SMF - October 2025 Update
SMF & SMF 2 Fund Price Adjustments (FPA)
On the 10 October 2025, the price of the Smooth Managed Fund/ISA S14/15 was adjusted upwards by 5.37% to 149.31p. The price of the Life Smooth Managed Fund S16 was adjusted upwards by 5.48% to 109.59p.
Top 3 investment themes – October 2025
1. Narrow rally persists as early earnings impress
2025’s bull market extended through October, with global equities ending the month at or near record highs. UK-based investors also benefited from the dollar’s third-quarter rebound, although it remains down year-to-date. The equity rally was briefly interrupted by a sharp risk-off move early in the month, after President Trump threatened 100% tariffs on China, triggering the S&P 500’s largest daily drop since Liberation Day, falling 2.70% on October 10th. Despite the volatility, the index posted its sixth consecutive monthly gain, marking its longest winning streak since 2021. Once again, the rally was led by a narrow group of tech stocks. Strong earnings across the Magnificent Seven helped ease investor concerns around a potential correction in the AI theme. By month-end, 64% of companies had reported, with 83% beating EPS expectations. Nvidia became the first company to reach a $5tn market cap, while Microsoft and Apple also crossed the $4tn threshold. Yet the concentration in US equities remained stark - the MAG 7 rose +4.90%, while the equal-weighted S&P 500 fell -0.90%, underscoring the narrow breadth of the rally.
2. Japan’s historic rally and EM momentum
Japan’s Nikkei posted its strongest monthly gain since October 1990, rising +16.60% following the election of Prime Minister Sanae Takaichi. The rally was broad-based, supported by optimism around structural reform and fiscal stimulus. Emerging market equities also contributed to the global equity rally, with the MSCI EM index up 28% year-to-date, its biggest surge in in over 15 years. Notably, Korea’s Kospi and Taiwan’s Taiex hit record highs, driven by demand for AI-related infrastructure. Local currency EM bonds rallied as well, supported by attractive real yields and cautious central bank policy.
3. Amid persistent hawkish sentiment and sticky inflation, gold exceeds $4,000
Gold broke above the $4,000/oz threshold for the first time in October, driven by stubborn inflation, pressure on sovereign debt, and continued central bank buying. Retail demand also surged, while silver posted its sixth consecutive monthly gain - a streak not seen since 1980. The move came despite a hawkish backdrop: the Fed delivered a 25bps rate cut, but Chair Powell warned that further easing is “not a foregone conclusion.” The US dollar strengthened, becoming the top-performing G10 currency in October, while the yen weakened. Meanwhile, Bitcoin fell -4.5% despite reaching an all-time high on October 6th, and oil prices declined. The continued strength of the gold price reflects ongoing pressure on fiat credibility, fiscal sustainability, and investor appetite for hard assets in an increasingly uncertain macro environment.
Net performance (GBP Terms)
Past performance is not a reliable indicator for future performance.
Source: Morningstar as at 31 October 2025. All returns are in GBP and fixed income is GBP hedged.
How did SMF perform?
Growth assets
It was a positive month for equity markets globally, with Asia Pacific ex Japanese equities being the standout performer in GBP terms. This was largely driven by easing trade tensions between the US and China, as Presidents Trump and Xi agreed to extend tariff suspensions and delay export restrictions. Japanese equities also saw a notable rally, with the Nikkei index climbing +16.6% - its strongest monthly performance in 35 years in local currency terms - following the election of Sanae Takaichi. US equity markets also had their 6th consecutive monthly gain, ending the month up +2.3%. This was driven by a strong start to Q3 earnings, with 83% of companies beating analyst expectations on earnings per share. The Magnificent Seven continued their rally, rising +4.9%, in which Nvidia became the first company to reach a $5 trillion market cap - surpassing the GDP of every country except the US and China. As a result, the NASDAQ - a tech-heavy US index - ended the month up +4.7%. From an active positioning perspective, our tactical overweight positions to Emerging Markets, US equities (including our overweight to the NASDAQ) and European equities added to performance, whilst our overweight position to European Banks marginally detracted.
