Our latest quarterly video provides an update on the key investment highlights from Q3 with an assessment of the performance of our MPS strategies, and an overview of some of the key market events that shaped them.
The team also reflect on the past three-years as we approach the anniversary of the 2Plan Rathbones Managed Portfolio Service.
Access a five minute version of this update to share with clients.
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Video transcription
Quarterly 2plan MPS performance update
For 2plan advisers using our Managed Portfolio Service
Open to read a transcript of the video
Lee Crowe: Good morning, everybody. My name's Lee Crowe, I'm one of Rathbone's strategic account partners. I'm delighted today to be joined by Ronelle Hutchinson and Andrew Yung, two of our experienced, investment directors. We're here to mark a significant milestone, the 3-year anniversary of the 2plan tailored MPS and run through the quarter 3 update. On behalf of Rathbones, I'd like to thank you for joining us today, but I'd also like to thank you for your support to date. A little bit of housekeeping. On the right-hand side there is a box for questions and answers. If you'd like to pop any questions in there, that would be fantastic, and you can also leave feedback.
So, over the last 3 years, we've seen Geopolitical tension, we've seen economic instability, we've seen policy shocks, we’ve seen a little bit of everything. So, I'm going to start off with a question for Ronelle, looking back over those last 3 years, what, what would you say is the most defining moment or, or market event, and how has that shaped the portfolio strategy moving forward?
Ronelle Hutchinson: Thanks, Lee. I think if you look at this slide, it's clear that there hasn't been one single event, but rather a series of rolling volatility shocks in markets across the four key dimensions of equities, bonds, inflation, and geopolitics. I think it's created a very complex macro backdrop and from a portfolio perspective, we have emphasized risk management as the central strategy to manage portfolios amidst this level of uncertainty. So, it's really been the compass that we've used to guide the portfolios to mitigate the drawdown risk while still enabling portfolios to participate in the surprisingly robust returns that we have seen.
Video transcription
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Lee Crowe: Fantastic, thank you for that. Andrea, we travelled together at the start of this year seeing 2plan advisers and if you remember back at the start of 2025, the S&P 500 was at an all-time high at the time and it was with the expectation of Trump's return, bringing, pro-business agenda and deregulation and tax cuts. Then Liberation Day came in April where we saw 2 trillion wiped off the S&P over the next 20 minutes and then over the following days, we saw 6 trillion wiped off the markets and now obviously today we're back up to those kinds of all-time highs. So, that's just one example of the frequency and volatility that we're seeing currently, how does that kind of play out when you're trying to manage the money for a long-term investment strategy within the portfolios?
Andrea Yung: Yes, so risk management is integrated through our investment process, and that really is key. So, before we make any model changes, we've run those changes to our risk framework, and that's really to understand the impact that that change will have, not just in isolation, but across the whole portfolio. As part of this, we stress test the portfolio as well, and that's to understand how it could behave under certain conditions. So, for example, what happens if interest rates rise by 5 to 10%, or what if the US dollar falls by 10% plus? These types of scenarios just really help us to understand how we expect our portfolios to perform, and it also gives us a clear picture of those potential vulnerabilities. So ultimately, this process is really about building resilience so that whatever the market environment, our clients' portfolios are positioned to weather that volatility and protect long term performance. Now, we also ensure that we have sufficient diversification within the portfolio, and as we've seen historically, styles and certain sectors can fall out of favour very quickly. What’s driving returns one quarter can be detracting the next and we therefore want to ensure that clients’ portfolios are protected from these volatility swings, and we want to offer that smoother return. This is increasingly important for clients as their investment time horizon begins to shorten, particularly for those that are approaching retirement.
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Ronelle Hutchinson
Senior Investment Director
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Investment Director
Andrea Yung
Senior Investment Director
Ronelle Hutchinson
I am a Senior Investment Director at Rathbones.
I have over 20 years of industry experience. Most recently as a portfolio manager for Investec Wealth & Investment in their South African office managing a range of multi-manager funds for our private clients. I am responsible for overseeing Rathbones' Managed Portfolio Service on platforms. My focus is to ensure that we deliver consistent investment performance & a proactive service to our advisory clients.
