The Nutshell Growth Fund invests in quality stocks from exceptional businesses, but only when their valuations offer an attractive prospective return. Our concentrated portfolio of around 30 global companies is selected for two characteristics that do not always come together: exceptional financial quality and a reasonable price. By quality stocks, we mean businesses with a strong record of revenue and profit growth, resilient margins, attractive returns on capital and substantial cash generation. Quality alone, however, is not enough. A wonderful company can still be a poor investment when too much future success is reflected in its share price.

Three quality stocks for your portfolio

Adobe (Nasdaq: ADBE) provides software tools used to create and manage digital content, including Photoshop, Illustrator, Acrobat and Premiere Pro. Its products are vital to the daily workflows of designers, marketers and large companies, creating high switching costs and strong customer retention. Its subscription model provides predictable recurring revenue, high margins and substantial free cash flow. Adobe can reinvest this cash into product development while continuing to return capital to shareholders.

The concern is whether generative AI strengthens Adobe's product suite or allows cheaper competitors to erode its position. We believe Adobe's established customer relationships, proprietary content and ability to integrate AI directly into widely used products give it significant advantages. Importantly, the market is no longer placing a premium valuation on those strengths. Adobe's earnings multiple has fallen as investors have focused on the competitive threat from AI. We believe much of that risk is now reflected in the price. Adobe does not need to return to its former valuation: continued moderate growth, resilient margins and strong cash generation should produce an attractive prospective return. Management have backed their confident outlook by announcing a significant share buyback programme earlier this year – further support for the idea that the share-price weakness is overdone.

Auto Trader (LSE: AUTO) operates the UK's largest digital automotive marketplace, connecting car buyers with thousands of vehicle retailers. Its scale creates a powerful network effect: buyers visit because it offers the broadest choice of vehicles, while retailers advertise because that is where the buyers are. This makes its market position extremely difficult to replicate. Auto Trader also benefits from a capital-light business model, high margins and strong cash conversion. It does not own the vehicles listed on its platform; instead, retailers pay for advertising, data and digital services. The shares have weakened due to concerns about relationships with dealers and the impact of AI on online search. We believe these concerns underestimate the value of Auto Trader's brand, audience, inventory access and proprietary market data. Its reduced valuation offers investors the opportunity to own a highly profitable and cash-generative franchise at a reasonable price.

Amphenol (NYSE: APH) makes the connectors, cables and sensors used across data centres, communications networks, industrial equipment and aerospace. These components represent a small proportion of a system's overall cost, but they are critical to its performance and reliability. Customers value technical expertise and consistency over choosing the cheapest supplier, supporting long-term relationships and attractive returns. Demand is supported by investment in AI infrastructure and data centres. Amphenol is not conventionally cheap on a headline earnings multiple. However, relative value does not simply mean buying the stocks trading on the lowest price-earnings (P/E) ratios. We assess valuation relative to the durability of growth, cash generation and the opportunity to reinvest capital. We believe Amphenol's exceptional execution and potential for growth justify a higher multiple.

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JPMorgan UK Small Cap Growth & Income (LSE: JUGI) is worth considering as a way to play the recovery in UK small caps while earning an appealing income.

UK equities of all shapes and sizes have looked cheap compared with the rest of the world for the best part of the past decade. However, two things have changed over the past few years that have shifted the narrative significantly in favour of investors.

The first has been the demand from private equity and trade buyers to acquire UK businesses. This is a side effect of low valuations and excess capital in private equity markets, and the rate of take-outs is only accelerating.

The second has been the willingness of businesses to return money to their investors. The UK market has become the share buyback capital of the world as management – under pressure from their boards and investors, and lacking other compelling investment opportunities – have poured free cash into buybacks.

JPMorgan UK Small Cap Growth & Income trust pays dividends

The £500 million JPMorgan UK Small Cap Growth & Income trust, which was formed via the merger of JPMorgan's small and mid-cap trusts in 2024, is one of several JPMorgan-managed trusts that have committed to pay an annual dividend that is based on Premier Foods is the trust's top holding a percentage of net asset value (NAV), rather than on income received from their holdings.

The trust targets total annual dividends of at least 4% of NAV (based on NAV at the end of previous financial year on 31 July), which are funded from both capital and income. For example, the trust reported NAV of 373.1p for the year to 31 July 2026, up around 10p year on year. It hence proposes to pay dividends of 3.73p per share each quarter in the current year ending 31 July 2027, totalling 14.9p for the year. That represents a yield of 4.1% on the current price of 364p.

This approach makes a lot of sense in the world of small and mid caps, where reinvesting for growth should be a priority for the underlying companies over shareholder returns. It gives managers Georgina Brittain and Katen Patel much more flexibility to invest where they see growth, not just income.

The added side effect of this approach is that it forces managers to top-slice their holdings and book the profit, which is then returned to investors. An automatic approach to taking profits removes some of the market-timing risk that comes with active management.

JPMorgan UK Small Cap Growth & Income is deeply undervalued

Still, income is only part of the attraction here, since the portfolio is also deeply undervalued and should offer scope for capital gains.

The trust's portfolio of approximately 80 stocks is trading at a forward price/earnings ratio of around 11, according to Brittain, while the Deutsche Numis Smaller Companies plus AIM index trades on 13. The free cash-flow yield is around 9%.

The team focuses on finding the most profitable UK small and medium-sized companies with the best domestic and international growth potential. Return on invested capital (Roic) is one of their key metrics when looking for the most productive businesses. The top holding is Premier Foods, the owner of the Mr Kipling brand of cakes, at 5% of the portfolio.

JPMorgan UK Small Cap Growth & Income also makes use of gearing, with borrowing averaging around 10% of NAV – a level the managers feel is comfortable given the liquidity of the portfolio. So there are the four levers that can help create value: income, growth, valuation and gearing. What's more, the trust is still trading at a modest discount to NAV (5%, down from over 10% earlier this year), so investors can currently buy the underlying portfolio on a double discount.

Notwithstanding the headwinds that have held back UK equities over the past ten years, the shares have produced a strong total return of 11.9% per year compared with 5.9% for the benchmark. As these headwinds become tailwinds, the trust appears primed to keep delivering for investors.

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The market has had an up and down year, driven largely by volatility in tech and artificial intelligence (AI) stocks. The CBOE Volatility Index (often referred to as the VIX), an index which measures the stock market’s expected volatility based on S&P 500 options, reached 35 in March (following the outbreak of the war in Iran), levels only surpassed in the last five years by 2025’s tariff turmoil and the outbreak of the war in Ukraine.

The S&P 500 has ranged from 6,317 to 7,794 so far this year, meaning its year-to-date returns have been as low as -7.7% and as high as 13.9%. These rises and falls are largely correlated with the performance of the big tech stocks that dominate the index: Nvidia’s share price, for example, has ranged from lows of $164.27 to highs of $236.54 in the year so far.

Some investors like volatility, but it isn’t for everyone. According to the latest fund flow data from the Investment Association, an industry body representing UK asset managers, retail investors put more money into funds during June than any month since August 2021 – but this was largely directed towards defensive strategies such as bonds or cash-like assets.

“Exciting investments have an unfortunate habit of becoming expensive precisely because everyone finds them exciting,” said Simon Skinner, head of investments at asset manager Orbis Investments. “By the time the story feels obvious, the crowd has usually arrived and a great deal of optimism is already reflected in the price.”

So-called ‘boring’ investments – the more traditional, steady stocks and sectors – can have the opposite problem. “If nobody wants to talk about them, expectations tend to be lower and valuations often are too,” said Skinner.

There is a case to be made for the boring stocks, though, especially if you are trying to preserve your capital or generate steady income.

“Some of the best long-term investments can be businesses that do relatively mundane things exceptionally well, generate cash consistently and compound that cash for shareholders over many years,” said Marcel Stötzel, portfolio manager of Fidelity European Trust PLC and Fidelity European Fund.

Where does volatility come from?

Some sectors are inherently volatile. As Skinner puts it: “Volatility tends to be greatest where the gap between the story and the fundamentals can grow widest.”

He points to tech as the obvious example. “Valuations often depend on profits expected many years into the future, which leaves a lot of room for imagination – in both directions. When a compelling narrative takes hold, investors pile in and prices can detach quite dramatically from any reasonable assessment of value.”

But any slight threat to the optimistic narrative – be it disappointing growth numbers, capital expenditure or returns on investment – can quickly reverse this effect, taking most of the market with it when capital is concentrated into a small number of correlated stocks.

“When the story wobbles, [investors] can rush out just as quickly,” Skinner added.

Tech is also highly sensitive to interest rates. When present-day value is calculated based on future expectations, interest rates assumptions are one of the key variables.

“Growth stocks tend to have more of their earnings further out than value stocks, because they’re growing and the market’s valuing that growth,” said David Cumming, head of UK equities at investment manager BNY Investments Newton. When interest rates rise, the present-day value of these future earnings (relative to other assets like bonds) falls.

Current levels of market concentration are consistent with several of history’s largest bubbles, which Skinner points out often coincide with periods of optimism in a few narrow areas.

“The problem isn’t concentration alone,” said Skinner. “It’s concentration around a shared narrative. If a handful of very large companies are being valued on broadly the same assumptions about the future, then what looks like a diversified index can behave like a single trade when those assumptions change.”

What are some less volatile sectors?

Consumer staples, utilities and healthcare

The steadiest sectors tend to be those where demand has little to do with economic conditions or a compelling narrative – especially consumer staples, utilities and most healthcare stocks.

“People still buy toothpaste, electricity and medicine in good times and bad,” said Skinner. “Cash flows are therefore relatively predictable and, importantly, near-term. That leaves less room for imagination.

“It’s difficult to persuade yourself that a water utility is going to change the world – but equally difficult to panic that it’s suddenly worth nothing,” he added.

“Healthcare tends to go up when tech goes down,” said Cumming. The sector is “actually very cheap relative to history now, because it’s viewed as boring, and that means it looks reasonably attractive.”

Healthcare companies are also among those most likely to benefit from AI as end-users.

Some effective ways of accessing these sectors are the Xtrack­ers MSCI World Con­sumer Staples UCITS ETF (LON:XWCS), the Worldwide HealthCare Trust (LON:WWH) and the iShares S&P 500 Utilities Sector UCITS ETF (LON:IUSU).

Financials

Banks aren’t the flashiest sector to invest in, but they can offer some protection in certain circumstances.

“As long as the economy is doing OK, financials can offer protection,” said Cumming. “Financials only run into trouble if there’s going to be a recession.”

On the other hand, they can be another source of volatility in certain conditions.

“Financials can also be volatile, particularly more highly leveraged or complex banks, because changes in interest rates, credit conditions and the economic outlook can have a disproportionate impact on profitability,” said Stötzel.

Automotive

The automotive sector is “the most unloved sector in the world by far”, according to Cumming.

He highlights Volkswagen (FRANKFURT:VO), which currently trades at less than four times its expected earnings.

“Some of these stocks are wildly cheap,” he says, particularly if the EU is able to shore up the market against competition from China.

The case for balance and value

Most of the aforementioned less volatile sectors have underperformed tech in the year to date, and over longer timescales.

That’s not to say you wouldn’t be grateful to have them in your portfolio if the tech rally reverses, but as long as tech continues to dominate, any money invested in these sectors could act to hamper your returns rather than improve them.

“Balance should not mean abandoning growth,” said Sam North, market analyst at investment platform eToro. While the long-term AI investment case remains intact, in North’s opinion, it is still important to recognise that “no theme should dominate a portfolio indefinitely” and holding “more predictable companies can reduce drawdowns, provide income and give investors capital to rebalance into growth assets during periods of volatility”.

