SMF Update

Views from the Aviva Investors' Multi Asset Team

Published: 10 Sep 2026

Top 3 investment themes - August 2026

August was marked by a tug of war between strong growth and renewed inflation concerns. Global equities advanced, with the MSCI ACWI rising 1.9% in GBP terms, supported by stronger than expected earnings and continued confidence in the AI investment cycle. Global government bonds fell modestly as bond yields moved higher. Commodity markets were also in focus, with gold rising 9.7% and Brent crude oil gaining 0.4%, both in US dollar terms. Gold benefited from a shifting market backdrop, while oil was impacted by ongoing uncertainty in the Middle East.

Higher for longer interest rates
Government bonds finished the month broadly flat, as weaker economic data helped offset a sharp rise in long-term yields towards month-end. Investors increasingly questioned whether interest rates can return to the ultra-low levels of previous decades, with persistent inflation concerns, rising government borrowing and the huge investment required for AI infrastructure pushing the US 30-year Treasury yield to 5.3%, its highest level since 2007. In the UK, the 30-year gilt yield climbed to 5.9%, within touching distance of a post-1998 high, reigniting debate over whether markets are entering an era of structurally higher interest rates.
AI optimism expands beyond technology
Artificial intelligence remained a key driver of markets in August, with investment in data centres, semiconductors and digital infrastructure continuing to support growth expectations. Strong corporate earnings reinforced the story, with S&P 500 earnings up around 47% year-on-year and 86% of companies beating forecasts. Importantly, earnings strength broadened beyond technology, suggesting the benefits of AI investment are increasingly flowing through to the wider economy.
Oil prices rekindle inflation concerns
Geopolitical tensions in the Middle East pushed oil prices back above $90 per barrel during August, reigniting concerns that inflation could remain higher for longer. Higher energy prices contributed to rising government bond yields as investors reassessed the likelihood of interest rates staying elevated. As a result, markets balanced resilient growth and strong earnings against the risk of renewed inflationary pressures.

August 2026 market performance (GBP Terms1)

How did SMF perform ?

Despite the volatility seen in fixed income markets in the latter half of the month, there were no price adjustments in August which meant that both SMF and SMF II trended upwards in line with their growth rate, delivering 0.6% and 0.5% respectively. Year-to-date, performance remains strong, with the SMF (bond) delivering extremely strong performance following an upwards price adjustment earlier in the year.

Growth assets

It was a strong month for equity markets, with all major regions posting positive returns. Strong economic data and another record-breaking earnings season pushed stocks to fresh highs, with US equities up +2.1% and European equities up 2.0%. Despite bond yields reaching multi-year highs, investors remained focused on the resilience of growth and corporate profits. This provided a favourable backdrop for SMF's globally diversified strategic asset allocation. It was also an exceptionally strong month for our tactical positioning. Regional overweights to the US, Europe, Japan and Emerging Markets all contributed positively to returns. Within our sector positioning, the standout performer was our overweight allocation to European Basic Resources, while overweights to Semiconductors, European Defence and US Energy also added meaningful value.

Defensive assets

Government bonds finished the month broadly flat, as softer economic data offset a late rise in long-term yields. Corporate bonds fared slightly better, returning +0.2%, leaving the fixed income sleeve of SMF modestly positive overall. In currency markets, the US dollar weakened by 0.5%, marking its second consecutive monthly decline as investors weighed the implications of higher borrowing requirements and increased central bank intervention. This was positive for our tactical positioning, with our underweights in the US dollar and pound sterling both adding value. Our overweight position to UK Gilts slightly detracted this month renewed concerns about sticky inflation and potential rate hikes.

Alternative assets

Alternative assets were the standout performers in August. Notably, our allocations to the AIMS total return fund continued to add to performance, demonstrating its benefit in an environment where both equities and bonds struggled. AIMS benefited by having exposure to European Basic Resources following supply chain concerns linked to the continued closure of the Strait of Hormuz, as well as remaining short duration.

Active management themes in August 2026

Reduced our overweight position to AUD vs GBP

- We remain constructive on the Australian dollar as a beneficiary of global growth, but reduced the position tactically ahead of a Royal Bank of Australia meeting where markets were pricing very little change. With the balance of risks skewed towards a more cautious central bank message, we reduced risk while retaining the core conviction.

August 2026 Performance

August Performance — Past performance is not a reliable indicator of future performance. Source: Morningstar as at 31 July 2026. 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.

SMF Fund Price Adjustments

There were no price adjustments in August 2026.

Market outlook and positioning: what do we believe happens next?

An exceptional Q2 earnings season in the US has helped anchor market confidence, with earnings growth exceeding 47% 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. The interim deal agreed between the US and Iran has brought down oil prices to pre-war levels, which has reduced inflation expectations. Whilst geopolitical risks remain, the ultimate impact will depend on whether traffic continues through the Strait of Hormuz, a critical global oil supply route.

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 initially looked through the energy-driven inflation shock, but there has been growing hawkish stance from Central Banks across the globe, already reflected by an interest rate hike by the ECB. In a more adverse high oil price scenario, we 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 positive, 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, US Energy, and Semiconductors supported by longer-term structural themes.

We continue to hold an underweight position in the US dollar and sterling, alongside an overweight to the Australian Dollar.

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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