SMF - July 2025 update
Top 3 investment themes – July 2025
1. Trade agreements: relief rallies and reversals
July brought a wave of trade announcements between the US and key partners such as Japan and the European Union. The agreements shared similar structures: both Japan and the EU accepted a flat 15% tariff on all goods exported to the US, while imposing no tariffs on US imports. Each also pledged significant investments and committed to large-scale purchases of US goods. While politically significant, these agreements are not yet legally binding, and several details warrant closer consideration. For instance, the EU’s promise to import $750 billion worth of US energy over the next three years, which exceeds its current total annual energy imports from all countries combined. Market reactions were mixed, though Japan’s agreement was viewed more favourably than anticipated, prompting a rally in Japanese equities. In contrast, an initial rally in European markets swiftly reversed, perhaps reflecting concerns over an imbalanced negotiation.
2. Tech earnings and AI investment drive US equities higher
The US equity rally in July was once again led by the Magnificent Seven, which posted a nine-day winning streak, the longest since 2023. These stocks had already been performing well following stronger than expected Q1 earnings, but Q2 results added momentum. Of the Magnificent 7 that have reported, two factors stood out: earnings once again beat expectations, and these companies reaffirmed, or even increased, their capital expenditure plans for artificial intelligence. For example, Microsoft reported strong growth in its Azure cloud business and announced a $100 billion capex plan for the next fiscal year, while Alphabet raised its 2025 capex guidance to $85 billion. These trends reassured investors, as they imply that rising customer demand for AI solutions justifies the capital expenditure, which is already translating into earnings.
3. Rates on hold, rumours on the rise
In July, the European Central Bank held rates steady for the first time in a year, signalling a shift away from its recent cutting bias. Similarly, the Federal Reserve left rates unchanged and offered little encouragement for those hoping for a September cut. This cautious tone disappointed bond markets, where expectations for easing had been building. Beyond the policy decisions themselves, there was another development that caught attention, more for the spectacle than the substance. President Donald Trump made a rare visit to the Federal Reserve, only the third time a sitting or former president has done so, and the first not tied to a ceremonial swearing-in. The visit, reportedly to raise concerns over renovation costs, was seen by some as an attempt to apply pressure on Chair Jay Powell. While the rhetoric has since been softened, the episode raised questions about the degree of political pressure being placed on the Fed.
July 2025 Market performance (GBP terms1)

Past performance is not a reliable indicator for future performance.
Source: Morningstar as at 31st July 2025. 1Equity returns are in GBP, commodity in USD and fixed income is GBP hedged.
How did SMF perform?
Growth assets
All major equity markets delivered positive returns in July (in GBP terms), with Asia Pacific, North American and Emerging markets the standout performers. Once again, attention centred on the US economy, where strong corporate earnings, resilient macroeconomic indicators, and progress in trade negotiations with key partners fuelled continued growth, driving US markets to record highs in the latter half of July. Investor attention was particularly focussed on large US companies’ earnings, especially within the tech sector, reflected in the Magnificent Seven ending the month up 11.4% (in GBP terms). Notably, UK-based, sterling investors were also positively impacted by a strengthening dollar. More broadly, Global markets responded positively to an improving tariff outlook and encouraging progress in international trade negotiations—including agreements with Japan, Indonesia, the Philippines, and Europe. This led our overweight positions in North American, European and Emerging Market equities to add to performance over the month.
Defensive assets
Global sovereign bonds, notably US bonds, faced headwinds in July given heightened fiscal concerns. The month was defined by President Trump’s unveiling of the 'One Big Beautiful Bill', a sweeping fiscal stimulus package which aims to boost economic activity, while sharply raising projections for US government debt. While US Treasury yields saw some relief later in the month – partly due to Trump stepping back from immediate threats to dismiss Federal Reserve Chair Jerome Powell – yields ultimately ended higher, resulting in lower bond prices. In the UK, Gilt yields also spiked early in the month following a government U-turn on welfare spending cuts, which had been expected to deliver £5 billion in fiscal savings. This reversal furthered investor concerns over the growing UK deficit. With global yields moving higher, and bond prices lower, our global fixed income holdings generally posted negative performance over the month. In terms of tactical positioning, our underweight to French government bonds slightly added to performance, whereas our relative value position in US Treasuries slightly detracted.
Alternative assets
The Alternatives sleeve continued to deliver positive performance over July, with the bulk of this coming from our UK Property holding, with industrial and office sectors leading the way. On the currency side, our tactical underweight to the US Dollar detracted from performance, as stronger-than-expected US data supported dollar strength over the month.
Key active management themes in July 2025
1. Rotated Euro vs US Dollar overweight to Yen vs US Dollar
- Given the potential loss of a government majority by Japan’s incumbent leadership, it is likely that there will be a policy shift away from the ruling coalition led by the Liberal Democratic Party. As a result of this political uncertainty, the Bank of Japan’s ability to increase interest rates further could be constrained, despite inflation remaining elevated.
- This backdrop supports a stronger Yen, making it a compelling way to express our underweight US Dollar view.
- As a result, we rotated our overweight exposure against the US Dollar from Euro to Yen.
2. Opened an overweight Euro position relative to Sterling
- In light of broader growth and fiscal concerns in the UK, particularly with the looming UK budget, we believe the Sterling has a poor outlook.
- Conversely, there is a much more positive fiscal story in Europe, especially given the additional spending announced earlier this year by Germany. Support for the Euro has been further reinforced given the weakness in the dollar.
- Given this, we initiated an overweight position in the Euro relative to Sterling.