It’s also worth remembering not to focus entirely on the sector alone when considering defensive investments.

“We would be wary of assuming that every company in a traditionally defensive sector is automatically low risk,” said Stötzel. “Business models change, balance sheets matter and even apparently defensive companies can become vulnerable if they have too much debt, weak cash generation or an unsustainable valuation.”

Besides exploring defensive sectors, Skinner also advocates attention to the price you pay as the more durable form of protection.

“It’s worth distinguishing volatility from risk,” he said. “For a long-term investor, a share price moving around isn’t necessarily risky. Permanently overpaying for a business is.

“If you buy a share well below a sensible estimate of what the business is worth, you have a cushion,” Skinner continued. “A fair amount can go wrong without permanently impairing your capital because some bad news is already reflected in the price.”

Similarly, Stötzel advocates looking at business fundamentals rather than sectors to provide protection. “What protects investors in one downturn may behave quite differently in the next,” he said. “For us, protection comes more from the characteristics of the businesses you own: strong balance sheets, sustainable cash generation, pricing power and management teams that allocate capital sensibly.”

Dave Lewis, new CEO of alcoholic-drinks giant Diageo, laid out plans to revamp the company after several years of falling profits, says Madeleine Speed in the Financial Times. The maker of Guinness and Johnnie Walker posted a 2% decline in organic revenue for the year to 30 June 2026, while operating profits dropped 27% to $3.2 billion.

Savings will be made by “redesigning Diageo's operating model and overhauling its supply chain”, with the elimination of what Lewis calls “massive duplication”. Dave Lewis also promised to boost growth by taking Guinness global, investing in neglected, affordable brands such as Smirnoff and Captain Morgan, and offering smaller, cheaper bottles to “inflation-weary US drinkers”.

Good, says Alex Brummer in This is Money. The “simple thing to do” would be to “lop off great brands for an easy win”, but Dave Lewis has gone beyond that with his “speeded-up savings target of $1 billion”. It seems he will try to repeat his success at Tesco, where he repaired supply chains and relationships with suppliers. It's also “reassuring” that he thinks Diageo has “the brilliant brands and distribution”, particularly in North America, to “halt recent declines and maintain sales”.

What is in Dave Lewis's turnaround plan for Diageo?

There's certainly plenty of scope for Dave Lewis to repair Diageo's “outdated and overly complex framework”, says Jessica Newman in The Times. For example, Diageo is still entering 60% of all its orders manually, while in India, where it employs 30,000 people, its payroll system is around “ten times more expensive than the one at Tesco”, even though Tesco employs far more people. In sum, the “unintended consequences” of operating on a market-by-market basis are “too many complicated processes and systems building up”. What's more, the decision to cut the dividend suggests that Lewis' Diageo is clearly willing to make some hard choices.

Yet boosting growth may be unexpectedly hard, says Yawen Chen on Reuters Breakingviews. In North America, Diageo's largest market, sales fell 8.4% in the year to 30 June. And luxury groups' recent rebound suggests affluent Americans are “still buying handbags, jewellery and holidays”. Diageo's problem “may not simply be price but a structural decline: Americans may just be drinking less”. Dave Lewis's overhaul should leave the firm “leaner and better positioned”, but until and unless Diageo can fix its “US hangover”, it is set to keep its “groggy valuation”.

Many analysts wonder if the market for younger consumers is a growth area at all in view of “changing attitudes” toward drink and the rapid spread of weight-loss drugs, says Richard Hunter on Interactive Investor. Nevertheless, the market's reaction to Diageo's “resolute” update was “immediate, positive and one of relief for an overdue transformation”, suggesting that the group's “longstanding supporters” are still inclined to give the new management the benefit of the doubt.

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Insurer Admiral Group (LSE: ADM) is among several firms which earlier this year saw their share price slump because of fears that AI-powered rivals could capture most (or all) of their business. However, since then many of these stocks have bounced back, with investors deciding that such fears are overhyped.

Admiral Group's shares fell by 14% in January after US firm Lemonade, which uses AI to process claims, launched a cheap policy for self-driving cars. While the policy was aimed at US consumers, it fuelled fears about AI being used to undercut traditional insurers.

Investors also fretted that the better driving record of autonomous vehicles compared with those steered by people could reduce the need for car insurance. Some analysts, such as AJ Bell's Dan Coatsworth, wonder whether car insurance will eventually be purchased by car manufacturers rather than by individual drivers.

How Admiral Group is using AI to cut costs

Yet even if such fears come true in the very long run, it's worth noting that full self-driving for individual cars (as opposed to a relatively small number of taxis currently on the streets) is at least a decade away from mass adoption. In any case, Admiral Group has itself been using AI and digitisation to cut costs and give it an advantage over its main rivals.

Earlier this year, Admiral Group also bought Flock, a technology firm it had been working with. The purchase gives it full access to, and ownership of, Flock's technology, which uses AI and telemetry (the process of collecting data from remote sources and passing it to a receiving system) to judge how well people are driving.

Meanwhile, Admiral Group has been taking steps to diversify its business by branching out into household, travel and pet insurance. While these areas currently make up only a small proportion of overall profit, they are growing at an extremely rapid rate, which should improve the group's medium-term prospects.

Meanwhile, sales almost tripled between 2021 and 2025, and are forecast to keep growing over the next few years. While profits have been more volatile, they have increased since 2021. Admiral boasts strong margins, with a double-digit return on capital employed. This has allowed the group to raise dividends to record levels. The stock's valuation also looks attractive at 15 times expected 2027 earnings and a dividend yield of just under 5%.

Admiral Group's share price has plenty of momentum behind it, having beaten the overall UK market over the last one, three and six months. It is trading well above its 50- and 200-day moving averages, and has also been one of the best performers in the FTSE 100 over the last six months. I suggest that you go long at the current price of 3,772p at £1 per 1p. I would put the stop-loss at 2,800p, which would give you a total downside of £972.

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“Baby-faced” billionaire Yang Zhilin recently dealt the biggest shock to Western markets since DeepSeek, wiping hundreds of billions of dollars off the valuations of AI and chip stocks.

Kimi K3, developed by Yang’s Moonshot AI, is the most advanced “open-weight” large language model to emerge from China yet, topping many benchmarks with its capabilities “at a third of the cost”.

At a stroke, notions of Silicon Valley's technical dominance have been swept away, with its developer, Moonshot AI, challenging the likes of Anthropic and OpenAI at the frontier – prompting questions about their mega-valuations.

Moonshot's founder has a good story to tell too, says The Telegraph. Yang Zhilin is a prog-rock devotee who named his firm in honour of Pink Floyd's The Dark Side of the Moon, seemingly in tune with Western ideas and culture.

The 34-year-old has built a “mythology” that has “helped distinguish Moonshot from China's otherwise austere AI industry”, says the Financial Times. Employees describe an intense culture of long hours in Moonshot's headquarters in Beijing's Haidian district. “But Yang has also infused the company with his own... obsession with rock music... A white piano stands prominently in the office.”

Yang Zhilin heads to China's MIT

Yang Zhilin was born in 1992 and grew up in Shantou in the southern state of Guangdong – China's industrial heartland. Former classmates recall that he was always “unusually gifted”. Having started coding in high school, he won first prize in the National Olympiad in Informatics, earning him direct admission to Tsinghua University, often dubbed “China's MIT”.

Even in that specialised atmosphere, he was known as “Yang the genius” because of the way he managed to balance elite academic performance with his musical interests. He was a drummer in a campus band called Splay, organised music competitions and gained a reputation for being “romantic and idealistic”. Some reports suggest that he switched his undergraduate degree from thermal engineering to computer science, having been inspired by a Haruki Murakami novel.

In 2015, Yang Zhilin completed his PhD at Carnegie Mellon University, where he studied under AI gurus Ruslan Salakhutdinov and William Cohen, worked at Google Brain and Meta, and founded a retailer-focused start-up, Recurrent AI, before returning to China in 2019.

In 2023, he co-founded Moonshot AI with Tsinghua University classmates. “Recurrent AI taught him how to woo investors and scale a business,” says The Telegraph. “But he learned painful lessons too.” Moonshot's early years, when he attempted to build a “Chinese-first version of ChatGPT”, were marred by a lawsuit from investors in Recurrent AI that saw him hauled before the Hong Kong International Arbitration Centre before a settlement was reached.

Moonshot's chatbot Kimi was an instant hit, but also “plagued by outages and... overtaken by larger rivals”, says the FT. Rival DeepSeek's successful R1 model was another “existential test”. Yang Zhilin returned to the laboratory to focus on model training. He also made the pivotal decision to make Moonshot's AI models available to developers globally.

Moonshot's open approach has enabled China to “cast itself as a champion of low-cost, open-source AI”, says The New York Times. But that openness has raised concerns in Beijing about “the potential threats the technology might pose” to Communist Party rule. “[He] may be wise to moderate his views,” says The Telegraph. “Other tech billionaires in China have found... that the Party likes its economic champions on a short leash.”

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Investors have struggled to understand Funding Circle (LSE: FCH) since its initial public offering (IPO) in 2018. The City had been looking for a valuation of £1.75 billion, but the fintech could only get away with £1.5 billion – even though half the offer was taken up by one single “whale” investor. The shares then fell 23% in the first week of trading, and they have never recovered to trade above the offer price of 440p.

However, after a long spell marred by poor returns, losses and uncertainty, the outlook may now be improving. To see why, we should first look at what the business does and how the model has changed.

Funding Circle's business model and change of direction

Funding Circle was founded to help improve access to finance for the UK's small and medium-sized enterprises (SMEs) by connecting investors and borrowers. In its first few years, the company spent heavily on technology to build its platform and marketing to reach to potential customers. These efforts consumed all of its profits and more. In 2018, 2019 and 2020, the business lost a total of £230 million.

Initially, it started off as a peer-to-peer (P2P) lending platform connecting retail investors with SMEs that wanted to borrow. This was designed to disrupt the traditional lending market where a lender uses its own balance sheet to fund loans.

Instead, Funding Circle provided the technology that sat in the middle connecting the two parties. However, this proved to be too costly to be effective. So the group suspended access to its P2P platform to new investors in April 2020 at the start of the pandemic and permanently closed the platform in 2022.

The pandemic enabled Funding Circle to make the most of government lending schemes, allowing the business to drastically reduce its funding costs; today, a combination of government and institutional financing, heavily skewed towards the latter since the end of Covid, meets the group's funding needs.

The company reaped the benefits of its strategic shift almost immediately. For the 2021 financial year, it booked a profit of £64 million, a sharp turnaround from the prior year's loss of £108 million. Most of this growth was driven by the government's Coronavirus Business Interruption Loan Scheme (CBILS) scheme.

In the following two years, Funding Circle slumped back to a loss. Then, after two years of losses (totalling £40 million), it returned to profitability in 2024. This time it looks as if the lender has cracked the code.

Funding Circle is at inflection point

Funding Circle has now reached “escape velocity” after reaching a “key earnings inflection point”, say brokers Canaccord Genuity. For 2025, the group reported sales of £204 million and adjusted profit before tax of £26 million. In the first six months of the current financial year, management has outlined revenue growth of 50%, with £23 million of profit before tax at a 17% margin.

The firm tends to see more borrowing activity in the first half of the year. Even so, based on activity in the second half of 2025 and first half of 2026, Canaccord Genuity estimates a run-rate of more than £250 million of revenue and £37 million of profit before tax. These numbers are all the more impressive considering the funding environment. The last time the company was this profitable was during the pandemic, when demand was high and money was cheap. Today, rates are still elevated and economic activity is mixed, to say the least.

