Emily Keenan

It’s easy to forget, after a decade dominated by US stocks, that investing is not about chasing what has just done well, but about building a portfolio that is robust across a wide range of possible futures. Emerging markets have, for some time, lagged their developed market counterparts – particularly the US. This has led some to question their place in a diversified portfolio. This underperformance is not a reason to abandon them. In fact, it’s precisely why they remain important.

Emerging markets are expected to deliver higher log-term returns than developed markets. Why? Because they come with higher risks – political, economic, governance-related – and investors demand compensation for bearing those risks. Over the long term, this ‘risk premium’ has been rewarded. Since July 1989, emerging markets have delivered around 0.7% per annum over developed markets[1], a small but not insignificant number.

Of course, these returns don’t come in straight lines. If they did, there would be no reason to own developed markets at all. The reality is that emerging markets are volatile, even more so than their developed counterparts. They can detract from a globally diversified portfolio for certain periods and add to it in other periods, as the chart below demonstrates. Those who remain invested through both the ups and downs tend to be the ones rewarded.

Figure 1: Emerging markets have zigged and zagged

Indices: Fama/French Total US, International, Emerging Markets indices. Period: 01/07/1989 – 31/05/25. Returns in GBP.

A well-diversified global portfolio, with exposure to both developed and emerging markets, helps manage the risk of any one part of the portfolio performing poorly. It reduces reliance on any single region or sector and increases the likelihood of capturing returns wherever they arise. Diversification is the antidote to both FOMO and regret – the chart below captures this well with the green squares performing in the middle of the various regions around the globe.

Figure 2: Diversification mitigates poor outcomes in any one region

Indices: Fama/French Total US Market, International, Emerging markets indices. Albion World Stock Market Index
Period: 01/01/2010 – 31/12/24. Returns in GBP.

Emerging markets may not have had their day in the sun recently, but the case for holding them remains as strong as ever. They offer a return premium, diversification benefits, and exposure to the world’s fastest-growing economies. Staying the course is not always easy – but it is often the most rewarding path.

Important Notes

This is a purely educational document to discuss some general investment related issues. It does not in any way constitute investment advice or arranging investments. It is for information purposes only; any information contained within them is the opinion of the authors, which can change without notice. Past financial performance is no guarantee of future results.

Products Referred to in this Document

Where specific products are referred to in this document, it is solely to provide educational insight into the topic being discussed. Any analysis undertaken does not represent due diligence on or recommendation of any product under any circumstances and should not be construed as such.

[1] Fama/French Emerging Markets Index, Albion World Stock Market Index. Period: 01/07/1989 – 31/05/25.

In the ever evolving world of investing, Artificial Intelligence (AI) has become a buzzword synonymous with innovation and the promise of high returns. But its integration into investment portfolios raises important questions: Should investors back companies adopting AI technologies (who isn’t, at this point?) because they might gain an edge? What about firms producing raw materials used to meet the increasing demand for infrastructure to power AI models? The list goes on.

Humans are drawn to good stories, and we’re often willing to pay for the chance to be part of them. This tendency – driven by confirmation bias and optimism toward the familiar – is one reason investors gravitate toward companies with exciting narratives, hence pushing up their price relative to the underlying fundamentals of the company. These so-called ‘growth stocks’ are typically better-known, innovative, and headline-grabbing. In contrast, more traditional or overlooked businesses – perhaps due to the embedded risks inherent, or because they simply offer a less exciting story – are classified as ‘value stocks’ and generally priced more conservatively.

Understanding this dynamic is key to cutting through hype and setting appropriate long-term expectations for any innovative technology. The table below highlights relative pricing across familiar U.S. technology companies – some trading at elevated price-to-fundamental multiples, others appearing significantly cheaper.

Table 1: AI expectations embedded in market prices

Data source: iShares US Technology ETF as at 24/06/2025. Yahoo Finance. Price-to-earnings: The stock price as at the date displayed, relative to the earnings per share (EPS) over the trailing twelve-month period (TTM).