Past performance is not a reliable indicator of future performance
Source: Morningstar as at 31st July 2025. Performance of the funds are net of fee.
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 30 June 2024.
Top 10 Equity holdings
Equity | Holding |
Nvidia | 1.6% |
Microsoft | 1.4% |
Apple | 1.3% |
TSMC | 0.9% |
Amazon | 0.9% |
Meta | 0.7% |
Broadcom | 0.5% |
Tencent | 0.4% |
SAP | 0.4% |
ASML | 0.4% |
Source: Aladdin, as at 30th June 2025. The reference fund is SMF. The companies mentioned are for illustrative purposes only, not intended to be an investment recommendation.
SMF & SMF 2 Fund Price Adjustments (FPA)
There were no fund price adjustments in April 2025.
Market outlook and positioning: what do we believe happens next?
From an active asset allocation perspective, we maintain a constructive stance on equities as investor sentiment has improved, and corporate earnings continue to show resilience. In fixed income, are neutral duration but we do see value in selective parts of the yield curve such as the US 5-year treasury. We also retain our underweight US Dollar position, which is relative to underweights in JPY & 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 and resilient macro data. Our overweight positions in European and Emerging Market equities allow for diversification within our equity allocation; the outlook for both regions has also improved due to signs of easing trade relations with the US more recently. Within the UK, we have a relative value position, favouring an overweight to UK mid-caps vs the broader market, as these companies stand to benefit more from central bank easing and USD weakness.
In fixed income, we are neutral duration. We have a relative value trade in Europe with an overweight to German Bunds vs and underweight in French OATs. This allows us to isolate the potential for greater fiscal risks in France compared to the broader Euro Area, which would drive down French bond prices. Within the US, given salient fiscal concerns which impact longer-term bonds, we have structured our fixed income position to be overweight 5y US bonds vs an underweight to 30y US bonds.
Any companies, or markets, mentioned are for illustrative purposes only, not intended to be an investment recommendation.
Key risks
- Investment not guaranteed: The value of an investment is not guaranteed and can go down as well as up. You could get back less than you’ve paid in.
- Specialist funds : 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.
- Suspend trading : 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.
- Derivatives: Derivatives are financial contracts whose value is based on the prices of other assets. Most funds can invest partly in derivatives so that the fund can be managed more efficiently or to reduce risk, but there’s a risk that the company that issues the derivative may default on its commitments, which could lead to losses. Some funds also use derivatives to increase potential returns – this is known as ‘speculation’ – and an additional risk warning applies to those funds.
- Foreign exchange risk: When a fund invests substantially in overseas assets, its value will go up and down in line with movements in exchange rates as well as the changes in value of the fund’s investments.
- Emerging Markets: Where a fund invests substantially in emerging markets, its value is more likely to move up and down by large amounts and more frequently than a fund that invests in developed markets. Emerging markets may not be as strictly regulated, and investments may be harder to buy and sell than in developed markets. Emerging markets may also be politically unstable which can make these funds riskier.
- Smaller Companies: Where a fund invests in substantially the shares of smaller companies, it’s more likely to move up and down by large amounts and more frequently than a fund that invests in the shares of larger companies. The shares can also be more difficult to buy and sell, so smaller-companies funds can be riskier.
- Fixed Interest: Where a fund invests substantially in fixed-interest assets, such as corporate or government bonds, changes in interest rates or inflation can contribute to the value of the fund going up or down. For example, if interest rates rise, the fund’s value is likely to fall.
- Derivatives: Some funds also invest in derivatives as part of their investment strategy, not just for managing the fund more efficiently. Under certain circumstances, derivatives can cause large movements up or down in the value of the fund, making it riskier compared with funds that only invest in, for example, company shares. There’s also a risk that the company that issues the derivative may default on its commitments, which could lead to losses.
- Cash/Money Market funds : These are different to cash deposit accounts, such as those held with high-street banks, and their value can fall. Also, when interest rates are low, the fund’s charges could be higher than the return from the investment, so you could get back less than you’ve paid in.
- Property Funds: When a fund invests substantially in property funds, property shares or directly in property, you should bear in mind that: · Property isn’t always easy to sell, so at times the fund may not be able to cash-in or switch part or all of its holdings. You may not be able to access your money during this time. Property valuations are made by independent valuers, but effectively they remain a matter of judgement and opinion. Property transaction costs are high due to legal costs, valuation costs and stamp duty, all of which affect the value of a fund.
- High Yield Bonds: These are issued by companies and governments that have a lower credit rating. When a fund invests substantially in high yield bonds, there’s a higher risk that the bond issuer might not be able to pay interest or return the capital that was invested. The value of these bonds is also more greatly affected by economic conditions and interest rate movements. There may be times when it’s not easy to buy or sell these bonds, so cashing-in or switching your investment in the fund may be delayed. You may not be able to access your money during this period.
- Reinsured Funds: Where a fund invests in a fund that’s operated by another insurance company, you could lose some or all of the value of your investment in the fund if the other insurance company became insolvent.
- Long-Term Asset Funds: The fund invests partly in one or more long-term asset funds (LTAFs), giving access to sectors such as infrastructure, venture capital, private equity and debt investments. LTAFs add diversity to the fund, but it takes longer to move money out of them than from many types of asset. This could mean that in exceptional circumstances cashing-in or switching your investment in the fund may need to be delayed. To reduce this risk, we set strict limits on how much of the fund can be invested in LTAFs and monitor this closely.
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. In the UK this is issued by Aviva Investors Global Services Limited. Registered in England and Wales No. 1151805. Registered Office: 80 Fenchurch Street, London, EC3M 4AE. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178.