SMF Update

Views from the Aviva Investors' Multi Asset Team

Published: 05 Nov 2026

Top 3 investment themes - October 2026

Against the backdrop of a strong year for growth assets, October generated plenty of unsettling headlines, although financial markets proved more resilient than the news flow might suggest. Rising energy prices, concerns over government finances and a closely watched earnings season tested investor confidence. Brent crude rose 13.6%, while global equities fell a relatively modest 2.6% in GBP terms. Bonds provided some protection, with government bonds up +1.7% and corporate bonds up +1.6%.

An energy shock tested market resilience
Energy markets returned to centre stage as tensions in the Middle East pushed Brent crude as high as $117 a barrel, its highest level since April, raising concerns about inflation and economic growth. Yet financial markets proved relatively resilient, with limited evidence of these increases feeding through into broader price pressures. Nevertheless, with tensions showing little sign of easing and the risk of further escalation remaining, investors became more cautious as the month progressed.
Politics and government debt moved up the agenda
After a difficult Q3, government bonds rebounded in October as yields retreated from earlier highs. US Treasuries returned +2.3%, Bunds +1.9% and Gilts +1.7%. France was the notable exception, where political uncertainty and concerns over government debt pushed borrowing costs higher, with 10-year yields briefly exceeding 5% before ending the month at 4.97%, close to their highest levels in more than two decades. In the UK, October’s Budget brought few surprises, with government bond yields ending the month at 5.3%. While higher borrowing costs add pressure to government finances, they also offer investors more attractive yields following significant bond price declines. Attention now turns to the US midterm elections, with control of Congress at stake.
AI faced its earnings test
US earnings season got underway in October, with several major technology companies seeing their shares fall over AI spending concerns. Yet, there were notable positives. Alphabet's Google Cloud division reported 103% revenue growth year-on-year, while Amazon's cloud business also delivered strong growth. However, substantial investment in AI infrastructure continued to put pressure on free cash flow, raising questions about future returns. Importantly, the weakness appeared to reflect a rotation within equity markets rather than a widespread sell-off. Driven by megacaps, the S&P 500 fell 1.7% in GBP terms, whilst the equal-weighted S&P 500 gained 5%. October's results highlighted the contrast between strong growth in parts of the technology sector and increasing scrutiny of the cost and returns of AI investment.

Q3 2026 market performance (GBP Terms1)

October 2026 market performance — Past performance is not a reliable indicator for future performance. Source: Morningstar as at 31 October 2026. 1Equities are in GBP, commodity is USD, and fixed income is GBP hedged

How did SMF perform ?

Despite the volatility seen in equity markets, there were no price adjustments in October 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 portfolios delivering extremely strong performance following an upwards price adjustment earlier in the year.

Growth assets

Global equities had a difficult month, falling 2.6%, with most regions in negative territory following the wobble in technology stocks. The UK was a notable exception, returning +1.1%, helped by strength in the energy sector and its relatively low exposure to technology. SMF's global market-cap approach meant it was more exposed to the weakness in technology this month. It was also a challenging month for our tactical positioning, given our equity overweight positions in the US, Japan and Emerging Markets. Despite the challenging equity environment, portfolios trended in line with their growth rates delivering positive returns.

Defensive assets

As both corporate and government bonds saw positive returns in October, fixed income allocations within SMF provided the portfolios with some resilience following equity market volatility. Our overweight position to UK Gilts added to performance over October.

Alternative assets

Energy markets were the standout performers as geopolitical tensions and supply concerns intensified. Brent crude rose 13.6%, while European natural gas jumped 43.6% to above €100/MWh for the first time since the 2022 energy crisis. Given this, our tactical overweight positions to European and US energy added to performance. AIMS had a slightly weaker monthy as changes in its interest-rate exposure weighed on performance, although returns remain positive year to date.

Active management themes in Q3 2026

1. Reallocated Gilt exposure

We closed our outright overweight position to Gilts and reallocated this to our overweight position to UK Gilts vs US Treasuries.
We believe UK bond markets have already priced in significant fiscal risks, while US markets appear less concerned about their own borrowing challenges. The combination of fiscal restraint, reduced long-dated gilt issuance and weaker growth expectations supports our positive view, with scope for UK yields to fall further and bond prices to rise.

2. Closed our overweight position to AUD vs GBP

We closed our overweight position to the Australian Dollar relative to Sterling to take profit.

3. Opened an overweight position to European banks

Following strong earnings from the European banks, we opened an overweight position in the sector.

Q3 2026 Performance

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

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

Global growth has continued to prove more resilient than expected despite higher energy prices and ongoing geopolitical uncertainty. Recent activity data, particularly in the US, have surprised to the upside, supported by strong business investment, resilient consumer demand and continued AI-related spending. While initial optimism around a US-Iran diplomatic breakthrough temporarily eased pressure on energy markets, oil prices have since moved higher again as concerns around potential disruptions to traffic through the Strait of Hormuz persist. As a result, inflation risks remain elevated, particularly given the strategic importance of the region to global energy supply.

In our central scenario, the balance of risks has become more complicated. Growth remains positive across major developed economies, and recession risks continue to appear low, but the likelihood of a more prolonged energy shock has increased. This could weigh on real incomes, confidence and investment, particularly across energy-importing regions such as the UK and Europe. Nevertheless, recent economic and corporate fundamentals suggest that large-cap companies remain relatively well positioned to navigate the current environment.

On interest rates, central banks have become increasingly concerned about the combination of resilient activity and persistent inflation. Markets have repriced expectations for further policy tightening, with the ECB maintaining a hawkish stance and both the Federal Reserve and Bank of England facing pressure to keep rates higher for longer should energy prices remain elevated. Against this backdrop, we continue to favour UK gilts relative to US Treasuries, where stronger domestic growth provides greater justification for higher policy rates and bond yields.

Against this backdrop, the outlook for equities remains constructive, although the range of potential outcomes has widened. We retain overweight positions in the US, Japan and Emerging Markets, where growth dynamics remain comparatively resilient. We also maintain selective exposure to European defence and banks, US and European Energy, and Semiconductors, supported by long-term structural themes and continued investment in technology and infrastructure.

We continue to hold an underweight position in the US dollar and sterling.

Key risks Show more Show less

Any companies, or markets, mentioned are for illustrative purposes only, not intended to be an investment recommendation.

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 Show more Show less

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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