The challenge for investors is that even amazing companies with cutting-edge products don’t always make great long-term investments. Markets are forward-looking – they build in expectations about the future quickly and efficiently. In today’s digital world, where news spreads quickly, stock prices adjust almost instantaneously as new information is released.

Take companies like NVIDIA, Broadcom, and Palantir – much of the excitement around AI is already reflected in their share prices. These stocks trade at high price-to-fundamental multiples, like price-to-earnings or price-to-sales, meaning investors are paying a premium today based on what they expect the companies to earn in the future. The higher the multiple, the more growth and profitability the company must deliver to justify the current price – and the smaller the margin for error. If expectations are already very high, future returns may be limited unless those companies exceed what’s already priced in.

Value stocks, such as Pinterest and HP, trade at lower prices relative to their fundamentals. This discount reflects higher perceived risk, but if the market is pricing that risk correctly, investors should expect higher returns over time to compensate them. Sticking to a disciplined strategy that leans toward these ‘boring’ stocks can be uncomfortable at times, but historically, it has rewarded patient investors willing to look past the hype.

Figure 1: Percentage of the time value stocks have beaten growth stocks, across regions

Source: Ken French Data Library © US (Jul-26), Developed ex-US (Jul-90) and Emerging (Jul-91) – three factor model to Apr-25.

In the end, the goal for systematic investors isn’t to avoid investing in innovative technologies altogether – it’s to benefit from their rise without chasing them at any price. A broadly diversified portfolio such as the one we recommend to you provides exposure to these winners as they grow, while a marginal tilt to value companies gradually reduces that exposure as expectations are lowered. This approach can feel counterintuitive, especially when a company is thriving, but it helps manage risk and stay grounded in long-term discipline. Investors still participate in the journey – just without relying on any single success story to carry their entire outcome.

Important Notes

This is a purely educational document to discuss some general investment related issues. It does not in any way constitute investment advice or arranging investments. It is for information purposes only; any information contained within them is the opinion of the authors, which can change without notice. Past financial performance is no guarantee of future results.

Products Referred to in this Document

Where specific products are referred to in this document, it is solely to provide educational insight into the topic being discussed. Any analysis undertaken does not represent due diligence on or recommendation of any product under any circumstances and should not be construed as such.

For decades, individuals have had a deep-rooted obsession with property, often viewing buy-to-let investments as a surefire path to wealth. However, the reality of managing such properties, with its financial and emotional burdens, may not be as straightforward as it seems. While many have profited from buy-to-let, much of this success is attributed to timing and luck. Meanwhile, the media has often perpetuated the notion that pensions are ineffective, overshadowing their importance in retirement planning.

Buy-to-let investments can seem appealing due to their tangible nature and the familiarity of managing mortgage debt, often perceived as less risky. Stories of success abound, though they rarely highlight the associated stress and failures. The allure of strong gross rental yields, driven by factors like a growing population and low supply, can be misleading.

Conversely, pensions have faced criticism, partly due to past mis-selling scandals, even though they offer significant tax benefits and a stable investment environment. Despite perceptions, sensible investing involves diversifying across global markets, which have historically provided substantial returns above inflation. The same cannot be said for broad residential property markets as we explore below.

Some investors see buy-to-let as an alternative to cash deposits, especially with relatively low deposit rates and inflation eroding the value of savings by over 20% in the past 20 years[1]. The search for higher yields has driven many towards riskier investments like high-yield bonds and equities, or into the buy-to-let market. However, transitioning from cash to buy-to-let is not a minor risk adjustment but a significant leap, especially if borrowing is involved. Entering the buy-to-let market essentially means starting a highly leveraged business with all its associated costs, taxes, and risks. Without thorough planning and realistic expectations, investors may face substantial financial challenges.

