SMF Update
Views from the Aviva Investors' Multi Asset Team
SMF Fund Price Adjustments
On the 7 May 2026, the price of the Life Smooth Managed Fund S4 was adjusted by +5.55% to be 149.68p. The upward price adjustment on the Smooth Managed Fund comes amid a complex but rewarding year for global assets, which saw many asset classes reach all-time highs in the second half of the year.
Top 3 investment themes - May 2026
May 2026 market performance (GBP Terms1)
How did SMF perform ?
Growth assets
May saw a strong rebound in equity markets, with all major regions posting positive returns. This was supported by easing stagflation concerns as hopes for a US‑Iran deal gathered momentum, alongside renewed enthusiasm for AI following very strong earnings. Tech‑heavy markets led the way, with Asia Pacific ex‑Japan up +10.9% on the month, while the S&P 500 rose +6.0% in total return terms to a new record. Semiconductor names were a standout, with Micron Technology and SK Hynix rising +89% and +63% respectively over the month, taking both to gains of over +200% year to date. Elsewhere, gains were broad‑based, with European equities up +4.3% and Japan’s Nikkei advancing +11.9%. Our overweight positions to US and Emerging Markets added to performance, alongside sector specific overweight positions to European basic resources and banks. However, our overweight position to US Energy slightly detracted.
Defensive assets
Bond markets experienced a volatile but ultimately positive month, as inflation concerns eased into month-end. Sovereign yields initially moved sharply higher, with US 30-year Treasury yields briefly reaching a post-2007 high, while UK 10-year gilt yields touched 5.2% - a post-2008 high - amid political uncertainty. However, as fiscal concerns eased and hopes of a US–Iran deal strengthened, bonds rallied into month-end. Gilt yields fell by around 20bps to 4.8%, delivering returns of 2.0%. Euro sovereigns gained 1.1%, while US Treasuries posted a more modest 0.1% return. Our recently added overweight gilts position relative to US Treasuries added to performance following the rebound in gilts. In terms of currencies, our underweight to the US dollar detracted from performance as it continued to strengthen over the month, whilst our underweight to sterling added following political turbulence in the UK.
Alternative assets
It was a positive month for the alternatives sleeve. Alternative assets moved sharply in May, led by a significant decline in oil prices. Brent crude fell -19.3% in USD terms as markets priced in a potential easing of Middle East tensions and a possible US‑Iran agreement. The move lower in oil helped ease concerns around stagflation and acted as a key driver of the broader improvement in risk sentiment. Gold also declined, falling -0.4%, as higher real yields and fading inflation fears weighed on demand for safe havens. In this environment allocations to macro strategies such as AIMS and AISS added to performance.
Active management themes in May 2026
- UK yields have risen relative to other G10 markets on the back of political and fiscal uncertainty but weakening macro data - particularly wages and the labour market - suggests rate hike expectations may need to be dialled back, which is supportive for gilt prices.
- By contrast, US rate expectations still look low given ongoing inflation risks, meaning Treasury yields may have further to rise.
- As a result, we have added an overweight to gilts relative to Treasuries.
May 2026 Performance
SMF Strategic Asset Allocation
Market outlook and positioning: what do we believe happens next?
An exceptional Q1 earnings season in the US has helped anchor market confidence, with earnings growth exceeding 25% year-on-year. More broadly, macro indicators continue to point to a resilient backdrop, with growth holding up better than expected despite mounting geopolitical and inflationary headwinds. However, the ongoing conflict in the Middle East, and the resulting rise in oil and gas prices continue to add uncertainty. The ultimate impact will depend on how quickly tensions ease and whether the Strait of Hormuz, a critical global oil supply route, reopens.
In our central scenario, inflation risks for 2026 have moved higher while the growth outlook has softened, particularly in energy-importing regions such as the UK and Europe. That said, recent US earnings strength suggests large-cap companies remain well positioned to navigate the current environment.
On interest rates, central banks may initially look through the energy-driven inflation shock, but there is a growing risk that persistent inflation delays or derails expected rate cuts. We see a higher likelihood of renewed tightening from the ECB and, in a more adverse high oil price scenario, cannot rule out further rate increases from the Bank of England or the Federal Reserve. We hold an overweight position to UK Gilts relative to US Treasuries given differing rate outlooks.
Against this backdrop, the outlook for equities remains broadly constructive, but with a wider range of outcomes. We retain overweight positions in the US, Japan and emerging markets, where growth dynamics remain relatively resilient. We also maintain selective exposure to European defence and banks, supported by longer-term structural themes.
We continue to hold an underweight position in the US dollar and sterling, alongside an overweight to the euro, while remaining cautious on GBP given ongoing political uncertainty.
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