn to all of you now and just ask you, I probably know the answer, but what has been the biggest surprise to you so far this year?

Yeah, Nicole, I mean, obviously, my response to that is going to be the natural one. It is a geopolitical event. It is a Middle East conflict. And what has actually followed in the back of it, which I think has shifted significantly the risks, both for growth, but predominantly for the inflation outlook.

Great. So, of course, the same risk. But I think what is interesting is markets' reaction to that. So, despite the picture that Vess is painting, we've also seen equity markets up about 5% year-to-date and credits broadly flat. they're very resilient given the situation.

David, thoughts?

Yeah, from a private market perspective, Nicole, I think obviously the elephant in the room is the geopolitical event that triggered the risk event that Vass and Harriet outlined. But I think from a private market perspective, maybe pleasantly surprised with the reaction of the market in that it seems to be ticking along. There hasn't been any major deals being pulled from our perspective or deals falling out of bed for that matter. So generally, the private market landscape is looking through some of this volatility we've seen as a result of the conflict.

Perfect. And we're going to spend time talking more about the impact of the geopolitical situation as we go through today. Harriet obviously took us through public markets. David, turning to private markets, we have a chart that shows us global fundraising over the past several years. Now, what is this telling us about performance and flows right now? And I suppose I want to ask the question, like, why has private debt in particular been kind of capturing a lot of attention?

Sure. I mean, it's a great, great question, Nicole. And just to sort of highlight on the chart very quickly what people can see, this is a global fundraising for various sleeves of private markets. So included in here is the real estate equity raises from funds, infrastructure raises, as well as private debt, to your question, Nicole. And you can see, and the right-hand axis is the cumulative total of those. That's the line that people can see on the chart. And on private debt specifically, you can see that the significant inflow from private debt per frequent data, this has been down primarily at least since sort of 2021 through to 2023, the results of higher all-in yields for private debt risk-adjusted return screening very favorably from that perspective, coupled with the repricing and equity markets where real estate in particular saw material drawdowns and evaluations.

You have this dynamic where higher all-in yields were on offer from private credit versus readjusting valuations on the equity side and clearly investors looking to capture that more favorable risk-adjusted return. But you can see in 2025, things started to move. Equity sectors, especially infrastructure, began to catch up in fundraising to that private debt dynamic. And from our perspective, this shift was anticipated given we started to see all in yields come down as a result of the cutting cycle that we'd seen throughout expected through 2026 as well. Obviously, that has been in pause. We'll probably touch on that a little bit, a little bit more. But I think where we see the performance dynamic is we continue to see both infrastructure and real estate hold steady through 2025 following the repricing that we'd seen, particularly infrastructure being quite resilient in an inflationary environment, something we'll touch on a little bit further.

And I would say just on the wider performance piece, our central thesis at the start of the year was that we'd see the equity sectors from what we see on the screen start to sort of regain some share on that private debt dynamic, primarily because the repricing of equity had been largely completed, coupled with all in yields coming down for private debt. I think it's fair to say that's probably on pause for a period of time while we see the results of the geopolitical events. And clearly, with a pausing in the central bank policy, et cetera, these elevated yields for debt are likely to remain for a period of time.

Okay. Okay. So flow picture kind of reflecting investors' priorities in this kind of still uncertain environment. But it brings us neatly to the next question, I guess, of what comes next from here. We are going to cover off today our four investment themes. So the The first is resilient growth becoming increasingly challenged, inflation pressures reemerging, fragmentation in markets and economies, and fourth, that market rotation. But I would like to start with a poll question to our audience to understand what you, our viewers, are most worried about in 2026.

So the poll question is, what are the biggest risks that investors face in 2026? Is it higher for longer inflation and interest rates, a sharper than expected global growth slow down, rotation away from U. S. market dominance, or geopolitical tensions that broaden beyond the current hotspots. So while you cast your votes, I think it is worth pausing in just how much uncertainty investors are having to digest. Already this year, Harriet, you covered off a number of things that we've sort of seen crop up. We've seen a lot of political and policy developments that have really been disruptive globally. We saw rapid advances in artificial intelligence. There's the upcoming U. S. midterm elections, which we haven't even mentioned, but all of this can impact market sentiment.

So, it makes for a very complex backdrop. Let's see if we can then just have a look at where these poll results came out. Okay, so majority are higher for longer inflation and interest rates. Vass, is that what you would have expected.