Funding Circle has always had a technological edge. This allows it to assess borrowers quickly and efficiently before making a lending decision. The group also now runs servicing, reporting and performance history at a scale that is difficult for newer entrants to replicate. That's why it's become good at attracting institutional capital. Its well-honed, home-grown tech does the hard work, giving capital providers the returns they require with low risk.

In the first half of the year, the company inked £900 million of forward flow agreements – commitments from funders to purchase a regular stream of newly created loans – with lenders such as Deutsche Bank. A total of 93% of assets under management now relate to this off-balance sheet funding.

Funding Circle has an edge in information

Meanwhile, Funding Circle has branched out into new products, including short-term lending. In doing so, it has evolved from a term loan provider into a broader SME finance platform built around three customer propositions: long and short-term loans, FlexiPay (buy now pay later) and credit cards.

These increase the platform's appeal to borrowers, while also helping Funding Circle enhance its information edge. A borrower that uses all of these products generates a huge amount of data to feed back into Funding Circle's lending models. Those models now have 15 years of proprietary data across credit cycles to underpin lending decisions.

As Funding Circle builds on the foundations that it has created, profit growth should accelerate over the next few years. Canaccord Genuity has pencilled in top-line growth of 50% to nearly £300 million by 2028. As the group scales its tech platform, its adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) margin will expand from 15.3% to 27.6% according to the broker. Ebitda is forecast at £82.2 million for 2028, with profit before tax rising to £72 million.

Cash balances are also expected to rise materially, from £101 million at the end of 2025 to £257 million by 2028. Based on these forecasts and at a share price of 226p, Funding Circle is trading at eight times pre-tax profits for 2028 after adjusting for cash, with a projected free cash flow yield of 15%. That's far too cheap for a business that's set to grow its top line at a compound annual rate of more than 20% for the foreseeable future.

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Mastercard and Visa are the dominant global payment networks. Their systems allow you to tap your card to buy a coffee virtually anywhere in the world, and two seconds later you are walking away. It feels effortless, but behind that two-second transaction lies a complex global relay. Your bank confirms funds, the merchant's bank requests authorisation and fraud systems assess the risk.

To most people, Mastercard (NYSE: MA) and Visa (NYSE: V) are little more than logos on cards. In reality, they represent a global system that allows a payment in Birmingham to work just as easily as one in Bangkok. The infrastructure is so seamless that we never need to think about it, yet it is why these two companies have proved so difficult to disrupt.

The question now is whether this lucrative duopoly, which has fended off challengers for decades, is finally facing a genuine threat. For years, critics have seen rival technologies emerge, only to watch Mastercard and Visa absorb the innovation and become stronger. Yet as we look towards a future of sovereign payment systems, digital currencies and autonomous machine commerce, investors need to consider whether today's threats are fundamentally different from those of the past. Will new technologies merely change how we pay, or will they replace the invisible pipes through which every transaction flows?

Why Mastercard and Visa's duopoly is so durable

Understanding why this duopoly has proved so durable starts with one misconception. Mastercard and Visa do not lend money, issue most cards, or sign up merchants. They simply provide the trusted communications network linking cardholders, merchants and their banks.

When a payment is made, the merchant's bank sends an authorisation request through Mastercard or Visa. The network identifies the correct issuing bank and securely routes the request. That bank checks whether the card is valid, confirms that funds or credit are available and carries out fraud checks before approving or declining the transaction.

The decision then travels back through the network to the merchant. Later, Mastercard and Visa coordinate settlement, ensuring that money moves correctly between the financial institutions involved.

The networks do not lend money, take deposits or bear the risk if a customer fails to repay a credit-card balance. Those responsibilities sit with the issuing banks. Mastercard and Visa simply provide the rules, technology and communications network that allow thousands of financial institutions to work together.

This is very different from the model used by firms such as American Express. Amex combines the roles of card issuer, payments network and merchant acquirer within a single business. This gives it greater control over the relationship with the customer, but also means taking on more risk and investing more capital. That integrated model also helps explain why some smaller businesses still refuse American Express. Historically, its merchant fees have often been higher than those charged on Mastercard and Visa transactions.

Mastercard and Visa took the opposite approach. By leaving lending, underwriting and merchant relationships to partner banks, they created an asset-light model that could expand globally without requiring the same balance sheet.

The result is a network that becomes more valuable as more participants join. Any bank can connect its customers to the system. Any merchant can accept payments through it. That structure has allowed Mastercard and Visa to expand into more than 200 countries and territories while avoiding many of the risks carried by traditional financial institutions.

Alternatives exist. American Express has built a successful premium franchise. UnionPay dominates China. JCB is strong in Japan. Discover is well-established in North America. Yet none has matched Mastercard and Visa's mix of global acceptance, bank partnerships and asset-light economics.

Uniform standards for Mastercard and Visa

This position has made Mastercard and Visa into two of the world's most valuable technology companies: both are worth over half a trillion dollars. Yet their origins were far more modest.

In the 1950s and 1960s, consumer payments were fragmented. Shoppers often carried multiple store cards, while banks struggled to process payments between different institutions. Master Charge and Bank Americard, the predecessors of Mastercard and Visa respectively, were established to create a common standard that allowed different banks and merchants to participate in the same payment system.

For decades, the networks operated as cooperatives owned by the banks that used them. This worked while electronic payments were still developing, but it became difficult as the industry matured. The member banks were also competitors, fighting for market share in card issuance and lending. Disputes over fees, governance and access became increasingly common. The solution was to separate the infrastructure from the banks. Between 2006 and 2008, Mastercard and Visa demutualised and listed in New York. Freed from competing shareholder interests, they could focus on expanding the network itself. They stopped operating primarily as industry utilities and became technology companies, investing heavily in fraud detection, cybersecurity, data analytics and international expansion.

Although Mastercard and Visa are often discussed together, they are not identical businesses. Visa has historically maintained the larger share of global payments volume, particularly in the US, while Mastercard has often positioned itself as the more international challenger. However, their investment cases are remarkably similar. Both benefit from the same long-term trend: the shift from cash towards digital payments. Neither needs to eliminate the other to succeed. The global payments market has been large enough for both companies to compound alongside one another for decades.

Their role today is often misunderstood. Mastercard and Visa do not need to replace every domestic payment system. Instead, they increasingly act as the common language that allows different systems to work together.

France provides a useful illustration. Many French payment cards carry both the logo of the domestic Cartes Bancaires (CB) network and either Mastercard or Visa. When that card is used in France, the transaction may be processed through the local CB network. Use the same card abroad and the payment is likely to travel across the Mastercard or Visa network instead. The customer rarely notices the difference because the systems work together seamlessly.

This helps explain why local payment networks are not necessarily threats. Countries can build efficient domestic payment systems, but international commerce is a much harder problem. Cross-border payments require common technical standards, fraud protection, dispute-resolution rules and the trust of thousands of banks and millions of merchants. Mastercard and Visa have spent more than half a century building those connections.

That does not mean they are invulnerable. Domestic schemes such as India's Unified Payments Interface (UPI), Brazil's Pix and China's UnionPay have demonstrated that governments and local providers can build highly successful alternatives for domestic payments. But they also highlight where Mastercard and Visa's greatest strength lies. Their advantage is not that they process every payment. It is that they remain the network connecting different payment systems across borders.

That distinction will become crucial as new payment technologies emerge. The question is not whether other systems will exist alongside Mastercard and Visa. They already do. Rather, it's whether anything can replace their global infrastructure.

Mastercard and Visa's business model

Mastercard and Visa have one of the most attractive business models in the global economy. They do not need to earn pounds from every transaction. They only need to capture a fraction of the value flowing through their networks.

The economics of a payment are split between several participants. When a merchant accepts a card payment, it pays a fee known as the merchant service charge. A portion compensates the issuing bank for providing the card and taking on lending or fraud risk. And Mastercard and Visa receive fees for operating the network, processing transactions and providing the rules and technology that let the system function.

Think of it like a toll road. While a transaction may involve hundreds or thousands of pounds changing hands, Mastercard and Visa earn only a minuscule fee for letting the payment through. Yet multiplied across hundreds of billions of payments each year, the tolls create a vast and highly profitable revenue stream.

Note that once the network is built, processing additional transactions costs very little and therefore carries exceptional incremental margins. As payment volumes grow, revenues can rise much faster than operating costs. This is why both companies consistently generate some of the highest operating margins in global equity markets.

Nobody wants to leave Mastercard and Visa's payments network

Mastercard and Visa's dominance rests on several reinforcing advantages: trusted brands, acceptance at millions of merchants, deep relationships with banks, vast amounts of transaction data, established operating rules and unrivalled global scale.

Together, these create a network effect that has taken decades to build, and explain why so few companies attempt to compete with them directly. Most new payment businesses choose to work with Mastercard and Visa rather than replace them.

A typical financial technology company can build a better app, offer lower fees, or create a more attractive customer experience. Yet when a customer taps their card or phone to pay using Apple Pay or Google Pay, the transaction will often still rely on Mastercard's and Visa's underlying infrastructure. In the payments industry, this is known as riding the rails.

Building a rival system would require far more than better technology. A competitor would need to persuade thousands of banks, millions of merchants and regulators around the world to adopt an entirely new standard. This is what makes Mastercard's and Visa's position so difficult to attack. Their advantage is not simply the technology itself, it is the system surrounding it: the banks, merchants, rules, data and trust that have accumulated over decades.

Every few years, a new technology arrives that promises to make Mastercard and Visa irrelevant. So far, none has succeeded. Digital wallets such as Apple Pay and PayPal improved the customers' experience without replacing the underlying networks.

Account-to-account payment systems and QR-code payments can be cheaper for merchants because they bypass traditional card networks. However, they tend to work best within individual markets. They solve the problem of cost, but not the challenge of creating a trusted global network for international payments.

A longer-term uncertainty is whether AI-driven commerce creates an entirely new payments architecture. If machines begin executing transactions on behalf of consumers and businesses, the winners will need secure digital identities and trusted authorisation systems. Whether that creates an opportunity for Mastercard and Visa or opens the door to a new competitor remains uncertain.

The geopolitics of payments

Still, the nature of the competitive threat may be changing in other ways. For decades, global payments operated under the assumption that financial networks would remain politically neutral. That assumption has weakened. The increasing use of financial sanctions and restrictions on cross-border payments has reminded governments that whoever controls critical financial infrastructure also holds significant influence.

The response has been a push towards greater financial independence. More countries have already been building their own domestic payment networks, such as Brazil's Pix and India's UPI, which allow consumers to transfer money directly between bank accounts, often at little or no cost. If more governments come to view payments as a matter of national security as well as cost and efficiency, they will have the ability to build domestic alternatives.

Mastercard and Visa still have a major advantage in international commerce, where global acceptance matters far more than simply moving money from one account to another. However, even if the expansion of domestic networks is unlikely to displace them from this role, they can gradually reduce payment volumes – and hence revenues – from national markets that have historically been an important source of activity.

Mastercard and Visa are adapting rather than resisting. Instead of insisting that every payment runs through their networks, they increasingly provide the layer of technology that allows different systems to operate securely. More broadly, both companies have long been expanding beyond their traditional business of moving payments from one bank to another.

Regulation has constrained traditional payment fees – particularly interchange fees earned by banks, which are capped in many countries. Meanwhile, competition has encouraged financial institutions and merchants to demand more sophisticated services.