I am responsible for the portfolio management of Rathbones' MPS on Platforms service. Using a structured and disciplined investment framework, our primary focus is delivering outcomes that align with the objectives and risks associated with each MPS strategy.
Investment Director
Andrea Yung
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Business Development Director
Lee Crowe
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Balanced
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Cautious
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Defensive
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Moderately Cautious
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Lee Crowe: Fantastic, thank you very much for that. I know personally in 2024, whilst we're still looking back that, the biggest talking point, when we're talking about investing was the Magnificent Seven, obviously because of that stellar performance. But when I'm speaking to advisers this year in 2025, it feels like that narrative has changed slightly.
We’re talking a little bit more around Tesla stumbling at the start of the year and I feel that the magnificent 7 feel a little bit more, fragile. With this concentration risk, how do you position the portfolios for 2Plan clients, for downside protection?
Andrea Yung: If we think about concentration risk in particular, this has definitely been a growing concern in recent years. We've seen such strong growth from a small number of stocks in the US that's been supported by that drive in that AI momentum. Now if you move on to the next slide, we can see the Magnificent Seven stocks and how that represents over 30% of the S&P 500. Now, although these companies do have strong business models and balance sheets, this type of concentration does pose an increased risk, for volatility if momentum changes.
Earlier this year, for example, concerns around China's AI platform Deepseek just highlighted how quickly that sentiment can change.
So, if we look towards the slide, we can see that we do maintain exposure to these types of US stocks. You can actually see our weightings in the dark blue line there, and that's compared against the global index funds and US index funds. So, you can see that we do hold these stocks. But we are mindful of the risks of being overly exposed, and that's just not to these stocks, but that's to any single theme or group of stocks, and it's taken these types of concentration risks into account when we're thinking about our long-term objectives. So, I think that highlights how we think about concentration risk and how we're monitoring it.
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Lee Crowe: Fantastic, thank you, Andrea. So, if I'm a 2Plan adviser, how do I kind of measure that active risk management within the portfolios?
Andrea Yung: So, I think one of the best ways to actually demonstrate this resilience in action is by looking at the portfolio drawdown during times of market stress.
So, if we move on to the next chart. This just highlights how our moderately cautious portfolio, which is in the shaded blue area, has consistently provided stronger downside protection compared against the IA benchmark, which is the pink line. So, you can see, especially if you're looking at significant pullbacks, that we have protected more on the downside and a key contributor to this resilience is our allocation to alternatives, particularly our absolute return strategies. So, these funds are designed to deliver low volatility and low correlation to equities. So, while they won't lead performance in a strong equity rally, they play an important role in cushioning portfolios drawing those downturns and I think that's really key to understanding how we actually position ourselves relative to competitors. So, we do tend to have a higher allocation to alternatives, especially when we're seeing heightened risk in markets, and this approach just reflects our philosophy. We prioritize risk management and long-term outcomes over chasing those short-term gains. So as a result, our portfolios may lag slightly in those sharp rallies, especially when it's driven by a handful of stocks, but they should offer a smoother return profile over time and the data supports this, we can see that we've delivered lower maximum drawdown and lower volatility relative to the IA benchmark.
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Now, if we focus on the bar chart on the next slide, this highlights the upside downside capture of returns relative to the benchmark. So, it shows that we have captured more of the upside than we have of the downside, and that protection on the downside just helps to support those long-term returns.
Now, if we move on to the next slide, we can reflect on how our portfolios have actually performed over the last 3 years since inception. We've been able to either keep pace or beat the IA benchmark, and that is net of fees while offering a smoother journey. So hopefully this type of consistency can build confidence for advisers and clients, because it shows that our risk management philosophy actually translates into real outcomes when it matters most.
Lee Crowe: Fantastic, that was awesome, thank you very much for that. That was a great little trip down memory lane there. So, should we, should we bring it back to the here and now. Ronelle, would you like to start by looking at quarter three 2025 and what's happening across the portfolio?