Yes, I think it's broadly in line with what I would have expected. And I think what's also interesting is that the second most favorable response has been about geopolitical tensions broadening beyond the current hotspot, which, you know, I mean, it preoccupies pretty much 80% of people's views. And I think that's a fair description of how people are feeling right now. Although I might add, market assessment has been a bit more relaxed about this over the past month or so.

This is true. And we'll get into that more in a bit. Now, let's start with our key investment themes. First one being resilient growth. When we presented in January, you know, The economy looked set to accelerate, but obviously the events we seen so far this year have challenged that and changed the balance of risks So the slide in front of you reflects our updated growth expectations Now the darker green bars are the actual 2025 GDP and the lighter green bar on top is the 2026 projections. Vass, our Q2 house view still talks about resilience and growth, but also highlights that it is challenged. Tell us more about that?

Yeah, I mean, look, Nicole, the reality of the matter is that we were expecting at the beginning of the year, obviously, growth to start picking up on the back of the fading tariff tailwinds and also on the back of fiscal stimulus coming into play. Now, obviously, these things have not disappeared, but we have the emergence of a new big risk. And that's why we talk about shifting growth as well as shifting inflation risks. So we are right now, I think, in the seventh week of the Middle East conflict, where I think this must be the sixth week, or I may be mistaken by a week or so, that the Strait of Hormuz is actually effectively closed, which is presenting quite a material risk for growth to the downside.

In that respect, there is still some resilience in the system. Labour markets, especially in the US, as well as in the eurozone, have not weakened to the extent that it could make up for an extremely fragile global economy. But equally, at the same time, the initial conditions of the global economy are nowhere near as good as they were back on 2022, because largely they didn't have the fiscal response that we had back then.

In that respect, there are risks to the downside if things get resolved fairly quickly, although I'm pretty sure everyone's pretty much tired of listening to that motto.

Potentially, this is going to leave a relatively contained damage on growth, but definitely risks for a more protected situation in the Middle East with a strait of homiless closed and risks for a recession in the global economy. And at the same time, we also have the inflation impulse. There's no question that inflation is going to pick up this year. That being said, largely because supply side shock, it is likely to start reversing in 2027 rather quickly. But nonetheless, inflation will pick up in 2026. The households and firms will feel the squeeze.

And, you know, then it becomes a matter of second round effects.

Yeah, yeah. I want to I want to hone in a minute on the UK. because a lot of our viewers are going to be interested in the UK. There were those sort of tentative signs from the beginning of the year, looking at the sort of slight uptick in three-month real GDP, but that came alongside a loosening labour market.

How vulnerable is the UK growth story now with this external energy shock?

Look, I think we had already entered the year with the UK being a relatively weak spot. The reality of the matter is that with the exception of Q1 and 25, Q2, Q3, Q4 didn't really see any material, real GDP growth.

And the labour market loosened quite significantly over the course of turn to 25. So the initial condition was already quite weak. and the expectation is that a number of idiosyncrasies, like the links between the wholesale gas prices and electricity in the UK, which are very strong relative to other countries, that the risks to the downside for growth are quite material to the UK. So are risks also for inflation to the upside. So it will be a very, very difficult balancing act for the Bank of England.

But nonetheless, you know, in our forecast, we have a growth rate of about 0.7% for 2026. Personally, I think risks are to the downside.

Okay. That leads us nicely kind of talking about inflation. Let's carry on with that and move on to our second theme, which is this, you know, inflation pressure is clearly re-emerging. I want to start with the backdrop again of the conflict in Iran. because we can't get away from when we need to talk about that. But this is where that renewed inflation risk really came into focus. You mentioned the Strait of Hormuz. That's been a huge focal point. And that's largely because it's one of the most critical energy choke points in the global economy. For context, we have a chart here that gives you a visual of the number of cargo ships which have passed through the Strait this year.

You can see the comparison prior to the conflict, which is on the left in green. and since the conflict began in orange on the right. So it's a pretty stark reminder to everybody of just how impactful this is and how significant it is when you consider the volume of oil and liquefied natural gas and other commodities that pass through this trade.

And I want to just quickly look at oil prices and how they have reacted since the start of the conflict. If we could move on to the next slide, you can see in this graph now, sensitive markets have been to headlines, to social media posts, to quips spoken by the president and any signs of either diplomatic resolution or worsening escalation. We saw Brent crude hit $100 a barrel in March and then the most recent and largest fall, minus 15 percent following the ceasefire announcement earlier in April. Now, before we bring the panel in on this to hear their views. Let's just pause and I want to see where you, our audience, are landing on the outlook of oil prices from here.