Few investors would consider borrowing up to three times the value of their investment portfolio to gear up their stocks and bond assets yet buy-to-let investors often do just that. Property investing allows for easy leverage, with most buy-to-let mortgages requiring a 25% deposit. For example, a £200,000 house might involve a £50,000 deposit and £150,000 loan. This leverage can amplify both gains and losses; a 20% property price increase yields an 80% return on the invested capital, while a 20% decline results in an 80% loss. Borrowing to leverage capital carries substantial risks, including the potential for negative equity. Historically, UK residential property values have fallen by around 30% after inflation during major downturns in 1989 and 2007.

Many investors, especially those new to the buy-to-let market, are attracted by the gross yields which currently sit at around 6%. Average rental income is approximately £1,300 per month, implying an average property value of about £260,000[2]. However, the costs associated with buy-to-let investments are significant and come in three stages: initial purchase and setup, ongoing costs, and sale costs. Initial costs include stamp duty, professional fees, repairs, and certifications. Ongoing costs cover annual expenses like insurance, maintenance, and potential void periods, as well as longer-term costs for major repairs and replacements. Investors should budget around 30% to 35% of the gross income for these ongoing costs[3], excluding mortgage repayments. Any remaining income is taxed at the investor’s marginal rate, with a 20% tax credit on mortgage interest available since 2020. Finally, sale costs include agent fees and capital gains tax, unless the property is deemed a primary residence for a certain period.

When basic numbers are calculated, the true net yield of buy-to-let investments is far less compelling than headlines suggest. High property prices combined with ongoing and borrowing costs make it challenging for landlords to achieve worthwhile net yields. Using the 30% to 35% rule above and current mortgage rates, net yields can quickly fall to the 2% and below range, particularly when one assumes that the property may not be occupied 100% of the time if tenants choose to leave and cannot be replaced immediately.

Lower yields make property price rises all the more important for buy-to-let property owners. An astute investor evaluates an asset class based on total return, combining yield and capital gain. By assuming a generous 2% net post-tax yield on an ungeared buy-to-let investment and adding it to the UK house price series, we can compare its performance against traditional investment portfolios. For fairness, a 1% annual cost is deducted from traditional portfolios, but no initial set-up costs are deducted from the buy-to-let strategy, even though they can be significant.

Figure 1: Buy-to-let versus traditional portfolios – simulated strategies after inflation 1981-2024

Data source: See endnote[4].

Pension funds are a core retirement pillar. Buy-to-let property is akin to owning a small business with a depreciating asset that requires constant attention to achieve returns somewhere between bonds and equities. Borrowing amplifies both risks and rewards, making it a significant leap from the deposit-like alternative often portrayed in the media. Buy-to-let is not a quick or riskless path to wealth; it involves substantial costs and demands meticulous management. In contrast, harnessing tax breaks and investing in a well-structured, globally diversified portfolio is a sensible approach to retirement planning, freeing up time for more enriching activities than managing rental properties.

Important Notes

This is a purely educational document to discuss some general investment related issues. It does not in any way constitute investment advice or arranging investments. It is for information purposes only; any information contained within them is the opinion of the authors, which can change without notice. Past financial performance is no guarantee of future results.

Products Referred to in this Document

Where specific products are referred to in this document, it is solely to provide educational insight into the topic being discussed. Any analysis undertaken does not represent due diligence on or recommendation of any product under any circumstances and should not be construed as such.

[1]      Bank of England © SONIA and UK CPI. Data to Apr-25.

[2]      ONS © Private rent and house prices, UK: April 2025.

[3]      Before it was merged with other financial bodies in 2017, the Council of Mortgage Lenders (CML) advised holding back 30-35% of rental income to service ongoing costs.

[4]      Global equities Albion World Stock Market Index (AWSMI).  Balanced (60/40) = 60% ‘Global equities’, 40% Albion 2.5Y UK Constant Maturity Bond Index.  Costs of 1% have been deducted from the ‘traditional’ portfolios and portfolios were rebalanced back to the original mix once a year. UK house prices = Nationwide House Price Index.