So Mastercard and Visa have focused on value-added services. They now provide technology that helps banks and businesses prevent fraud, verify identities, secure digital payments and analyse transactions. Just recently, Visa announced a new deal to buy BioCatch, a fraud intelligence firm, for $2.4 billion.

This shift has strengthened an already attractive business model. In effect, the duopoly are moving from simply operating payment networks to providing the software that helps many different payment networks function, and keeping payments safe and reliable.

Mastercard and Visa's trust layer

Whether this strategy is enough to offset future threats remains one of the biggest questions facing the industry. Mastercard and Visa have survived previous attempts to bypass them because most innovations have changed how we pay, not how payments are trusted and settled.

Sovereign payment systems, account-to-account transfers and blockchain-based settlement all represent more meaningful challenges. Yet history suggests that the duopoly are highly effective at adapting to new payment rails rather than being displaced by them.

Tomorrow morning, millions of people will buy a coffee with a tap of a card, phone or smartwatch without giving the process a second thought. Behind that simple action, a global network will verify their identity, assess fraud risk and connect two financial institutions in a fraction of a second.

That reliability has helped make Mastercard and Visa two of the world's most valuable companies. They are an essential part of the global economy. The technology that wins is often the technology people stop thinking about because it simply works, and that may be their greatest competitive advantage.

Their asset-light models, powerful network effects and trusted brands have produced two decades of exceptional returns for investors. There are still clear opportunities for growth as cash continues to decline, cross-border commerce expands and value-added services become a larger part of the business.

Still, none of that guarantees attractive investment returns from this level. The market already recognises their quality and values both companies accordingly (both are on a trailing price/earnings ratio of around 31 at time of writing). The real question is not whether these remain exceptional businesses, but whether future growth will be sufficient to justify the premium investors already pay for them. Disruption need not destroy the networks to disappoint shareholders. It only needs to erode the ambitious expectations embedded in today's valuations.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Market reactions were mixed off the back of latest quarterly earnings for the US tech giants, raising a big question – when will these companies’ huge expenditures start to bear fruit?

It’s becoming clearer that the companies once thought of as a collective, the Magnificent 7 – Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA) – are no longer running on the same track at quite the same pace, but they’re not entirely divorced from each other either.

In recent weeks, Alphabet (22 July), Tesla (22 July), Microsoft (29 July), Meta (29 July), Apple (30 July) and Amazon (30 July) all reported quarterly updates. Nvidia is due to publish its comparable financial statement later this month (26 August).

While Microsoft and Amazon’s share prices surged by roughly 15% on their respective next trading days after the results (30 and 31 July), Alphabet, Meta and Apple suffered respective declines of roughly 7%, 8% and 7%, largely due to high capital expenditure (capex) and supply chain concerns. Alphabet, for example, raised its spending forecast to as high as $205 billion this year.

Tesla, meanwhile, saw its share price fall by more than 14% the day after its results. CEO Elon Musk called this a “massive capex year”, adding that Tesla “should be spending on capex as fast as we can – spend as fast as we can without it being too wasteful.”

Apple’s share price fell by 7% following a supply chain warning from outgoing chief executive Tim Cook, who said: “We’re seeing some very significant constraints currently with limited flexibility in the supply chain to remedy it.”

When will investors see a return on artificial intelligence spending?

Rather than blindly supporting companies based on promises (which burnt many when the dotcom bubble burst), today’s investors – conscious of those past mistakes – are more demanding.

Goldman Sachs has estimated that artificial intelligence (AI) capex is around $765 billion currently but is expected to grow to around $1.2 trillion next year. And the market is becoming concerned that it’s not yet seeing conversion – or hearing explanations why it’s not seeing conversions – into near-term cash flow.

So while the Mag 7 aren’t entirely running in tandem, there are links. While Alphabet and Tesla were first to publish and therefore first to spook the market, an index of all seven companies, the Bloomberg Magnificent 7 Total Return Index, fell 4.8% the next day, wiping off $797 billion in collective value.

Free cash flow, or lack of it, was a central theme from all these results – specifically, the impact from the level of capex. Alphabet reported its first ever negative cash flow, while Meta posted a 91% year-on-year drop in free cash flow. Amazon also reported a negative free cash flow of $7.6 billion.

Chris Elliott, portfolio manager of the Evenlode Global Equity fund, which lists Amazon as a top 10 holding, said Amazon’s CEO Andy Jassey was under no illusion over timeframes.

“Andy Jassey was clear-eyed on the break-even point for investment – it takes a little less than three years for the company to recoup the initial investment of buildings and chips,” he said. “Each data centre can then host four or five further generations of servers, which have higher returns.”

He praised the business’s ability to manage costs and drive efficiencies, which have been proven during multiple growth phases over the company’s lifecycle.

“Amazon has an excellent track record of investing in projects that require huge economies of scale to succeed. This was true with both its ecommerce and logistics network and the initial investment into cloud computing.

“In both cases, its cash flow declined substantially during the investment phase, and the company was careful to manage costs and drive efficiencies. This ‘muscle memory’ positions the company best out of all the hyperscalers to withstand the costs of scaling.”

Big tech paths are diverging

The companies that look more challenged appear to have a less clear path forward.

Nick Saunders, chief executive of online investment platform Webull UK, said where Amazon and Microsoft appear to already be monetising their AI capex, questions were being raised over Meta and Alphabet’s ability to continue to invest at current levels.

“How long can they justify these increased valuations, especially when many people think all they’re doing is using AI for advertising?” he said.

The other headwind to note is a looming profitability squeeze.

Saunders added: “If the hyperscalers are massively increasing their AI capex to the levels we’re hearing – $1.2 trillion or so next year – how long can [Meta and Alphabet] afford to stay in the race, particularly when they have reduced cash reserves?”

When all the big tech giants are investing so heavily, for those where the returns look less clear, a rational view might be to expect them to reduce capex, or focus more on core products.

“But how does the market treat any tech firm that says it’s putting less into AI? It would come across like an admission of failure, which could be dangerous from a pure optics point of view,” said Saunders.

What can investors take from these results?

While earnings are always important, the wider market sentiment around AI and the tech behemoths made this earnings season feel particularly significant.

Evenlode’s Elliott said all eyes were on the tech industry because it was facing a decision tree, with investors wanting to see which way they’d turn.

“Would the hyperscalers cross the Rubicon into negative free cash flow, or would they cut AI spend? Those with a clear, responsible plan were rewarded and those without were punished – evidence of a functioning stock market.

“Long-term investors must balance both the importance of the technology with the market exuberance of the past few years, and the importance of active and responsible capital allocation continues to increase.”

That responsible tone was striking from several of the hyperscalers, in relation to capex spend.

Elliott added:“[Amazon CEO Andy] Jassey was clear that ‘if the demand isn't there, we won’t spend the capital’ and the team at Microsoft went as far as to reference the US railroad buildout as a direct analogy.

“Investors are no longer simply rewarding management teams for ever-increasing AI spend – which is a good thing in our view – and management teams are adapting their message. The groundwork is being laid for a cut, if deemed necessary, in the coming quarters.”

If you’re buying an index fund or exchange-traded fund (ETF) that tracks a particular index, there are two main options you can choose.

An equal-weighted index fund is exactly that – a fund where all components (shares or bonds) are the same size.

Conversely, a market cap-weighted index fund allocates proportionately, so the larger companies’ stock or bonds make up a higher share of the index and the smaller companies’ stock or bonds comprise a smaller amount.

If the point of an index fund is to have diverse exposure to lots of different companies (100 in the flagship FTSE index, 500 if it’s the US’s S&P equivalent and so on) then some might say using market capitalisation to allocate each component of the index seems a little short-sighted.

If you’re a US index investor, buying a fund that tracks the S&P 500 index ought to give you access to 500 shares (it’s actually slightly over that – 505 at the end of July – because some companies, like Google’s parent Alphabet, list more than one share class of their stock). Yet the so-called Magnificent 7 (Mag 7) names account for around a third of the S&P’s value, with a combined market cap of around $22 trillion.

As a proxy for the wider US stock market, that concentration is reflective of the sector’s position in the market and role in the economy. But as an investment vehicle whose role is to give a one-stop shop to a diversified index, it raises the question of whether such an approach has some shortcomings.

Ultimately whether you favour one or other approach is a personal choice but there are arguments supporting both viewpoints.

Why does equal- versus market cap-weighted matter?

The main differences are about portfolio characteristics, rebalancing and performance.

When the Mag 7 were soaring, many investors might have welcomed their dominance. But now the performance of those stocks is slowing, it’s shining a light on the concentration risk they have presented.

According to ETF provider HANetf, all Mag 7 stocks have underperformed the index for the first time since 2022.

Mark Preskett, senior portfolio manager at Morningstar Wealth, said equal-weighted indices can look very different from market cap-weighted ones, with much lower tech exposure and more even allocation across the other sectors, such as healthcare, industrials, energy and financials. He added that they tilt away from megacap growth and towards a cheaper, less profitable part of the market.

The bigger a company becomes, the more of the index it comprises, inevitably attracting more money flows into it through the funds tracking the benchmark. In short, the winners keep getting bigger, because they are already the winners.

When those companies are outperforming, that makes for a strong investment case. But when things wobble, the opposite becomes true. This is referred to as concentration risk. A broad index may still contain hundreds of names but its performance depends on relatively few, large constituents.

How does performance compare?

The growth potential can vary sharply between the two strategies.

Morningstar compared its Global Target Market Exposure (TME) Equal Weighted index fund, which tracks gross returns of the top 85% largest mid- and large-cap global stocks (equal-weighted), in US dollars over 10 years (1 August 2016 to 1 August 2026). It took an initial value of $10,000, and with a cumulative return of 130.68%, turned that amount into $23,041.

The market cap-weighted peer generated a cumulative return of 224.68% over the same timeframe, turning $10,000 into $33,360.

This stark difference highlights the trade-off investors are making. Equal weighting can mean giving more exposure to mid-cap value characteristics and less to the megacap names driving the market-cap indices. But in the market cap-weighted index, its winners have generated significantly higher returns.

Rob Edwards, global head of product & research at Morningstar Indexes said this was not a new phenomenon. He pointed to long-run evidence that suggests a relatively small number of companies often drive returns.

A study by Hendrik Bessembinder from Arizona State University’s business school studied 29,754 stocks from 1926 to 2025, a time period over which $91 trillion of shareholder wealth was created. Just 46 companies accounted for half of that total wealth creation.

Yet Cameron MacDonald of HANetf said scepticism around artificial intelligence spending, a rotation into smaller companies and mixed recent results for the Mag 7 all support the case for equal weighting.

Citing FactSet data, Invesco (which also offers equal-weighted index strategies) pointed out that the equal-weight version of the S&P 500 index outperformed its market cap-weighted peer by an average of 1.05% annually between 1999 and 2023.

Benefits of equal weighting

If diversification is the point of investing in a broad index, then arguably the breadth of underlying company nuances is what you are seeking.

According to Morningstar, in the first quarter of the year, 65% of all European asset flows moved into passive funds, totalling €120 billion (£103 billion). With more money flowing into stocks via passive funds and exchange-traded funds (ETFs), there’s a risk that a market cap-weighted approach ends up rewarding the winners and inadvertently not backing the smaller companies (potentially the future winners) to the degree you might like to.

That is the argument made by proponents of equal-weighted funds. They give the smaller constituents a bigger role in the portfolio and reduce the influence of the biggest names. In practice, that often means less concentration in technology and more exposure to financials, healthcare, industrials and energy.

“You’re getting materially different outcomes and sector biases, about 10 times the market cap and almost a mid-cap value as a style rather than megacap growth”, said Preskett.