Ronelle Hutchinson: Fantastic. Thanks, Lee. If we look at this slide, which is showing the quarterly performance of risk assets over the period, you can see that it's been a relatively robust quarter for risk assets, and this has been driven by technology and emerging markets. It's also been fuelled by the easing trade tensions over the period. You can see that the MSCI China index there is up 22% and this was supported by a strong rally in Chinese tech stocks.
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In addition, gold is up 18% this quarter. So, it brings the year-to-date returns for gold to an impressive 35%. We showed the S&P 500 and the FTTSE All-Share index up another 7% this quarter and both of these indices reached record highs over the period.
On the negative side, we saw UK gilts down 0.5% and gilts have been weighed down by the rising inflation print that came out in August. This quarter, as well as the fiscal risks that have that have kept the long yield, elevated over this period but overall, a really robust quarter for returns and indeed client portfolios have materially benefited.
Andrea Yung: So just following on from that and looking at how strong equity markets have been and how that's translated into strong returns for our multi-asset portfolios. If we move on to the next slide looking at our performance, we can see how our medium risk portfolios have returned around 5%, and that's just over the quarter alone. This has been driven by momentum in equity markets. AI stocks have driven returns, which has meant that our exposure to the US market has been a big contributor to returns, as well as our exposure to Asia, most notably in China, which has delivered double digit returns over the quarter and that's been supported by a weaker dollar. So what's detracted from portfolios, as Ronelle mentioned, has been our allocation to UK government bonds, as we've seen that rise in bond yields. Now our exposure to the LNG All Stock guilt index posted a marginal negative return, and as Ronelle mentioned, that's been on the back of concerns around inflation and government spending. Given the nature of our portfolios, our focus on diversification, and the protection that we embed into the portfolios, it does mean that sometimes when we see very strong markets, especially that are momentum driven, we won't outperform in the short term. Therefore, we're pleased to see that we've kept pace with the wider benchmark for this quarter while maintaining that focus on long-term returns.
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Lee Crowe: That's fantastic. Shall we look at moving forwards, when I'm speaking to advisers, they're saying clients are concerned because it does feel like there's a little bit of a paradox. We've got indexes at all-time highs, but the war in Ukraine continues, the conflict in Gaza deepens. We've got tension between Israel and Iran and there just seems to be so much noise. It'd probably be good, Ronelle, if you can possibly look what the macro-outlook is and Andrea, how that outlook is going to play into the portfolios moving forward.
Ronelle Hutchinson: Thanks, Lee. I think from an asset allocation perspective, you're absolutely right. There are heightened risks in the market and as a result, we remain neutral on equities, and this is despite the strong year to date gains that we've seen. We think that there's still risk of persistent inflation as a result of tariffs. So, from a portfolio perspective, what does that mean? Within equities, we have neutralized our US equity position and really taking the opportunity from the poor relative performance of US equities in pounds to increase US equities in the portfolio and to bring us more in line with 2plans global strategic asset allocation. We are overweight European equities. There's been a few positive developments in Europe, looking at increased fiscal spending. We've had materially lower interest rates and when you look at the valuations of Europe versus the US, you're still getting cheaper relative valuations. We also are overweight alternatives, very much mindful of risks.
Andrea Yung: So, following on from what Ronelle has mentioned in terms of our asset allocation views, and how that's translated into portfolios, we have made a few key changes. So firstly, we've enhanced the diversification within our European exposure. We've introduced the Lion Trust European Dynamic Fund into our higher risk models.
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So, this strategy's flexible approach can move between growth and value depending on market conditions, and that's particularly valuable for an environment where leadership can shift quite quickly. This fund has a strong track record of delivering consistent returns, and what sets a team apart is their approach, which is also underpinned by rigorous quantitative analysis, and that helps to identify opportunities, but also to manage risk effectively. So, the addition complements our existing European exposure by broadening out that style and sector mix and reducing the reliance on any single factor. So, as Ronelle mentioned, we've also adjusted our US allocation. So, we've used a period of relative underperformance in sterling terms to increase our US exposure and bring us closer to a balanced position. I think it's important to mention that the allocation remains diversified. That’s not just looking at large cap growth holdings, but it's also quality growth names as well, and that is to avoid that overconcentration in any single style or sector that could come through with a passive fund.