So if we can put our next poll question up, quite simply, do you think Brent crude oil prices will exceed $100 per barrel by year end? Yes, I think they will or no, I don't think they will. And while you're casting your votes, I mean, Harry, it's probably worth a reminder of kind of the volumes that pass through the Strait of Hormuz.

Yeah, absolutely. So the Australia Hormuz sees a quarter of the world's oil go through it, and also about 20% of the liquefied natural gas. So, you know, we saw the chart of how significantly that has collapsed in terms of volume straight going through. And it's not a surprise, therefore, that you see material increase in energy prices. And then, of course, that feeds through into inflation.

Yeah, exactly. All right, let's have a quick look here. I'm curious to see where this came out. Interesting. I have to be honest with you, it's a little bit closer than I thought it would be. Consensus, I think, what I read tends to be, no, it'll be below $100 a barrel. I think $70 to $80 a barrel people are expecting by year end. The yes, I suppose, are people who think that there may be a prolonged conflict or maybe it'll take longer for global supplies to restore post-conflict. But anyway, that's very, very interesting. Thank you, everybody.

Vass, I'm going to turn to you, I suppose. What really matters more for markets? Is it the scale of the disruption or how long it lasts?

Well, I think they're both very much interrelated. I think taking a big picture view on that, I think the initial spike is less relevant when compared to how long the disruption really lasts. So from that respect, I think it's the combined effect that really matters. Obviously, the worst effect would be the initial spike being very large and then propagating into a number of months.

But I think the size of the disruption and how long the disruption lasts is definitely a very important component.

Okay, and let's have a look now to see, yes, we've got the slide up there on how all of this plays into inflation. We're looking at a slide here that shows our CPI inflation projections.

Vas, what has this energy disruption meant for our projections, and then how different does this feel to 2022?

Well, I don't know how different it feels. I'll tell you how different it is in the sense that it is very much different to 22.22 was the confluence of supply-side shock with a demand-side shock. The demand-side shock coming from a lot of money being pumped into via the fiscal stimulus, but then again asking consumers not to consume that via the lockdown. So the economy's opened up. They face up the supply-side bottlenecks. They wanted to consume, and then immediately after that, you were hit by the invasion of Russia and Ukraine. So that was a confluence of two big shocks working parallel. Right now, we have a typical supply-side shock, typical in its nature. I think in its size, it's quite big because, as Harriet mentioned, you get a very, very significant chunk of world oil supply passing through the strait, which is effectively closed for one and a half months.

So in our forecast, we try to take into account what was priced into the various energy price curves, as well as factoring some, I would say, small to moderate fiscal response, mostly small, especially in the case of Europe. And, you know, on average, I would say that this takes inflation higher in major developed economies, probably by one percentage point relative to our previous projections. Now, but again, it's really important to highlight. This is, you know, based on a number of assumptions, which may turn out to be entirely wrong, entirely false. But this is where we stand right now.

Yeah, that's all we can ask. Now, in terms of monetary policy and how we think central banks will respond, we have a chart here showing our forecast policy rates for the Bank of England, the Fed and the ECB. Talk us through that.

So firstly, let me say, I think the Middle East conflict has seen most of the visible signs of impact in the rate market. We've seen a very sizable repricing higher across the major central banks. Now, ECHO 101 will tell you this is a supply side shock. Central banks should look through it as long as there are no second round effects because at the end of the day there is nothing that the central bank can do to affect the energy price All they can do is try to steer expectations if they see inflation expectations getting de-anchored.

That being said, 2022 is not very far away. It's not, you know, it's just three, four years ago. So there are still fresh memories. So I think both the market as well as the central banks themselves do have the risk, if you like, or the inclination to be a bit more trigger happy this time around or, you know, be more reflexive.

We'll just have to wait and see. It definitely implies that a number of easing that was priced in has been delayed with potentially abundant. we'll just have to wait and see how long the shock lasts and what are the second round effects of course we don't have the central bank doesn't have to wait to see have pretty much everything because by that time it may very well be late so there has to be a great element of judgment in that respect but I think on the whole this suggests that potentially there are going to be pockets of interest rate hikes across the world.

Okay, interesting. And David, I want to bring you in here because when inflation pressures reemerge, how does that show up in private market assets?