Further, those smaller stocks are cheaper; they have lower P/E multiples, lower price-to-book, but are often less profitable.

He does see how equal-weighted strategies can be used more tactically. “As markets got more concentrated [earlier this year] there seemed to be some more interest [by peers] in equally weighted portfolios. They were seen as a way of dialling down the risk, almost smoothing returns in a way as you’re bringing in a much more diversified subset.”

But beyond such tactical use, it wasn’t a long-term strategy his team would recommend for mainstream clients.

Edwards also said he disagreed with the idea that surging passive flows distorts long-term outcomes.

“I’m aware there’s been a narrative for academic summaries on this but I think in the long run, the reality is that if a company doesn’t have solid fundamentals, financials, growth characteristics, they're not going to keep growing.”

The winners are the winners because they have incredibly large moats; incredible scale, cost efficiencies, network effects of their businesses.

“Index construction plays very little part in terms of long-term share price growth. I don’t think you can point to index construction or the rise of passive investing because the reality is there's always going to be active management.”

Active management can play the role of countering the momentum when stocks get too expensive.

Ultimately the choice between equal- or market cap-weighted funds depends on what you want to achieve. They’re two very different strategies. To capture the market ‘as is’, market cap-weighting remains the default. If you’re hoping to reduce concentration and spread risk more evenly across the index, that makes a case for equal weighting.

Having smashed through the record for the largest initial public offering (IPO) in history back in June, SpaceX (NASDAQ:SPCX) announced results for the first time as a public company on 4 August.

SpaceX’s IPO saw its shares skyrocket, gaining 19% on their first day and a further 25% over the following two sessions.

But by market close on 4 August, ahead of the earnings release, they had fallen to $125.33 – 7% below the IPO price of $135 and 44% below the $225.64 peak they reached on 16 June.

And the reaction following results exacerbated this crash-landing. The stock opened more than 10% lower on 5 August, the day after the results, despite some impressive headline figures. Increased spending seems to have spooked many investors.

“Part of a SpaceX rocket crashing into the moon this morning is probably a good metaphor for the share price performance so far,” said Chris Beauchamp, chief market analyst at investing and trading platform IG.

Revenue was encouraging, increasing 92% year-on-year to $7.8 billion. Analysts polled by LSEG had yielded a consensus forecast of $6.9 billion, so this represented a healthy beat – at least in theory.

“It’s so early in [SpaceX’s] life as a public company, that beating consensus carries little real weight,” said Matt Britzman, senior equity analyst at investment platform Hargreaves Lansdown. “Analysts are still trying to work out what the business should look like.”

Rather than these estimates, investors appear to have focused on the negatives, including rising costs across all segments – particularly artificial intelligence, where spending rose by $1.6 billion.

Across the business, losses narrowed to $541 million from $1 billion, and Elon Musk moved the company’s target date to achieve $1 trillion in annual revenue forward by a year, from 2031 to 2030.

The initial success of SpaceX’s IPO made Musk a trillionaire, though the subsequent share price declines have brought his nominal wealth back below the threshold.

But could there be complications when Musk, and other long-standing investors, try to realise this wealth?

How might lock-up expiries impact SpaceX shares?

On 6 August, the first of a series of lock-up periods for longstanding SpaceX shareholders expired.

Investment research firm Morningstar predicted these lock-up expiries could lead to waves of selling.

Lock-up periods are a period of time following an IPO during which pre-existing shareholders cannot sell their shares (for the most part, these are company insiders and any investment trusts or other institutional investors that invested in the company when it was private).

In theory this protects new investors from a sharp sell-off once the company goes public – because these pre-existing shareholders are, in theory, heavily incentivised to realise some of the value or profits from their shareholdings when a company lists. Staggering the periods at which they can sell gives the share price a chance to stabilise on the public market.

SpaceX’s lock-up periods expire in multiple tranches between 6 August and the one-year anniversary of the IPO.

Each lock-up window expiry provides an opportunity for longstanding shareholders to bank profits, and the expectation is that many of them will.

This usually sees a dip in a company’s share price as there is a sudden influx of sellers.

The 911 million SpaceX shares that became available for trading on 6 August is more than the amount that were sold in the IPO.

Musk himself won’t be able to sell his shares until June 2027, though he has previously said that he won’t sell his shares even then.

Matthew Kennedy, senior strategist at investment bank Renaissance Capital, told Morningstar that “SpaceX has the longest series of lock-up releases we’ve ever seen”.

In the event, there was no sudden deluge of selling when the first expiry hit. SpaceX shares actually rose more than 6% on 6 August.

But with more unlocks approaching in August, September and October, SpaceX’s share price could continue to fluctuate over coming weeks.

“[In the near term] lock-up expiries, a growing public float and upcoming Starship launches are likely to keep the shares volatile,” said Britzman.

Banking stocks are back. Towards the end of January 2026, Deutsche Bank (Frankfurt: DBK), the perennially struggling German lender, told investors it had booked record profits in 2025 and was trading ahead of management's long-term profitability targets.

This was a landmark not only for the company, but also for the wider global banking sector. Financial institutions generated a total shareholder return of 30.2% last year, according to the latest report from the Boston Consulting Group, ahead of information technology and all other major sectors. Yet most financial institutions still trade at roughly a 40% discount to the market.

If there's one bank that reflects the issues that have affected the sector for the past two decades, it's Deutsche Bank. The bank aggressively chased growth pre-2007 and became one of the world's most influential financial institutions, but quickly fell apart in the financial crisis. It initially avoided a direct German government bailout, but relied heavily on emergency loans from the US Federal Reserve to stay afloat.

As management boasted about not taking cash from any government, it had over the next 15 years to raise capital on four occasions for a collective total of more than €30 billion. The bank also paid approximately $10 billion to settle long-running investigations into its sales practices before the financial crisis. It has also been raided by the German authorities on multiple occasions due to tax probes and money laundering. The lender has paid around $20 billion in fines over the past two decades.

In many respects, it is amazing the bank is still around, but it has struggled on and this year's earnings release seemed to represent a high-water mark. The company reported a post-tax return on tangible equity – a key measure of banking profitability – of 10.3% with a profit before tax of €9.7 billion, up 84% year on year.

Costs fell across the business and it reported a strong rise in fees from its asset-management and private-bank arms. It has also started returning cash to investors. Management outlined plans to return up to €2.9 billion to shareholders in January, comprising a €1 per share dividend and a €1 billion share buyback authority.

Big banking stocks get a lift from tailwinds

Deutsche Bank isn't the only global lender that has reported a surge in profitability over the past couple of years. The entire banking sector is reporting some of the best profit and earnings figures since before the financial crisis and shareholders are reaping the benefits.

The UK's Metro Bank (LSE: MTRO) is another example. It came close to collapse in 2023 before securing a rescue refinancing and has spent the last three years refocusing the business. In the first quarter, it reported a record level of income, delivering a return on tangible equity of 6.4%; management wants to increase that to 18% by 2028.

Metro Bank and Deutsche Bank are two very different institutions, but they are benefiting from the same underlying trends that are acting as significant tailwinds for banking stocks. In its latest set of results, Metro reported a 22% rise in net interest income, as its net interest margin – a measure of lending profitability – came in at 3.17%. Lending to small businesses rose by 67% and the bank cut costs by 7%. All big financial institutions are making significant cost reductions as they embrace and adopt AI. According to US employment data, payrolls in the financial services and information technology sectors have declined by 28,000 per month on average in 2026 as AI adoption has accelerated.

US banks such as JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Goldman Sachs (NYSE: GS) have all said they will use AI to help employees crunch more data, and that will lead to job losses. Standard Chartered (LSE: STAN) announced in May that it would cut more than 7,000 jobs over the next four years as the bank accelerates the use of AI. Morgan Stanley (NYSE: MS) has also said that it will cut 3% of its workforce as AI takes on more work.

Banks reap the benefits of higher interest rates

Falling costs are only part of the equation for banking stocks. They've also been able to take advantage of the stronger interest-rate environment over the past five years. At its core, banking is all about how much lenders can earn on the spread between deposits received from savers and the money they lend out either to businesses or consumers. This spread between the cost of capital and interest received is called net interest margin – one of the most significant metrics in banking. The global bank net interest margin was 1.65% in 2024 and 1.63% in 2025, according to McKinsey's 2026 Global Banking Annual Review. But while the global rate declined, the margin in the US rose by nine basis points, in Japan by seven and in the UK by six.

Banking stocks are still reaping the benefits of higher interest rates even as central banks the world over have started to bring rates down from the highs seen in the years immediately after the pandemic. Most banks borrow in the short-term lending market and then lend on a longer-term time horizon to consumers or businesses. This helps manage risk and means it can take time for interest-rate changes to filter through the system. Banks also make the most of so-called structural hedges, using stable low- or zero-rate customer deposits as long-term funding and executing interest-rate swaps to convert exposure to floating rates into fixed yields.

For example, Lloyds Bank (LSE: LLOY), the UK's largest mortgage lender, reported a net interest margin of 2.95% in 2024, 3.06% in 2025, and 3.17% in the first three months of 2026. The company has been able to earn more even as interest rates have fallen from a high of 5.25% in the first few months of 2024 to today's rate of 3.75%, as consumers have rolled off long-term fixed mortgages at low rates and have had to fix at a higher rate.

Costs and higher interest rates have helped banking stocks, but so has the economic environment. Despite concerns that higher rates globally would lead to an increase in defaults as companies struggled with a higher cost of debt, in reality the outcome has been very different. All six major US banks that have reported results so far reduced the amount of money they have set aside to cover bad loans. Goldman Sachs reported a 73% decline for the same period last year, Morgan Stanley cut its credit provisions by 50%, while Bank of America (NYSE: BAC), JPMorgan, Citigroup and Wells Fargo (NYSE: WFC) all reduced provisions by 9%-14%.

At the same time, demand for loans has increased. A strong economic recovery in the US has driven demand for business and consumer borrowing. Analysis of the major US lenders' results conducted by Fitch Ratings found that commercial loan growth has now exceeded 7% year on year for 14 straight weeks. All of the largest major lenders reported double-digit loan growth for the second quarter and some smaller banks have reported the strongest growth since 2012. In the UK, too, demand has picked up despite cost-of-living pressures. Across Europe, demand for loans and credit lines has increased in every quarter since the second quarter of 2024 (apart from the first quarter of 2026), according to data from the European Central Bank. In the second quarter of the year, the requirement for loans increased by 3% overall.

Record highs for stock trading and deals

Buoyant global equity markets have also helped the world's largest investment banks report a jump in trading revenue this year. Bank of America reported a record $3.6 billion dollars in equity trading revenue during the second quarter of 2026 (up 70%) and $3.5 billion in fixed-income trading revenue. Goldman Sachs reported a record $7.2 billion dollars in equity trading revenue for the quarter, up 72% from last year. JPMorgan Chase's equities traders posted an 86% gain to $6 billion.

These numbers follow a record 2025. Banks generated $271 billion of revenues from global markets last year, according to strategic benchmarking firm BCG Expand. That's $11 billion above their 2009 total – the highest level in recent memory. The big five US banks generated $134 billion of revenues from markets between them last year, 16% above 2024's levels.

As traders trade, deal makers are raking in cash for these financial behemoths as well. There have been about $1.7 trillion of deals announced so far this year, according to data compiled by Bloomberg, which excludes SpaceX's combination with xAI. That's the fastest pace since 2021, the high-water mark of the past few decades. Goldman Sachs has established a clear lead. The Wall Street bank has advised on more than $1 trillion of mergers and acquisitions this year already, according to data from Dealogic. Some of the deals the bank has helped advise on include Unilever's $44.8 billion sale of its food business to McCormick and Dominion Energy's $118 billion sale to NextEra Energy.