Finally, within alternatives, we've increased our allocation to the Henderson Absolute Return Fund. So, this is a longshore equity strategy, and it's designed to deliver positive returns in all market conditions with a really strong focus on capital preservation, so it's got low volatility and a low correlation to equities, and that helps to support downside protection and improves the overall risk adjusted return profile for the portfolio. So taken together, these changes position us well as we move into the final quarter of the year, and it's taken advantages of the opportunities while maintaining resilience if volatility does prevail. So, for those that are interested in the details of all of our fund changes across all models, our quarterly document citing these changes will be available on the microsite.
Lee Crowe: Fantastic, thank you both for that. Thank you for your time today. I think with one eye on the clock, the questions that you have submitted, we'll get your local business development directors, to contact you with the answers. Thank you for your time today and thank you for your support to date.
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Simon Taylor: We also have a question here relating to regional diversification in the portfolio so Ronelle, how are we ensuring regional diversification for the 2Plan portfolios?
Ronelle Hutchinson: Since the start of this year, we have seen significant differences in the performance of regional equities like, Europe, China, and the UK vs. Europe. Our asset allocation team had judged that from a risk-reward perspective regional equities are better positioned vs. the US. As a result, we’re overweight Europe for example and Japan as well. We’re neutral on UK equities and we’re slightly underweight the US, taking into account the risk return profile and the better price momentum as well as the better valuations we’re seeing in regional equities.
Simon Taylor: Andrea, we’ve got a question here relating to the ARC indices, I believe the ARC indices were launched in May of this year, specific to the MPS environment, how have the 2Plan portfolios performed over them?
Andrea Yung: The new ARC indices for MPS have been designed specifically for these types of MPS solutions, so they should really be catered for more of the framework for MPS. So, what we’ve found with our 2Plan strategies, we have outperformed across that full range since inception. ARC have looked at 750 different MPS solutions, they’ve spoken to 60 different investment providers, so it really does capture that MPS market.
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Simon Taylor: So, the 2Plan portfolios have performed very well against the ARC indices then?
Andrea Yung: They have, and that is across the full range.
Simon Taylor: Ronelle, we’ve got a question here relating to interest rate cuts, particularly from the bank of England and the FED, how are we positioning portfolios ahead of those potential cuts?
Ronelle Hutchinson: We have to understand what’s already priced into markets with regards to interest rate expectations, when we look at the US, these interest rate cuts are already fully priced into the markets and hence we think risks remain for the positive expectations that markets already have on the US, not just in terms of interest rates but also in terms of earnings. So as a result, we think these risks remain. When we move to the UK, we think lower interest rates are needed, we know there are several headwinds to the UK economy, so we think that UK interest rates are key to stimulating growth, to off-setting the debt burden in the UK and so we think that this is a like a necessary requirement in the UK to stimulate the economy and sustain the earnings profile. As a result, we are neutral on UK equities. The biggest impact for lower interest rates is likely to be Europe because even though markets are expecting lower interest rates, the domestic consumer hasn’t fully taken up the lower interest rates that will already prevail in the market and the demand really hasn’t fully recovered, given the issues that Europe has experienced and so we think lower interest rates are likely to have a better impact in Europe and this combined with the additional fiscal spending that is anticipated is likely to lead to a better outcome for Europe.
Simon Taylor: So, we do expect interest rates to come down?
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Ronelle Hutchinson: That’s correct, yes.
Simon Taylor: We have a question here that relates to US tech stocks, they have performed really well recently, the adviser here is concerned with concentration risk in portfolios, is this something that you’re worried about?