Market volatility can be uncomfortable—but it’s not unusual. In fact, it’s a feature of investing, not a flaw.

Donald Trump has shocked the global markets over the past week since his Liberation Day tariff announcement. At the time of writing, the global stock market has fallen over 5% from the start of 2025, with the S&P500 down over 8% over the same time period.

However, the market decline of 3^rd & 4^th April is only the 39^th largest drop since 1^st January 2000.

During times of uncertainty, remaining invested in a globally diversified, suitable portfolio is not just prudent—it’s essential for long-term financial success.

Timing the Market is Risky—and Rarely Successful

Attempting to move in and out of markets to avoid downturns may seem appealing, but missing just a few of the best-performing days can significantly erode your returns. The cost of mistiming the market far outweighs the perceived benefit of “playing it safe.”

Casting our minds back to the Covid-19 pandemic the US stock market dropped 34 % in just 23 days — faster than ever before. Yet within a year, the market had not only recovered but also risen 78% from its lowest point. People who sold during the panic missed one of the strongest recoveries ever.

Volatility Happens Every Year

Every single year, global markets experience drawdowns—temporary declines from peak levels. These drops are normal. Intra-year declines are part of investing, yet more often than not markets tend to end the year in positive territory.

This volatility is expected and already considered in the assumptions behind your plan.

Patience is a Proven Strategy

History has consistently rewarded investors who stay calm, remain disciplined, and stick to their long-term strategy.

The chart below shows the growth in world equity markets despite the never-ending stream of negative world events – The Wall of Worry

Reacting emotionally to short-term noise can lead to poor outcomes—while staying the course is the key to wealth preservation and growth.

Your Financial Plan Already Accounts for Market Drops

We have built your financial plan with these events in mind. Our assumptions used in your plan factors in the reality of market downturns.

As part of our planning for those who require income in retirement, we include Defensive Assets – Government Bonds. This helps to protect capital value of this income, typically 5-7 years worth of income. This prevents the need to sell during a market downturn.

As always, we are here to support you, answer questions, and ensure your plan remains aligned with your goals—no matter what the markets are doing.

The declines are temporary, the long term advance is permanent.

Stick to the plan.

This shiny metal always glistens most brightly when it has just risen in value. In the past 12 months, the price of gold has nearly doubled. Recency bias and the fear of missing out (FOMO) always results in ‘should it be in my portfolio?’ type questions.  Somewhat bizarrely, investors tend to get excited about assets that have already risen in value.  If one is going to play a market timing game – generally not advisable as even the pros do not have any real track record in being able to do so consistently – a long-term investor should surely be more excited about an asset that has fallen substantially in value, not risen.

It is always too easy to jump onto the ‘it’s done so well, I want some’ bandwagon. After all, owning a gold-backed ETF is just a click away on a brokerage account.  Switching from an emotional, intuitive brain to a more reflective mindset is always useful to avoid a hasty and potentially costly decision. Here are a few thoughts around gold that may be instructive or, at the very least, somewhat interesting.

Gold is in limited supply (on earth), but does this matter?

If all the gold ever mined were melted into a cube, it would measure just 22 meters on each side.  For those keen on rugby, the base of the cube would reach from the try line to the 22m line.  For tennis fans, the sides of the cube would be as long as a tennis court, give or take a meter.  According to the World Gold Council, this represents 216,265 tonnes of gold mined so far.  Unmined gold is estimated at around 50,000 tonnes. Investors who think that gold is out of this world would be right. Gold is created in the heart of massive stars during supernova explosions which produce the extreme conditions necessary for the formation of heavy elements like gold. Meteorites often contain small amounts of gold. Does that make it valuable?  Warren Buffet, the legendary investor and founder of Berkshire Hathaway does not think so.

‘Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head…Gold, however, has two significant shortcomings, being neither of much use nor procreative… if you own one ounce of gold for an eternity, you will still own one ounce at its end’.