These Wall Street banks tend to eat the lion's share of revenue from global equity trading and investment banking, but European banks tend to be stronger in wealth management, which has also seen a significant increase in profitability, particularly among high-net-worth and ultra-high-net-worth individuals. Swiss bank UBS (Zurich: UBSG) reported an 80% increase in net profit for the first quarter of the year thanks to an increase in income from its investment bank and its Global Wealth Management arm. Net new assets in Global Wealth Management totalled $37.4 billion, equivalent to annualised growth of 3.1% in transaction-based income, and the bank's asset-management unit added $14 billion in net new money. Overall, UBS reported $7.1 billion in revenue from global wealth management for the first quarter of 2026, an 11% rise year-over-year. Group invested assets stood at $6.9 trillion at the end of the quarter.

Deutsche Bank, too, has reported a robust performance by its asset and wealth-management arm. The bank reported topline net revenue growth of 2% for the first three months of the year and a rise in profit before tax of 7%. Revenue at the asset-management arm rose by 10% and profit before tax was up 37% as assets under management increased €84 billion year on year, with further net inflows of €11 billion during the quarter. A near-4% rise in client assets at Deutsche's private bank also helped this division outperform. Profit before tax at the private bank rose 39% overall.

These two banks are both very Western-focused. HSBC (LSE: HSBA) and Standard Chartered, on the other hand, have a stronger reputation for wealth management and investment banking in emerging and developing markets, such as China and India.

Britain's banks have their own attractions

Unlike their counterparts on Wall Street and in Europe, UK banks don't tend to have large footprints in wealth management, private client and investment banking, or trading. This goes back to the financial crisis when banks such as Royal Bank of Scotland – now NatWest (LSE: NWG) – and Lloyds used to have large trading businesses and international operations. These were sold off in the aftermath of the financial crisis as the lenders doubled down on the core business of making loans and taking savers' money.

That said, lenders such as Barclays (LSE: BARC) and HSBC do have large trading arms, although they've never been able to compete in the same arena as the Wall Street giants. Still, despite their lack of exposure to the Wall Street world, UK banks have their own attractive qualities. According to analysts at Berenberg, banks' rolling structural hedges should guarantee around 50% of income for the sector through to the end of the decade, generating steady returns for the industry.

There's also plenty of scope for consumers and businesses in the UK to increase borrowing. Household and corporate debt ratios are at the lowest levels of the past 25 to 30 years, while UK banks' average loan-to-deposit ratios sit at 90%, giving the sector plenty of headroom to increase borrowing. UK banks are trading at just 7.5 times their two-year forward price-to-earnings (p/e) ratio, a level not seen since late 2021 and a 20% discount to the sector. There's a lot of political and economic uncertainty hanging over the market, but this discount seems unwarranted.

There's also plenty of cash to return to investors. Berenberg believes the average total yield of UK banks will rise to 10%-11% by 2028 compared with 7%-8% today, the total comprising a combination of dividends and share buybacks.

Berenberg likes Barclays, for its exposure to the US investment banking and trading world, and NatWest. Barclays has made substantial progress at its investment bank, improving profitability and keeping costs low. Investment banking and trading revenues have grown steadily since 2022, with the teams keeping up with peers at the Wall Street majors. Despite this progress, the bank trades at just 1.2 times tangible net asset value at the lower end of its European peer group. Berenberg estimates that, based on its return on tangible equity of 14.3%, it should be trading closer to 1.6 times net asset value, suggesting an upside of 40%. Earlier this year, the bank pledged to return £15 billion to shareholders as part of its growth plans.

NatWest, meanwhile, is trading at a 25% discount to the average in the European banking sector. The lender is earning a 20% return on tangible equity and is reporting strong organic capital generation. Organic capital generation is expected to exceed 200 basis points per annum over the next few years, which should help fund growth, distributions and potential bolt-on acquisitions. The shares are currently trading at a 2028 p/e of just 6.5 and offer a potential forward dividend yield of 7.5%. The recent acquisition of Evelyn Partners will also help the company expand its footprint in the lucrative wealth-management business.

The most promising global banking players

One of the more interesting global opportunities is Santander (LSE: BNC). This lender has a presence in the US, Europe, the UK and Southern and Central America, making it one of the few genuine global banking opportunities. The bank has 180 million customers around the world and wants to exceed 210 million by 2028. At the same time, it has laid out plans to generate €20 billion (growth of around 40%) in profit by 2028, to be helped by recent acquisitions such as Webster Financial in the US for $12 billion earlier this year and the TSB Bank in the UK. It expects all divisions, loans, wealth management and cross-border finance to contribute to this growth. Growth is just one part of the story. The other side is shareholder returns. The lender is nearing the end of a programme to return €10 billion through share buybacks for 2025 and 2026 and analysts believe it will rebuild this pipeline when the current authorisation has come to an end.

UBS is another global player that analysts believe is undervalued. Now the group has fully completed the merger of Credit Suisse and removed unnecessary costs, it can concentrate on executing its strategy, growing the wealth-management business and its private bank. According to analysts' consensus estimates compiled by UBS, the bank is expected to post $10.7 billion of net income for 2026, rising to $14.4 billion in 2028. The wealth-management arm is projected to increase assets under management by around $1 trillion and see profit before tax nearly double from $5 billion to $10 billion by 2028. Based on these estimates, the shares are trading at a 2028 forward p/e ratio of around 9.5. Analysts have also pencilled in a reduction in outstanding share capital of around 10% and expect the dividend per share to rise 40% to $1.58 over the same period.

A shower of cash for shareholders

Of the large US banks, the cheapest is Citigroup. Trading at 1.2 times book value, the bank has long struggled to live up to the lofty expectations of the market. Its peers, Goldman and Morgan Stanley, are trading at 2.8 and 3.3 times book value, respectively. Still, the bank is benefiting from many of the tailwinds helping its peers. Markets and equities trading revenues were up 17% and 45% respectively in the second quarter, while the group's cost-to-income ratio came in at 57.4% compared to a full-year target of 60%.

In the first half, Citi booked a 13% return on tangible capital employed and is saying it expects 10%-11% for the full year, which suggests it's around a third less profitable than major peers such as Goldman Sachs based on this measure. That deserves a lower valuation, but a discount of more than 50% seems too steep. With a solid Tier-1 capital ratio of 12%, the bank was able to declare a $30 billion multi-year share repurchase programme following the successful completion of the Federal Reserve's supervisory test earlier this year.

Citi's cash returns are emblematic of the sector. In the first quarter of this year, the eight largest US banks showered shareholders with $46 billion in dividends and buybacks, up a third from last year. European banks are expected to return €123 billion this year. It's time for investors to sit up and take notice.

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Cameco (Toronto: CCO, or NYSE: CCJ) is a C$54 billion (£28.8 billion) nuclear-industry supplier covering the whole spectrum from uranium exploration, mining, refining, enrichment and fuel fabrication to designing, developing and servicing reactors.

The Iran war and resulting interruption of oil and gas supplies shows how geopolitical tensions can disrupt supply chains and affect share prices. Markets would drop precipitately should China invade Taiwan or Russia attack the Baltic states. Given these uncertainties, there is a strong case for investing in secure, reliable, zero-carbon baseload power. The construction of data centres for AI is also adding to demand for such power.

The renaissance in nuclear for zero-carbon baseload electricity meets these needs. There are already 436 nuclear reactors in the world with 70 new reactors under construction and another 115 planned. And 38 countries have signed a declaration to triple nuclear generating capacity by 2050.

Cameco's reserves of uranium are in Canada, Australia, the US and Kazakhstan, with the majority of its proven and probable reserves in Canada. In 2025, Cameco was the second-largest producer with 15% (Kazatomprom was the largest at 20%). Planned production is expected to fall below demand in 2033 and be only 50% of demand by 2041. Cameco's strategy is to build a portfolio of long-term supply contracts with utilities rather than to rely on the spot market. Current contracts run into the 2030s.

Cameco also has a 49% interest in Global Laser Enrichment (GLE) (and the option to attain 75% ownership); GLE has a worldwide exclusive licence on separation of isotopes by laser excitation (SILEX) – a third-generation enrichment technology.

Cameco's reactor design, development, construction and servicing activities are provided by Westinghouse Electric Company, which is a Cameco/ Brookfield Asset Management strategic partnership, with Cameco holding a 49% stake.

Cameco's four drivers of growth

Four factors are expected to drive growth. Firstly, the expected shortfall of supply from 2030-2031 onwards (rapidly increasing the shortfall from 2033), which will lead to stronger pricing and enable the firm to raise production from its reserves. Uranium prices are already rising. Cameco's fuel-manufacturing division enables it to capture more of the value added than it would as a miner.

Secondly, there's the growing global fleet of nuclear reactors that Westinghouse inspects, services and provides for. The third factor is the 185 new reactors planned or under construction. Westinghouse already has six of its AP1000 reactors in operation, another 30 under construction and 16 planned. The fourth is the potential of SILEX technology for the re-enrichment of depleted uranium and for making low-enriched fuel for future light-water reactors.

Cameco's 2025 results to the end of December showed revenue up 11% to $3.5 billion, adjusted EBITDA up 26% to C$1.93 billion and adjusted diluted earnings per share up 321% to C$1.44. First-quarter results show revenue up 7% and adjusted earnings per share up by more than 100% to $0.47. It says committed sales volumes for 2026 are 29 million pounds (mlbs) to 32mlbs of uranium compared to 33mlbs in 2025. But prices are rising, with an average price in the fourth quarter of 2025 of C$91.3 per pound compared with C$80.9 for same period in 2024. Long-term contract prices in 2026 are around C$131 and 2033 prices are anticipated to be in a range with a ceiling of C$200.

Cameco focuses on securing long-term contracts that anticipate increasing demand and shortfall of supply rather than serving the spot market. For example, in March 2026 Cameco signed a nine-year agreement with India to supply nearly 22 million pounds of uranium ore at market prices. This contract has an estimated value of C$2.6 billion.

Cameco's share price is on the rise

Cameco enjoys stability thanks to long-term contracts and growth potential in all divisions. With respect to the mining of uranium, it has large reserves in stable countries, most being in Canada. The fuel services division refines, converts and manufactures fuels, and benefits from the increasing demand for nuclear reactors to provide zero-carbon baseload electricity.

Cameco’s interest in GLE’s third-generation laser-enrichment technology and its option to take majority ownership provides an extra growth driver for this division. Then there is its 49% stake in Westinghouse (WH), which has the proven AP1000 and AP300 reactors, 30 more under construction and others planned. Westinghouse is also developing small modular reactors.

In October 2025, WH signed an agreement whereby the US government will facilitate the financing and building of new reactors in the US to the value of at least $80 billion to power AI-heavy data centres. This raises the prospect of a separate initial public offering (IPO) for WH that could value it at $15 billion-$35 billion or more (compared with the $8.2 billion Cameco/ Brookfield paid for it in 2023) and yield a capital gain. The UK government sold to Toshiba in 2006 for only $5.4 billion.

Cameco’s recent share price is C$123, with a one-year target of C$185, a forward yield of 0.19% and a strong balance sheet with net cash of C$0.2 billion. The forward price-earnings ratio is 46 for 2027 falling to 36.3 for 2028 and, over one year, the shares are up 13.6%. It is vertically integrated (mining to reactor construction and maintenance) and will be a key supplier in the renaissance of clean, reliable nuclear power. The rising price of uranium and new reactors planned globally suggest a long-term rising share price, with the possibility of a capital return from a Westinghouse initial public offering.