Andrea Yung: This is something that we have held a degree of caution around for quite some time, just around global index funds and US index funds. This is not only from a concentration risk with individual companies but it’s also looking at that concentration risk in particular the sectors as well, because you’re seeing that these mega cap stocks are actually performing with a degree of correlation with each other, it’s that risk centred around volatility and we’ve seen it at the start of the year, when we’ve seen volatility in markets, even in April and we’ve seen that sharp sell off. We’ve reduced our exposure to US passives at the beginning of the year and what we’ve done is we’ve reinvested into actively managed strategies which we believe will offer stronger volatility and drawdown protection and we’ve seen that play out when we’ve seen the market movements.
Simon Taylor: So, in this environment we think it’s right to be active, rather than passive?
Andrea Yung: 100%, you’ve got that difficulty being able to manage concentration risk and also manage volatility in these types of index passive funds.
Simon Taylor: Ronelle, another one for you here. Given the improving outlook for inflation and the potential interest rates that you talked about previously, where do you see the most compelling opportunities for growth in the second half of this year?
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Lee supports advisers when building their investment proposition. He has 15 years’ experience in financial services, and joined Rathbones after time at Investec Wealth & Investment, Brooks Macdonald and AXA. He's interested in health and wellbeing, so likes to spend time at the gym and swimming.
Business Development Director
Lee Crowe
I am responsible for the portfolio management of Rathbones' MPS on Platforms service. Using a structured and disciplined investment framework, our primary focus is delivering outcomes that align with the objectives and risks associated with each MPS strategy.
Investment Director
Andrea Yung
I am a Senior Investment Director at Rathbones.
I have over 20 years of industry experience. Most recently as a portfolio manager in Investec Wealth & Investment's South African office managing a range of multi-manager funds for our private clients. I am responsible for overseeing Rathbones' Managed Portfolio Service on platforms. My focus is to ensure that we deliver consistent investment performance & a proactive service to our advisory clients.
Senior Investment Director
Ronelle Hutchinson
Ronelle Hutchinson: We think Europe remains one of the most compelling risk-reward opportunity sets for the second half of the year. The fiscal spending, the lower interest rates, the undemanding valuations, altogether point to a more positive outlook for Europe and hence we’re overweight this region in our equity allocation.
Simon Taylor: Andrea, many of our 2Plan advisers will be aware of the merger between Investec and Rathbones and I’m delighted to say that it has now fully completed, what kind of enhancements can both advisers and consumers can expect as a result of the merger of these two businesses. How is that going to play through to portfolios?
Andrea Yung: What we’ve tried to do is bring the best of both businesses together for the MPS solution, what we’ve found with MPS is that we have an enhanced research capability now we’ve got a stronger research team. We’ve delved deeper into the risk management framework, focusing not just on asset allocation but also truly understanding how these different asset classes and individual funds perform so we’ve enhanced that side of it. From a more practical level, we’ve been able to negotiate cheaper share classes with fund managers and we’ve been able to pass on those cost reductions to pass directly on to clients.
Simon Taylor: So, we’re starting to use that increased buying power that we’ve got on the back of being a £100bn assets under management business now?
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Ronelle Hutchinson: We think Europe remains one of the most compelling risk-reward opportunity sets for the second half of the year. The fiscal spending, the lower interest rates, the undemanding valuations, altogether point to a more positive outlook for Europe and hence we’re overweight this region in our equity allocation.
Simon Taylor: Andrea, many of our 2Plan advisers will be aware of the merger between Investec and Rathbones and I’m delighted to say that it has now fully completed, what kind of enhancements can both advisers and consumers can expect as a result of the merger of these two businesses. How is that going to play through to portfolios?
Andrea Yung: What we’ve tried to do is bring the best of both businesses together for the MPS solution, what we’ve found with MPS is that we have an enhanced research capability now we’ve got a stronger research team. We’ve delved deeper into the risk management framework, focusing not just on asset allocation but also truly understanding how these different asset classes and individual funds perform so we’ve enhanced that side of it. From a more practical level, we’ve been able to negotiate cheaper share classes with fund managers and we’ve been able to pass on those cost reductions to pass directly on to clients.
Simon Taylor: So, we’re starting to use that increased buying power that we’ve got on the back of being a £100bn assets under management business now?
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