Yeah, I mean, it manifests itself, Nicole, in a number of ways. And this particular one, I've sort of got a number of views on how this will play out. One of them is related to construction costs, actually. So Vas talked about the sort of second, third order effects of this energy shock or the inflation shock as a result of energy. And if you think about private markets, hard assets, real assets like real estate or infrastructure, the development cycle of these are quite material intensive. There's a lot of material inputs in terms of steel, et cetera, which will be affected in terms of the energy piece. So this inflation on the supplies needed to build out, we think will put some pressure on development at the moment.

So that's, I guess, not great if you're looking to develop, but actually creates a bit of a ring fence if you are an existing asset owner and supply is muted. So again, to VASA's point, looking through this and taking the central case that VASA's outlined, I think private markets could probably weather this to a degree. That's probably one. The second one, how it sort of manifests itself, obviously, is in the cost of finance. Again, private markets tends to use leverage across a number of its investment profiles. And so the cost of borrowing really will go up. Now, that's not great if you're on the equity side, but we're also a lender, as people will know.

And from a lender point of view, it's this higher all-in yield on private debt, which we see as supportive for a period of time. So there's a bit of give and take there. I guess the main one, at least the pinch point, immediately would be the construction potentially inputs there.

Okay, great. I mean, this sort of sets the scene for our next theme, which is on fragmentation. in financial markets and economies. I like this quote, actually, from our house view.

You know, Vas, I want to just ask you, do you see this fragmentation as a temporary phase driven by shocks or a more structural shift in the global economy?

It's really difficult. One of the most difficult things in economics and econometrics is basically to identify structural breaks, especially without having a long time series available and we don't have that. So we can only make a judgment, an informed judgment of this. All we can say at this stage is that United States' role and stance towards globalization, towards regulation, towards institutional independence, towards integration has definitely changed. It's difficult to judge to what extent this will stay like this in the medium term. But I think the probability right now is that there are definitely structural elements into that fragmentation that we've seen. because at the end of the day, you can actually see, you can feel it in everyday conversations that there is demand for more autonomy right now in terms of technology, in terms of defense, in terms of security.

So once these things get in motion, it's really difficult to stop them, even if the original reason why they started is no longer there.

Yeah. Yeah. And I suppose, Harriet, from an investor's perspective, you know, what does fragmentation mean in practice? You know, how much more selective do portfolios need to be?

Yeah, I think it's, you know, it's definitely a difficulty, you know, as Vassar's are leading, but it can also be an opportunity. So we've seen, you know, the breakdown of global institutions. It creates a lot more uncertainty. We've seen trade frictions even more. And of course, that's going to bring supply side shocks. It brings market volatility. And we've also seen increasingly countries wanting to be more self-reliant or definitely more regionally reliant. And that is going to be a benefit for certain sectors like defence, like natural resources, energy and even AI. And so ultimately, there will be opportunities in these sectors to take advantage of that.

Perfect. That's great. Seg into our fourth theme on market rotation and kind of the shift in leadership. You know, Vast, in our house view, we are seeing this change from quite a narrow, you know, tech led equity market toward this broader market leadership. Where has that been most visible and what stands out to you? We have a graph here that's showing the U. S. equity market performance, and it's got subsectors broken out. And for those of you watching us online, it's the sort of bright orange line, which is tech there.

Yeah, I think, look, the important thing is to define what we mean by this sector rotation. And I think the easiest way to understand it is we're talking about the broadening of the artificial intelligence. Because in the initial stages, it is the very strictly related technology companies that will benefit and have benefited. But then, as they progress and as they grow, they will require more demand for inputs, for energy centers, for example. And that implies that there is going to be a pickup into the prices of a number of other sectors which are supportive of this increase in demand. You can see in this chart that up until some point after the summer or a bit later after that, we've started seeing that gradually industrials and materials as well as energy, but obviously energy later on for completely different reasons, they have started outperforming the rest of the market.

And I think the reason for that is because of this AI expansion, there has been an increased demand for industrials, materials, and especially for energy. If you think about data centers, for example, the demand for energy is and will stay quite significant. So that is what we really mean about rotation. And I think this is quite characteristic of what's been happening in the market over the last few months. obviously the last one and a half month is being influenced to a large extent by the events in the Middle East.

Yeah, yeah, of course. And I suppose with that in mind, we can turn now and have a look at what all of these sort of key outlooks and themes mean for our portfolio positioning. And we'd love to start with our viewers perspective here. So we'll go to our final poll question, which is where do you see the most attractive returns in 2026? Is it global equities? fixed income, private markets, or commodities. So you can vote now. And in a year, you know, when we could see just about anything, we've talked about challenged growth, reemerging inflation risk, increasing fragmentation, and now shifting market leadership. It will be interesting to see where people think the most attractive returns will land.

