Absolute Return Portfolio

Overview

Latest Factsheet and Market Commentary as at 30 September 2025

Portfolio commenced 8th June 2009

Objective
To substantially outperform cash whilst aiming to reduce downside risk. Please note that whilst we aim to achieve positive returns over three-year rolling periods, there is no guarantee that such a return will be achieved over this or any other period.

Strategy
Actively managed and may be all equity, all bonds or all cash. It normally invests in a wide range of ETFs to gain significant diversification and exceptional liquidity at very low cost.

Overall Asset Allocation

Top 10 Holdings

Top 10 Holdings	% of Portfolio
iShares Core MSCI EM IMI UCITS ETF	14
Amundi UK Equity All Cap UCITS ETF	10.7
iShares Core FTSE 100 UCITS ETF	9.5
VANGUARD INV SER-UK GILT UCITS ETF	9.3
iShares Core UK Gilts UCITS ETF	9.3
Amundi MSCI Japan UCITS ETF	6
SPDR Sterling Corporate Bond UCITS ETF	4.9
Invesco GBP Corporate Bond UCITS ETF	4.4
ISHARES II PLC-USD FLTG RATE BOND U	4.4
SPDR MSCI EM Small Cap UCITS ETF	4.2

Fixed Income by Asset Class

Underlying Holdings Key Statistics - Fixed Income

Number of Holdings	Yield to Maturity	Maturity	Duration	S&P Rating
211 Govt. Bonds 2,864 Corp. Bonds	5.14%	8.48	5.6	A/A-

Equities by Region

Underlying Holdings Key Statistics - Equities

Number of Holdings	Best Dividend Yield Forward 12m	Best Price to Book Forward	Best P/E Ratio *	Best LTG EPS
7,349	3.3%	1.7	12.3	12.3%

Last 3 years annualised volatility

Absolute Return	7.5%
Asia Pacific Ex. Japan (MSCI Asia Ex Jap)	16.8%
Em Markets (MSCI EM)	15.2%
US Equities (MSCI USA)	13.2%
UK Index-Linked Gilts (Barclays UK Infl Linked)	11.2%
Europe Excl UK (MSCI Eur. Ex UK)	11.1%
Japan (MSCI Japan)	11.1%
UK Equities (MSCI UK)	9.8%
UK Gilts (Bloomberg UK Govt All>1 Yr)	7.9%
UK Corp Bonds (iBoxx Large Cap TRI Index)	6.2%

Performance After Fees

Growth of £100,000

Performance is based on the monthly performance of the first client discretionary portfolio after all charges. Individual client portfolios may differ due partly to differences in the timing of initial investment or withdrawals or rebalancing. The SCM Absolute Return (GBP) Benchmark is the Barclays Benchmark Overnight GBP Cash Index. Competitor data is based on the performance of the IA Targeted Absolute Return Sector and the comparison is offered as a guide only.

Rolling Return

12m to 30/09/2020	12m to 30/09/2021	12m to 30/09/2022	12m to 30/09/2023	12m to 30/09/2024	12m to 30/09/2025
-4.3%	15.0%	-13.0%	10.3%	10.9%	9.0%

Source: SCM Private LLP

Past performance is not a guide to future returns. The value of investments and the income from them can go down as well as up, so investors may not recover the amount of their original investment.

Fee & Charges

ALL Fees & Charges	Percentage
SCM Discretionary Fund Management Charge	0.40%
Underlying ETF costs (KIID Ongoing Charge)	0.14%
Transaction Costs of buying/selling funds	0.12%
Transaction Costs within funds	0.05%
Custody & Administration Fee	0.12%
Total Fees & Charges	0.83%

Asset Allocation Changes and Market Commentary

No changes were made to the asset allocations during September. However, in early October, we took decisive action in reducing equity exposure across all our mixed bond/equity portfolios – a deliberate shift prompted by growing signs of overvaluation in some equity markets, particularly US equities and tech. These reductions, up to 18% of some individual equity allocations, were carried out pro-rata across global equity exposures, reducing allocations in line with our conviction that current pricing reflects excessive optimism. A key driver was the narrow market leadership in the US, with the “Magnificent Seven” now comprising over one-third of the S&P 500, a concentration risk rarely seen outside of previous bubbles. The proceeds have been shifted into high-quality government and corporate bonds. With yields still attractive and inflationary risks re-emerging, this adjustment helps reinforce downside protection. This reflects our “safety first” approach amid bubble-like conditions driven by AI optimism and fear of missing out (FOMO).

Markets Stay Upbeat Despite Growing Risks

September saw another month of strength across equity and bond markets. The S&P 500 rose 3.6%, bringing quarterly gains to over 8% as investors cheered the Federal Reserve’s first rate cut of the year. Other indices, including the Nikkei and MSCI Emerging Markets Indices, also posted strong gains, while US Treasuries and corporate bonds continued to deliver solid returns. Meanwhile, precious metals surged, with gold rising nearly 12%, its strongest monthly performance since 2011, signalling rising demand for safety assets. However, our view is that the price of gold and bitcoin has risen far ahead of any fundamentals, and in any correction these assets are (contrary to many private investor expectations) likely to fall dramatically. They are therefore anything but a safe haven, and are more akin to a speculative bubble.

Key Themes

However, not all signals were benign. Inflation data in the US showed worrying signs of acceleration, particularly in tariff-sensitive goods categories. New data from Goldman Sachs suggests US consumers are now bearing over half the cost of tariffs, a shift that could push core PCE inflation up by 0.6 percentage points in the months ahead. As companies like Ford and Hermès begin passing through price increases, the inflationary impulse from the April and August tariff rounds is becoming harder to ignore.

Equity Valuations and the AI Obsession

Much of the recent equity rally has been concentrated in a narrow group of mega-cap US tech names, notably those linked to artificial intelligence. The Nasdaq rose 5.7% in September, contributing to an 18% gain over the quarter. However, fundamental data suggests caution is warranted. According to recent Deutsche Bank data, European consumer spending on ChatGPT has stalled since May, raising doubts about the monetisation runway for AI platforms. The value of OpenAI subscriptions, which surged from a standing start in January 2023, has flatlined in the major European markets over the past four months, as the graph below illustrates. Despite aggressive valuations, with OpenAI now valued at $500bn, revenue and subscriber growth are slowing. The disconnect between AI-driven market enthusiasm and underlying adoption trends is growing too wide to ignore.

Outlook: Don’t Count on Cuts

While markets are pricing in further Fed rate cuts by year-end, we remain sceptical. Inflation appears stickier than consensus assumes, and real yields remain negative in many economies. The Fed’s September cut was as much about labour market weakness as inflation progress, and with consumer price pressures likely to re-accelerate due to tariffs, additional easing may be harder to justify. We believe the current market pricing reflects too much certainty and too little caution. Our view is that equity valuations are stretched in some markets and sectors, particularly the US and tech, whereby sentiment is complacent, and economic risks are underpriced. Accordingly, SCM portfolios continue to emphasise diversification, valuation discipline, and liquidity.

Alan Miller, Chief Investment Officer
18 October 2025