Defensive assets
Fixed income markets also had a positive month, with all major regions posting gains. UK Gilts had the strongest performance, supported by a rally that drove down UK government borrowing costs, which could prove pivotal for the upcoming Budget. This was driven by the expectation of further interest rate cuts by the Bank of England given the strong likelihood of a deflationary and contractionary Budget, and lower than expected inflation data in September. Globally, sovereign bond yields fell as the US Federal Reserve cut interest rates by 0.25%. At the meeting, Chair Powell signalled caution around a December rate cut, which provided support for the US Dollar. In France, the political turmoil caused by the ongoing challenges related to the budget led the S&P to downgrade France from AA- to A+, whilst Moody's reduced the French outlook from stable to negative. In terms of our active positioning, our overweight to Australian government bonds added to performance, whilst our US Treasury position and underweight to the US Dollar detracted.
Alternative assets
Performance for the SMF alternatives allocation was positive over the month, with both UK Property and AIMS delivering positive performance. Within AIMS, our overweight allocation to Japanese equities was the biggest performance contributor.
Key active management themes in October 2025
Active equity management
- Earlier in the month, we reduced exposure to Emerging Market, European, and US equities in response to heightened risks surrounding the US-China trade tensions. As these risks began to ease, we reinstated positions across these regions, reflecting improved sentiment.
October 2025 Performance
Past performance is not a reliable indicator of future performance
Source: Morningstar as at 31 October 2025. Performance is shown net of fees.
The launch date of SMF (pension) was 11/12/2017, SMF (bond) 18/02/2019, SMF II (pension) 30/06/2021 and SMF II (bond) 30/06/2021.
Source: Aviva Investors. This diagram is for illustrative purposes only, asset allocations are subject to change. The reference fund is SMF, based on its strategic asset allocation as at 31st August 2025.
Market outlook and positioning: what do we believe happens next?
From an active asset allocation perspective, we maintain a constructive view on equities as investor sentiment has improved, and corporate earnings continue to show resilience. In fixed income, we are neutral duration but do see value in selective parts of the yield curve such as the US 5-year treasury, and Australian 10-year government bonds. We also retain our underweight US Dollar position, which is relative to overweight positions in JPY, Euro & EMD Local Currency.
In terms of equity regions, we have diversified our overweight exposure across US, European and Emerging Market equities. We maintain a moderate overweight to US equities, against the backdrop of strong corporate earnings - especially within US tech - and resilient economic data. Our overweight positions in European, including European banks, and Emerging Market equities allow for diversification within our equity allocation; the outlook for both regions has also strengthened given improving trade relations with the US.
In fixed income, we are neutral duration. Within the US, given the high levels of government debt impact longer-term bonds, we are overweight 5y US bonds vs an underweight to 30y US bonds. We also remain overweight Australian 10-year government bonds, as we believe the Reserve Bank of Australia will deliver more interest rate cuts than currently expected.
Any companies, or markets, mentioned are for illustrative purposes only, not intended to be an investment recommendation.
Key risks
- Investment/Objective risk - The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.
- Currency risk - The fund is exposed to different currencies. Derivatives are used to minimise, but may not always eliminate, the impact of movements in currency exchange rates.
- Derivatives risk - Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred. Derivatives can have some degree of unpredictability (especially in unusual market conditions), and can create losses significantly greater than the cost of the derivative itself.
- Emerging market risk - Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.
- Fixed Income risk - Investments in fixed interest securities are impacted by market and credit risk and are sensitive to changes in interest rates and market expectations of future inflation. Bonds that produce a higher level of income usually have a greater risk of default.
- Specialist Funds risk - Some funds invest only in a specific or limited range of sectors. This will be set out in the fund’s aim. These funds may be riskier than funds that invest across a broader range of sectors.
- Suspension of trading risk - Fund managers are often able to stop any trading in their funds in certain circumstances for as long as necessary. When this happens, cashing in or switching your investment in the fund will be delayed. You may not be able to access your money during this period.
- This is a summary of the key risks. For further information on the full risks and risk profiles of the fund, please refer to the relevant Fund Factsheet.
Important information
THIS IS A MARKETING COMMUNICATION
Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but, has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. This material is not a recommendation to sell or purchase any investment.
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