Market Commentary

Q2 2025

The UK equity market experienced a modest recovery in Q2 2025, despite a turbulent start to the quarter. The FTSE All-Share Index posted gains, supported by strength in:

- Industrials
- Telecommunications
- Real estate
- Utilities

However, energy and healthcare sectors underperformed, acting as key detractors

Equities: Resilience Amid Market Volatility

Q2 2025 was marked by significant market volatility, largely driven by geopolitical tensions and trade policy uncertainty. The quarter began with a sharp market selloff following the U.S. administration’s unexpected reciprocal tariff announcement on April 2. This triggered a 12% drop in the S&P 500 and a spike in Treasury yields. However, markets rebounded strongly after the U.S. softened its stance and paused tariffs, leading to a broad-based recovery.

Developed market equities posted robust gains, with the S&P 500 returning 10.9% in local currency terms. The ‘Magnificent 7’ tech stocks led the charge, delivering 18.6% returns and helping global growth stocks outperform. Emerging markets benefited from a weaker U.S. dollar and easing trade tensions, returning 12.2% in USD terms. Asian equities also performed well, supported by improved sentiment and local currency strength.

UK equities were, however, not immune to the initial selloff, but sentiment improved as trade tensions eased in the latter part of the Quarter. The weaker U.S. dollar also helped boost international investor returns.

Despite geopolitical risks, including the Iran-Israel conflict, equity markets showed resilience, buoyed by strong earnings and investor optimism.

Retum (%)

Q2 2025 Equity Index Performance

Retum (%)

Q2 2025 Magnificent 7 Tech Stocks Performance

Bonds: Yields Rise, then Stabilise

The bond market mirrored equity volatility early in the quarter. The tariff shock pushed U.S. 10-year Treasury yields up by 50 basis points, reflecting inflation and risk concerns. However, as trade tensions eased and the Fed maintained a cautious stance, yields stabilized.

Investment-grade bonds saw modest gains by quarter-end, recovering from April’s losses. High-yield credit performed well, supported by risk-on sentiment and strong corporate fundamentals. Global bond markets were mixed, with currency effects playing a significant role due to the 7.1% decline in the DXY dollar index.

Yield (%)

Q2 2025 U.S. 10-Year Treasure Yield

Changes to the IP Model Portfolios

During Q2 2025, the IP Model Portfolios performed strongly with the Income models demonstrating the best performance with their overweight to UK and European equity. There were no changes to the funds selected for the portfolio during that time as the income yields remained consistently high with the Balanced portfolio producing a yield of circa 5.5% per annum and strong performance in addition.

How to react to market volatility due to the tariff announcement was the main consideration for the Investment Committee in Q2 and how the MPS was positioned in the accumulation and passive portfolios from a tactical standpoint.

It was decided to diversify the US equity weighting by reallocating from the Fidelity US Index fund to the equally weighted S&P 500 fund managed by L&G and to decrease its allocation in global equity through its investments in the Royal London Global Equity Diversified fund into more UK and European funds for the accumulation funds. The funds selected were the Liontrust European Dynamic fund and the ishares 100 UK equity fund. The result of which was a less concentrated range which the Investment Committee believe is well positioned for further market volatility.

In the passive MPS range, the Investment Committee decided to reduce the overweight positions in global and US equity. This was implemented also by reallocating from the Fidelity US Index fund to the equally weighted S&P 500 fund managed by L&G.

Overall, the risk in accumulation and passive portfolios was slightly reduced by the actioned fund switches.

Martin Nelmes

Investment Director and Chairman of the Network Investment Committee

This document is aimed at Investment Professionals only and should not be relied upon by Private Investors. Our comments and opinion are intended as general information only and do not constitute advice or recommendation. Information is sourced directly from fund managers and websites. Therefore, this information is as current as is available at the time of production.

On-Line Partnership Group Limited (reg. no. 03936920) and its subsidiaries, The On-Line Partnership Limited (reg. no. 03926063) and the Whitechurch Network Limited (reg. no. 03663042) trade collectively as In Partnership. All three companies are registered in England and Wales. The On-Line Partnership Limited and the Whitechurch Network Limited are authorised and regulated by the Financial Conduct Authority. Registered Office: 50-56 North Street, Horsham, West Sussex, RH12 1RD.