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When looking for Asian stocks, I look for good businesses run by competent management teams, available at a price that leaves a margin of safety. I focus on managing absolute risk and losing little money during market downturns, which should help compound returns at higher rates over the long term.

This discipline leads the portfolio away from popular thematic investments, start-ups, highly geared companies, cyclical businesses earning peak margins and stocks on high multiples to earnings.

As a result of this approach, the Fidelity Asian Values trust is primarily invested in mispriced small and medium-sized companies – the “winners of tomorrow”, before they become well known. Here are three examples.

Asian stocks to watch

Orion Corporation (Seoul: 271560) is a South Korean snacks and confectionery business that owns the well-known brand Choco Pie. It is a good-quality franchise with about a 25% market share in the domestic market as well as notable international revenues, supported by its production bases in China, India and Vietnam. Its international operations continue to grow and China makes a sizeable revenue contribution.

Choco Pie is its largest growing category, but Orion is using the recognisability of its brand to branch out into premium snacks as well as targeting a health-conscious demographic as a future driver of growth. Management has been focusing on enhancing shareholder value –it reported a 40% year-on-year rise in its dividend in 2025. The business is debt-free; the stock is valued at a 12-month forward price-earnings (p/e) ratio of nine times and offers a return on equity of more than 12%.

ManpowerGroup Greater China (Hong Kong: 2180) serves businesses that require workers for a limited time or a specific project, or those who wish to manage their own direct headcount. It also offers its clients headhunting and recruitment services, payroll outsourcing and training services. It is an asset-light business model and the company earns higher margins in its headhunting and recruitment division.

ManpowerGroup Greater China was spun off from ManpowerGroup, a world leader in its field, and therefore has the reliable operational processes of its erstwhile parent and retains a strong emphasis on risk management. Given the highly unorganised nature of the recruitment market in China, ManpowerGroup's scale and geographical spread is advantageous.

Our research on the ground indicates that the recruitment business in China is at its lowest ebb in the business cycle. The stock trades at a 2026 forward p/e of six times, offers a dividend yield of more than 7% and about 95% of its market capitalisation is in net cash on its balance sheet.

JW Life Science (Seoul: 234080) is the largest producer of intravenous (IV) fluids in South Korea, with a 45% market share. Demand for IV fluids is stable as the products are essential components in surgery, intensive care, hydration and patients' nutrition. The company faces competition from three to four players, but there are high barriers to entry given strict quality criteria, the need for strong brands and distribution capabilities, and for high levels of capital expenditure.

An ageing demographic in South Korea is supportive of revenue growth prospects for JW Life Science. The company has robust operating cash flows and a net cash balance sheet, a sustained mid-single-digit earnings growth profile, and offers a return on equity of an about 15%. It is valued at six times 2026 earnings.

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Semiconductors are the world's most valuable manufactured good. These tiny, intricately engineered pieces of silicon can perform more calculations in a second than a single person could complete in 30,000 years. This year has brought a semiconductor boom for the ages. The US PHLX chip index has nearly doubled over the past 12 months. Investors, noticing that big US tech firms are planning nearly $1 trillion in spending on AI data centres next year, followed the money to the chip stocks that provide AI hardware.

The global semiconductor supply chain is very concentrated. A handful of manufacturers and designers – Taiwan's TSMC, South Korea's Samsung and SK Hynix, America's Nvidia – capture the lion's share of profits. Yet expectations have run ahead of reality. This week, SK Hynix reported a 557% surge in operating profit, with margins of more than 80%. That Midas-like profitability still wasn't good enough for investors in Korea, who sent the shares tumbling 19%. The Korean Kospi slumped 11% on Tuesday and a further 6% on Wednesday. America's Nasdaq 100 technology index has fallen 9.7% from its peak, says Eva Roytburg for Fortune.

The immediate trigger was talk of new competition from China, where chipmaker CXMT listed on Monday. Those fears are probably overdone – China still doesn't have access to the cutting-edge extreme ultraviolet lithography machines required to make the world's best chips. But the chip stock selloff isn't irrational; for months, the “going trade” has been to sell the hyperscalers – firms such as Microsoft and Meta that appear to be overspending on data centres – and “buy the semis”, companies such as Samsung that are profiting from Silicon Valley's profligacy. Now investors have realised the obvious contradiction: if Big Tech's AI investments really are as wasteful as they think, then at some point that spending will be cut, which would be a disaster for chip stocks, too.

The semiconductor boom is based on very real profits, says Moses Sternstein for a16Z. Rising earnings have come alongside falling valuations – an unusual symptom for an alleged bubble. Micron, whose earnings are poised to rise 60% year on year, trades on a mere six times forward earnings. The wider US semiconductor complex trades on about 21 times forward earnings, a slight discount to the five-year average of 23.8.

The semiconductor industry is infamously cyclical

So are semiconductors cheap? In one sense, yes, but the industry is infamously cyclical. An acute shortage during the pandemic turned into a big bust in 2023 as demand returned to normal levels. “Investors are wondering whether semis can keep it up” this time. As laptop buyers will be well aware, dynamic random-access memory (DRAM), which is used for computer memory, is in acute shortage this year.

Samsung and SK Hynix have joint plans to invest as much as $1.5 trillion to double Korea's DRAM output within five years, say Song Jung-a and Michael Acton in the Financial Times. Yet there are risks of the chip cycle turning again. Should AI demand disappoint or Chinese supply surge, there could be a glut as soon as 2028.

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Income investors have enjoyed a strong quarter with UK companies paying out their all-time highest levels of dividend payments, according to industry research.

The latest Computershare UK Dividend Monitor – a quarterly report produced by the financial administration company, which tracks share registers of limited companies, including how they return money to shareholders – said regular dividends were the driving force behind the regular payments.

In total, companies paid out £35.3 billion in the second quarter of 2026, with £34.8 billion in regular dividends – an increase of 7.4%.

Banks and mining companies were the strongest sectors. Over the three months from April to June, banking stocks paid a record £11.1 billion in dividends, up 20.6% on last year’s equivalent and contributing four fifths of the aggregate dividend growth over the period.

Strong balance sheets, persistently high interest rates and low loan book losses – leading to near-record profitability – are supporting the sector’s performance.

While a year ago, it seemed likely that interest rates would continue to fall, reducing net interest margins for banks and the interest income paid on all reserves held at the Bank of England, the picture has changed.

The report pointed to persistent inflation, which has limited the Bank of England’s ability to cut rates, in turn sustaining higher bank earnings.

“The sector’s balance sheets are very strong and this, combined with high profitability has enabled significant dividend growth,” it said.

HSBC was the biggest driver, raising its end-of-year dividend by 25%, funded partly by a suspension of its share buyback programme.

Elsewhere NatWest and Standard Chartered raised payouts by 53% and 75% respectively, while Lloyds increased its own payouts by 14%.

The top sectors that fared well on dividends

The mining sector showed a strong recovery, with dividends from miners 27.5% higher than last year’s cyclical low.

Booming copper, silver and gold prices boosted dividend increases from Antofagasta, Fresnillo and Endeavour respectively, according to the paper.

The report also said that despite slightly lower profits as a result of falling iron ore prices, strong cash flow and a robust balance sheet enabled giant Rio Tinto to increase its final payout for the year by 13%.

Overall mining sector payouts rose 27.5% on a headline basis, up £917 million year-on-year.

Healthcare payouts rose by 6.1%, led by GSK, with the same level of increase (6.1%) shown across broader financials, with London Stock Exchange Group the highest payer in that space.

Which sectors struggled with dividend payouts in Q2?

At the weaker end was the food, drink and tobacco sector, which reported a 15.9% fall, largely due to Diageo, whose earnings have faced a couple of headwinds.

The report said weaker demand for spirits as consumers rein in discretionary spending and distributors work through their excess inventories. The company halved its dividend in response.

In industrials, the report flagged “pockets of weakness”, naming packaging and paper manufacturer Mondi and recruiter Robert Walters as contributing to the 7.9% dip in the sector overall.

Broadly, 11 sectors posted an increase while nine posted a decline in their dividend levels.

What is the outlook for income investors?

As expected, the larger companies saw significantly higher dividend growth than their mid-cap counterparts, with growth levels 7.7% for the top 100 and 4.6% for the mid 250.

Special dividends remain highly unpredictable, reporting a 76% decline over the quarter to £465 million, weighing on the overall headline growth rate.

But these figures are from a high base. For context, Q2 special dividends have averaged £2.2bn over the last five years – even bigger before the pandemic. There has also been an increase in share buybacks in recent months, which might be a factor. The paper notes that this is a mere notable correlation not a proven cause.

While dividend growth is expected to slow in the second half of the year, the strength of the payments in Q2 have led the business to increase its forecast from 3.1% to 3.4%.

UK equities look set for a yield of 3.2% over the next 12 months, while volatile bond markets amid geopolitical uncertainty are underpinning ‘best-buy’ cash savings rates of 4.2% for an average easy access account.

Technology giants with an edge in artificial intelligence (AI) have dominated equity market returns in recent years, but enthusiasm is slowing down with chip stocks looking jittery as competition heats up.

There have also been warnings of a potential AI bubble, but as yet, the jury remains out over which companies will emerge the longer-term winners or losers. A recent survey by fund management group Natixis Investment Managers revealed that despite a number of global headwinds – ongoing US-Iran conflict, volatile energy markets and persistent inflation – 91% of the 33 strategists interviewed were optimistic that AI will be a driving force behind market performance in the second half of the year. It also found 88% expect the AI sector to accelerate with just 12% believing its bubble will burst in the second half of the year.

But should investors be seeing that disruption as an opportunity?

How to invest in AI beyond ‘big tech’

There are two distinct strategies the AI wave opens up. One is to aim to capture the growth potential of AI but without limiting yourself to the big names, such as the ‘Magnificent 7’ – Apple (NASDAQ:AAPL), Microsoft, Amazon, Alphabet (NASDAQ:GOOGL), Meta, Nvidia (NASDAQ:NVDA) and Tesla.

BlackRock’s Helen Jewell, international chief investment officer of fundamental equities, believes by looking at the AI story through a wider lens, investors could discover more upside with less of the volatility that comes with high valuations and market concentration.

One route is to look at infrastructure and the power investment needed to facilitate the AI boom and the broader shift towards electrification it has helped accelerate. Jewell said this trend is being “turbocharged” by governments focusing on energy independence.

“These sectors may offer exposure to structural growth trends while potentially providing more diversified return streams, attractive valuations and lower concentration risk than some of the most highly valued areas of the market,” she added.

Where are the next big opportunities in global equities?

In 2025, a handful of sectors led market gains – namely banks, aerospace and defence, and industrials.

All three areas are expected to continue to perform positively, as valuations are increasing. European banks in particular look promising; BlackRock's Jewell said they’ve shown resilient earnings despite interest rates calming down from recent highs.

She added that banks are increasingly adopting AI to modernise their own systems. Better integration across the European banking and capital markets system, alongside consolidation indicates a more profitable sector and, therefore, better likely returns for shareholders.

How to invest in contrast to AI

Another way to play the AI theme is in reverse. Concentration risk presents a problem if too high a share of your overall investments are gathered in one stock, region or sector – hence the ‘don’t have all your eggs in one basket’ analogy.

If there’s a correction in AI, and share prices fall (or the supposed bubble bursts), being exposed to different areas of the market that aren’t correlated will offer investors a degree of ballast to their portfolio.