I actually have last quarter's poll. This was a question we asked last time around. And I'm curious to see if that's changed at all, given kind of the world events to date. Just another second, and then we'll have a look at the results if they're in.

Okay, so we've got global equities. What is that about, you know, say 50%, 20% private markets, 100% fixed income commodities, 33%. 33%. Is that where you expected that to land? Does that surprise any of you or is that what you would have expected?

It's pretty aligned with our thinking, actually.

Yeah, perfect. Great. Thank you all. Harriet, I think what we're going to do now is just try to bring everything together that we've just discussed around our investment themes and our outlook. What is our current view on portfolio positioning?

Yes. So within, if we take it by asset class, so within equities, we are overweight, but much more modest in our view on equities in terms of overall risk that we're taking relative to where we were at the beginning of the year. We still like to try and take our equity risk in quite a broad sense. But increasingly, we think the outlook for the US is more favorable relative to Europe. And then from a sector perspective, obviously, you know, some of the sectors that we were discussing previously, in terms of the fragmentation theme, you know, some of those themes we're trying to play as well through the equity market. In terms of government bonds, we're neutral.

And it's because of, you know, As Vas has been talking about, you have these counterbalancing tradeoffs that central banks are grappling with between inflation on the one hand and then the growth impact on the other. And I think at this point in time, it's just not clear enough for us to have strong positions there. In credit, we prefer to be underweight just given that credit spreads remain very tight. And then finally, on currency, we do think that the very long term structural we held on the dollar which is for the dollar to depreciate through time is still there That really is trying to highlight some of the changes that Vaz spoke about earlier in terms of the US place in the world and the way it tries to navigate global politics and how that may influence investors' decisions and wanting to be invested in America.

But I think very near term, again, with the oil price shock and how the dollar has performed very recently and the strength that we've seen. I think it's a view that we wouldn't be putting a huge amount of weight on at this point in time and instead are using FX to play some more regional differentiation that we've seen. So, for example, between the UK and Europe and other regions as well, where we see that the UK is weak for the reasons that Vas highlighted earlier.

Okay, great. And we're talking about kind of the behavior of assets. I want to bring in gold because gold has not been behaving as we have kind of become accustomed to behave. So, is gold still a safe haven investment in 2026?

I think we have to put the performance of gold recently very much into the broader context of what it did last year and even at the beginning of this year. Gold was up 64%. I mean, it really did move a long way. And some of the structural forces that were driving that outperformance of gold in terms of the central bank buying, trying to diversify their own balance sheets, but then also demand because of increased geopolitical tensions worldwide and concerns around that, those are still there. But given how far it's come, we had seen a pullback in March. In January, I think the volatility of gold actually exceeded the volatility of equity. And when you're in that environment and it's behaving like a risk asset, it's very difficult then to expect it to be that risk of protection in your portfolio.

And I think actually what ended up happening is it served as a source of liquidity in a period of a risk-off move. Looking forward, I think it's going to be very difficult for gold to outperform again in the near term. If we were to see inflation continue to be a major concern, expectations for real rates to be higher and the dollar strengthening, that's going to be an environment where it's going to be very difficult to see gold really outperform. But the structural factors, I think, remain in place.

Okay, great. Now, that's helpful. Thank you. David, I'm coming on to you now. One of the changes we've talked about is this higher for longer rates expectations. Talk us through, I guess, what the private debt landscape looks like. We have a slide here that actually shows us the investment-grade private debt illiquidity premia. We'd love to hear from you about that.

Yeah, I think, I guess, first of all, the chart and the illiquidity premia, just for everyone's benefit, what are we looking at here? This is, illiquidity premia is effectively the additional pickup for holding assets that cannot be easily sold. So this is the excess spread you would receive on a private debt instrument versus a commensurate public proxy.

And this is proprietary data from Aviva Investors. We're large lenders in the market, so we can use our own data and maybe play that back to the investor community as we're doing here. And what we're seeing in the larger bars, obviously, is the 2025 calendar year average. And you can see those across the different sleeves. This is investment grade only versus the long run average. And as you can see, the illiquidity premium is elevated relative to long-term trend. But I think it's important here to unpick that despite, and the question, Nicole, was why does it remain attractive?

