SMF Update

Views from the Aviva Investors' Multi Asset Team

Published: 18 May 2026

Top 3 investment themes - April 2026

Geopolitics and oil continued to drive markets
Geopolitics remained the primary driver of markets throughout April, with investors continuing to react quickly to developments in the Middle East. Early in the month, sentiment shifted day to day, with oil prices moving sharply and investors adjusting positions as new information came through, and in light of fluctuating sentiment from the US administration. A temporary ceasefire led to a strong bounce in markets, with oil prices falling and equities rising across regions. However, this did not last, as tensions picked up again and oil moved back above $100 a barrel later in the month. By the end of April, oil remained elevated, at times exceeding $115 per barrel, underlining how sensitive markets continue to be to ongoing supply risks.
Oil swings kept inflation and rate expectations uncertain
Changes in oil prices played directly into inflation expectations and interest rate outlooks throughout April. When oil prices fell, concerns around inflation eased and bond yields came down, with markets expecting less pressure on central banks. As oil prices picked up again, those concerns returned, with higher expected inflation pushing bond yields back up. Central banks responded by holding rates steady and taking a cautious approach given the uncertainty. Overall, markets spent the month reassessing whether the recent rise in inflation would be temporary or longer lasting. A protracted increase in oil prices has the potential to trigger a more significant spike in inflation, which is a primary focus for investors for the remainder of 2026.
Markets were resilient, but gains were uneven
Despite the volatility, equity markets held up better than expected and recovered from earlier falls, supported by an exceptional earnings season in the US. This led to a v-shaped recovery, with multiple equity markets returning to all-time-highs. That said, the progress was volatile. Markets moved in phases, with periods of strength followed by setbacks as sentiment changed. Performance also differed by region, with the US generally stronger while Europe lagged due to greater exposure to higher energy prices. Gains were also concentrated in a relatively small number of large technology companies, rather than spread evenly across the market – over half of the recovery in the US market was driven by a small set of megacap tech companies.

April 2026 market performance (GBP Terms1)

April Market Performance — Past performance is not a reliable indicator for future performance. Source: Morningstar as at 30 April 2026. Equity returns are in GBP, commodity is GBP hedged and fixed income is GBP hedged.

SMF April 2026 Performance

April Performance — Past performance is not a reliable indicator of future performance Source: Morningstar as at 30 April 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.

Growth assets

Despite a month dominated by geopolitical headlines and renewed stagflation concerns, alongside a continued rally in oil, equities rebounded sharply following a weak March. The recovery was led by the US, with North American equities rising 7.0% in April in GBP terms, their strongest monthly gain since November 2020. Amid an outstanding US earnings season, technology drove much of the rebound. The ‘Magnificent Seven’ accounted for over half of S&P 500 returns from the March lows, while the Philadelphia Semiconductor Index surged 38.4% over the month, its strongest performance since February 2000, supported by resilient earnings despite ongoing geopolitical tensions.

Importantly, the recovery broadened beyond US large caps. Risk appetite improved across regions, with Asia Pacific ex Japan and emerging markets also delivering strong gains. Against this backdrop, our tactical asset allocation added value. In particular, our equity overweight positioned portfolios to participate fully in the market rebound.

Defensive assets

Most defensive assets delivered positive returns over the month, with the key exceptions being UK gilts and local currency emerging market debt, as rising energy prices reignited inflation concerns.

Higher-yielding fixed income proved more resilient, with emerging market hard currency debt and global high yield participating in the broader risk rally and delivering strong returns. Inflation-linked bonds also benefited from higher inflation expectations, while investment grade credit remained in positive territory.

Both the Federal Reserve and the Bank of England kept rates unchanged, but their commentary suggested no immediate move towards rate cuts, leading investors to scale back expectations for easing. Government bond yields moved higher across major markets. Japan’s 10-year yield reached levels last seen in 1997, UK gilts hit their highest since 2008, and German bund yields reached levels last seen in 2011. US Treasuries also sold off, with the 10-year yield rising to 4.4%.

In this environment, our underweight to German bunds added value, as higher inflation expectations weighed on core sovereign bond prices.

Key active management themes in April 2026

Equity positioning
Increased equity exposure, with a tilt towards the US over Europe, while maintaining emerging markets driven by semiconductor strength. .
Sector and thematic positioning
Reintroduced basic resources and reduced, but retained, European banks. We also added a new position to US energy given the ongoing conflict.
Portfolio construction and risk
Maintained a positive but measured stance, retaining equity exposure while using energy as a hedge and focusing on targeted sector positions rather than increasing overall market exposure.
Currency
Maintained underweight in the USD and GBP.

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.

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.

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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