Warren Buffet, Legendary Investor & Founder of Berkshire Hathaway

Gold has a tarnished record as an inflation hedge

Despite being the only metal that does not corrode, its mythical reputation as a hedge against inflation is somewhat tarnished.  The definition of an inflation hedge is an asset that moves in the opposite direction to the effect of inflation, not just an asset that delivers positive after-inflation returns over longer-term periods.  Historically, gold has shown mixed results as an inflation hedge. During the 1970s, a period of high inflation in the U.S., gold prices soared, delivering impressive after-inflation returns. However, in other periods, gold’s performance has been less stellar. For example, from 1980 to 1984, despite high inflation, gold prices fell substantially.  Other alternatives, such as owning shorter-dated inflation-linked bonds is likely (but not guaranteed) to offer a better direct and more immediate hedge against inflation.

Figure 1: Gold prices compared to inflation and other assets 1-1970 to 2-2025

Source: Albion Strategic Consulting. Data: Morningstar Direct © All rights reserved (see endnote)

Gold has not performed that well against other assets

Gold has not been a particularly strong performer relative to global stocks over the past 50 years, despite its rip-roaring start to the 1970s.  After the effects of inflation, £1 turned into £7 of purchasing power for gold, £3 for UK house prices and £16 for global stocks. It would have been painful to remove global stocks from a portfolio to make way for gold.  In addition, the gold price was quite a bit more volatile than that of global stock markets, by about a quarter in fact.

Gold is a good store of value if you have a 2,000-year horizon, but not in the shorter term

Over the period from January 1980 to July 1999, gold lost around a staggering 80% of its purchasing power, making it a very untrustworthy store of value even over decades. Over the same period, the purchasing power of global stocks rose seven-fold.  Over millennia gold does, however, seem to be a good store of value!  For example, 34 ounces of gold would have paid the salary of a Roman centurion or a British Army captain today.  A pair of shoes then, and now, cost around 0.02 ounces of gold, whilst two Roman togas or a suit today would cost about the same[1].  Interesting but largely irrelevant to investors.

Timing when to invest in gold is tricky – just ask Gordon Brown 

In summary, gold has no income stream, making it hard to value.  Supply and demand changes over time, depending upon a wide range of factors, which are largely unpredictable.  Its longer-term return has been materially less than that of global stocks.  Its mythical status as a hedge against inflation is wearing a bit thin. It is hard to make a case for it as a permanent part of a portfolio.  That implies that an investor needs to time when to be in or out of gold, which has proven to be extremely difficult. Just ask Gordon Brown, the former Chancellor of the Exchequer in the UK. Between 1999 and 2002, he sold approximately 395 tonnes of the UK’s gold reserves at average price of USD275 per ounce, a multi-decade low in the gold price, leading to significant criticism and the term ‘Brown’s Bottom’! If he had sold the gold at today’s prices, it would have been worth around ten times as much.  This is probably one of the biggest single market timing mistakes of all time.  Caveat emptor! All that glistens…etc.

Important Notes

This is a purely educational document to discuss some general investment related issues. It does not in any way constitute investment advice or arranging investments. It is for information purposes only; any information contained within them is the opinion of the authors, which can change without notice. Past financial performance is no guarantee of future results.

Use of Morningstar Direct© Data

© Morningstar 2025. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results.

Products Referred to in this Document

Where specific products are referred to in this document, it is solely to provide educational insight into the topic being discussed. Any analysis undertaken does not represent due diligence on, or recommendation of any product under any circumstances and should not be construed as such.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Portfolio performance data are for illustrative, educational purposes only and do not represent live client portfolios.

Asset Classes Used

[1] Reitzer, L., (2023) Wages & Prices of Daily Goods in Ancient Rome. Wages & Prices of Daily Goods in Ancient Rome – neutralhistory.com. Accessed: 17-03-2025

[2] https://smartersuccess.net/indices