Unpicking this actually is we've seen this weight of capital, as we touched on in the beginning, flowing into the private debt sector, yet we're still seeing illiquidity premium holding up relatively healthy. Now, part of this will be the result of they move slower than public spreads. So as public spreads have compressed and the liquidity compresses slower, that creates a larger spread in the illiquidity premium. But equally, I think investors are realizing that there is opportunity within the private debt space. And this is predicated to harvest that illiquidity premium is predicated on holding that asset to maturity. And as I mentioned at the beginning, one of our theses at the start of the year, which is effectively on pause for a period of time, I don't think it's necessarily a longer term structural trend.

But the vastest point on the look through on that rates picture from the central banks, that just supports the private debt allocations given they base off that risk-free rate, which is going to remain elevated for a period of time.

Great. Okay. And I think I wanted to highlight the fact, again, David mentioned it, but that this is based on proprietary information that we have. If you are interested in seeing the more detailed version of the illiquidity premia information, you can find that in the full Houseview document. Similarly, with the portfolio positioning that Harriet just took us through, there's more detail in the Houseview document that you have access to. So we have a few minutes left to take some audience questions.

We've got one here.

Harriet, when big global events hit, I suppose the geopolitical scenarios, what they're referring to, how do you maintain an edge as an investor? So I think the first thing is you have to stay informed. Sometimes that's no small task with the pace of change. But then you also have to remain humble about what you really can know or have an edge on. And it's important then to not trade the noise and try and look for the long-term trends where you can have a view.

And yeah, maintain your cool.

Yeah, very good advice. We've got another question about U. S. midterm elections are coming up. Do we expect the result to have any lasting impact on, I guess, financial markets, or is it mostly just short-term volatility? I don't know, Vast, if you want to take a stab at that one.

Well, I think that will also depend on the nature of the result. Typically, historically, what at least you're getting is that it doesn't seem to have a very, very long lasting impact. It mostly induces volatility.

But, you know, if things turn out quite substantially, this could turn out to have a more lasting impact on the financial market. but again I think it's quite we will have to we're quite far away from it both in terms of the actual result as well as in terms of the initial conditions that we're going to find ourselves in before entering the the midterms so as I said I think I think 60-70 percent of the time is mostly near-term volatility. But again, we'll just have to wait and see this time around.

Perfect. I think we probably have time for one more, David. I've found what that is about real estate, basically asking where are we in the real estate cycle? What should investors be watching for next?

Yeah, it's a good question. The cycle at the moment, And our view, at least, is values have bottomed out. As we mentioned at the beginning, there was a material repricing of real estate valuations through the hiking cycle. It was an uncomfortable but arguably rational reaction to a rapid rise of the risk-free rate. And since sort of the back end of 23 into 24, the market's effectively gone sideways from a valuation point of view.

And clearly that was predicated not only on the growth outlook but also the cost of finance that had been coming down. We expected a catalyst for some growth there. But fundamentally, where real estate's at now is supply remains in check broadly across a lot of markets. We've touched on the demand equation already. We don't expect that to sort of reverse necessarily, maybe weaker. But given the income yields on real estate and if the cost of finance remains relatively favorable, we are broadly positive on the broad outlook for the cycle and primarily due to that valuation floor that we're seeing. the only way we see it taking another leg down would be some sort of demand shock where real estate cash flows are impacted due to something breaking in the business cycle.

Okay, great. Thank you. I think we will go to our key takeaways now. We'll sum up, if we can. Let you sum up the economic outlook, and then Harriet will ask you to sum up the market outlook.

A great deal of uncertainty, risks to both growth and inflation outlook. I'll say this in a nutshell. I think there are definitely elements of resilience in the global economy. But nonetheless, the end game or the outcome is going to be largely dictated by how long effectively the Strait of Hormuz is going to remain, or if you like, how broadly the energy supply disruption is going to stay with us. But what we do know is that inflation is going to pick up in 2026. It will normalise in 2027. But it also means that due to a number of idiosyncrasies, regional economies as well as central banks are not going to be moving in a lockstep in all likelihood.

So there is going to be a lot of differentiation and potentially a lot of market opportunities.

And Harriet, that nicely leads into the market outlook.

Yes, so there is a lot of uncertainty, but we still like equities. We prefer equities over bonds. The earnings in the US in particular are resilient. And selectivity within equities, but also within other asset classes, will remain more important to seek out those opportunities that the market volatility is creating.

Super. Okay. Well, we are at time. Thank you all so much for sharing your insights and for the discussion. Super helpful. I always come away learning something myself, so I'm sure our viewers have as well.

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