Jewell cited healthcare as a strong diversification play, though it is also a sector that can benfit from AI. The sector has historically traded at a premium to the market but is now at a 15% discount, with earnings growth that has been second only to technology.

Elsewhere, she likes Latin America, which also has a low correlation to the AI trade. It’s trading at lower valuations than historical average, and while it makes up just 0.8% of the MSCI All Country World Index (ACWI), it accounts for 7% of global GDP.

In the UK, the FTSE 100 index has outperformed global stocks on a total return basis, without any direct AI exposure. Broadly, rising interest rates over the past five years and higher energy prices have boosted banks and oil companies, while defence has also returned to prominence amid the ongoing conflicts around the world.

The three income stocks picked below demonstrate the diversity of opportunities in the Aberdeen Equity Income Trust portfolio and the combination of income and capital growth that we look for.

The trust takes a deliberately index-agnostic approach, searching for companies undergoing change that the market under-appreciates. The idea is simple: the most compelling opportunities are often found in overlooked or under-researched areas. This leads to a portfolio that looks very different from other traditional UK equity income strategies.

With no sector constraints and a flexible approach to size, the trust can access a broader universe of income stocks, many offering attractive yields and the prospect of dividend growth. As the businesses gain wider recognition, valuation re-ratings can follow, supporting capital appreciation. With the macro backdrop starting to improve and investor attention moving beyond the FTSE 100, this approach is increasingly relevant.

Three income stocks to consider

We have held Chesnara (LSE: CSN) since 2014, reflecting our long-standing confidence in its business model. It operates as a disciplined acquirer of legacy life insurance assets, completing £440 million of acquisitions over the past five years. As large financial institutions streamline operations and dispose of non-core assets (often at attractive discounts) and private equity focuses elsewhere, Chesnara has carved out a niche by pursuing overlooked deals and refusing to overpay. This disciplined approach has built a strong record of earnings-accretive transactions. At the same time, the steady flow of acquisitions replenishes the book as older policies run off. Scale has increased meaningfully, with assets under administration rising from £8.5 billion to more than £20 billion, alongside expansion into Europe. With more than £100 million of available firepower, management sees further opportunities ahead. Chesnara generates cash through efficient management of existing books and delivers investment returns above the risk-free assumptions embedded in its actuarial models.

GTT (Paris: GTT) is a global leader in containment systems for liquefied natural gas (LNG), a market set for structural growth. Demand for LNG is expected to rise by around 60% between 2025 and 2040 as economies transition away from coal, driving the need for additional tanker capacity. GTT's membrane technology is critical to the safe transport of LNG, and decades of research and development have secured it a dominant market position. Barriers to entry are high, with shipowners and insurers reluctant to risk unproven suppliers, thus supporting pricing power and consistently high margins. Core growth should benefit from increasingly global LNG flows and a replacement cycle for an ageing tanker fleet. GTT is also building a digital services platform, with technology already installed on more than 15,000 vessels. This creates a valuable opportunity to cross-sell software and consulting services – an area that remains under-monetised, but offers high returns. A new CEO may accelerate this focus, while robust cash generation underpins both dividends and reinvestment.

The sharp correction in software stocks in early 2026 created an opening for investors hunting for income. UK IT reseller Softcat (LSE: SCT) plays a key role in connecting businesses with complex IT, partnering with more than 200 global technology providers. It has delivered consistent organic growth, expanding market share and securing a highly loyal customer base – 95% of revenues come from repeat business. The rapid adoption of AI is driving demand for processing power, storage, networking and security infrastructure – areas where Softcat is well positioned. This structural tailwind is expected to support continued earnings growth for the business, resulting in rising dividends.

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Two oil stocks are among the cheapest equities on the London market today. Harbour Energy (LSE: HBR) and Serica Energy (LSE: SQZ) are trading at price-to-earnings (p/e) ratios of 5.3 and 2.7, respectively, for 2026 based on figures compiled by Peel Hunt. On a cash flow basis, the companies look even cheaper. The shares are trading at free cash flow yields of 35% and 29.9%, respectively, and a large chunk of this cash is flowing right back to investors. Harbour is trading with a forward dividend yield of 9.9%, rising to 15.4% next year, and Serica is expected to yield 7% for 2026 and 2027 at the current share price, according to Peel Hunt.

It's clear why investors are steering clear of these businesses. Both are UK-focused oil and gas companies, and they're highly exposed to the country's unhinged energy and tax policies. But in the words of billionaire distressed-debt investor Howard Marks, there are no bad assets, only bad prices, and at current prices, the market is valuing these oil stocks at such a deep discount that it's going to be hard for the market to continue to ignore them.

Investors should buy these oil stocks together

I view Harbour and Serica as a deeply discounted pair that should be acquired together rather than individually. While both are cheap (Serica is half the price of Harbour), buying the two helps spread management execution risk. Harbour Energy is the largest London-listed independent oil and gas company. It used to be entirely UK-focused, but after a series of deals it now has a global presence, with assets in the UK, Norway, Germany, North Africa and the Americas. It also holds a 15% stake in Southern Energy SA, Argentina's first large-scale floating liquefied natural gas (FLNG) export project.

The group started the year with production of 506,000 barrels of oil equivalent per day (boepd) in the first quarter, thanks to higher output from the recently acquired US LLOG assets in the Gulf of Mexico. Its Norwegian assets also helped boost output and, combined with new wells, management is now looking for between 480,000 and 500,000 boepd for the rest of the year, with average operating costs of $14.5 per boe.

Based on these costs, the company is modelling free cash flow generation of $1.4 billion for 2026, up from $600 million at the beginning of the year, assuming an average oil price of $80 and $13 for gas. These numbers don't look too outrageous for the rest of the year. While the Brent benchmark trended down to the low $70s per barrel at the beginning of July, when it looked as if the US and Iran would sign a lasting peace agreement and the Strait of Hormuz would reopen, the recommencement of hostilities has sent oil back up to $88 at the time of writing.

Analysts at Canaccord Genuity have modelled Brent averaging $83 in 2026 and $75 in 2027 before falling to $70 in 2028. Based on these estimates, they have Harbour generating free cash flow of $1.9 billion in 2026, $0.7 billion in 2027 and $1.1 billion in 2028. Analysts at Zeus are a bit more cautious, forecasting a Brent price of $75 for the rest of the year.

Even on this lower target, based on Harbour's goal to pay out 45% to 75% of free cash flow to shareholders every year, the analysts believe the company will return in the region of $500 million to shareholders at the low end of this target, giving a dividend yield of 6.9%. Canaccord has pencilled in a yield of 8.3%, and Peel Hunt's is the most optimistic at 9.9%. The yield will probably land somewhere in the middle, but whichever way you look at it, it's clear Harbour is cheap and throwing off cash.

Serica's valuation is a bargain

Serica's production profile is predominantly UK-based, and the company is listed on the Aim market, which goes some way to explaining its bargain-basement valuation. The first point it can't do much about, but on the second point, Serica is working to remove some of the uncertainty by moving to the main market in the third quarter of 2026.

Despite its UK focus, Serica's management believes the company can maintain production at over 50,000 boed into the 2030s (it aims to exit 2026 with production in the 65,000 boed range) based on its existing portfolio with well-executed capital spending.

Capital spending is expected to rise through to the end of the decade, which will crimp free cash flow. Still, management has outlined plans to pay out 30% of cash flow from operations over the coming years, which, Berenberg estimates, delivers a dividend yield of 11% in 2027 and then averages 7% through to 2030 based on an average oil price of $75.

Unlike Harbour, which has accumulated a large pile of debt following a series of mergers and acquisitions, Serica is expected to move from a net debt position of –$203 million in 2025 to +$91 million in 2026 and +$192 million by 2027. This, analysts at Berenberg believe, will allow management to begin considering bolt-on acquisitions of increasing size. Last year, it completed mergers with Prax, One Dyas and Spirit Energy, which added production from 25 fields in the North Sea.

As other companies have decided to flee the UK-owned section of the North Sea, Serica has been able to step in as a buyer of last resort. These deals were done at between $2 and $4 per barrel of reserves. By comparison, Harbour paid around $12 for the US LLOG assets at the end of last year. When it comes to further deals, Serica is following Harbour's lead and looking for deals outside of the UK. In conversations with analysts, Serica has highlighted Southeast Asia as a region of potential interest.

As the company moves forward with these growth plans, it may only be a matter of time before the market catches on and re-rates the stock.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Travel firm Expedia has experienced the rough and the smooth of recent turbulence in the travel industry.

America’s war on Iran has raised the price of jet fuel, and higher prices at the pumps have compounded a cost-of-living crisis that has prompted many to wonder whether they can even afford to take a holiday.

More broadly, however, the industry continues to enjoy a post-pandemic boom, while a further tailwind is the increasing propensity (among younger people in particular) to prioritise experiences over possessions.

Expedia (Nasdaq: EXPE) has two main businesses. Around two-thirds of the group's revenues come from a range of consumer-facing websites that help customers book hotel rooms and car rentals, including Expedia.com, Hotels.com, Vrbo.com and CarRentals.com. However, in recent years, a growing proportion of its revenue has come from supplying the technical infrastructure that allows hotels, car-hire companies and other firms to manage their bookings.

Expedia isn't threatened by AI

After tripling in three years, Expedia's shares swooned at the start of this year. Markets were buffeted by the current conflict in the Gulf and concerned that AI could carry out much of Expedia's work automatically. In the worst-case scenario, developments in “agentic AI” would allow people to type a few prompts into a chatbot, which would then automatically book a holiday with the best prices, completely bypassing the need for comparison websites such as the one Expedia runs.

However, such fears seem overblown. While an increasing number of people seem willing to rely on chatbots to provide advice about what to see, few would trust it enough to allow it to book hotel rooms on their behalf, even if such software merged. Large companies are even less likely to trust a chatbot to oversee the distribution of hotel rooms and flights for their staff. At the same time, Expedia's exclusivity agreements with several hotel chains and airlines such as no-frills carrier Allegiant Travel provide a degree of security. Expedia is also examining how it can use AI to enhance its own operations.

The group has a strong record, with profits more than quadrupling since 2022. Expedia also has strong operating margins, with a return on capital employed of more than 30%, allowing it to raise dividends and buy back $5 billion of shares while growing sales at a double-digit pace. Despite this fast growth, Expedia appears relatively cheap, with the shares on only 12 times 2027 earnings.

Investors' confidence in Expedia seems to have recovered: the stock is up 33% from its low of early 2026, and is now close to its 52-week high. It is are also above both its 50-and 200-day moving averages. I would therefore go long on Expedia at the current price of $268 at £9 per $1. Put the stop-loss at $168, giving you a total downside of £900.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Technology, and its ever-present subsector artificial intelligence (AI), are perhaps the hottest topics in investment – and have been for several years.

Information technology officially accounts for 32% of the MSCI ACWI Index. Yet in reality, what we’d all intuitively think of as ‘tech’ companies account for a greater proportion of this, since MSCI officially designates companies like Alphabet, Amazon, Meta and Tesla into industry sectors other than information technology.

This concentration brings risks with it. Passive tracker funds act to condense stock markets into the biggest names, and investors therefore run the risk of being over-exposed to the sector – which can exhibit volatility when times get tough.

There is also the intensely competitive nature of tech growth to contend with. Nascent, disruptive technologies like AI can create as many losers as winners, if not more. Knowing which stocks to invest in can be difficult, even for the professionals.

An investment trust – which is by definition actively managed – has the potential to mitigate some of these risks, and the vehicles offer some structural advantages too.

“The closed-ended nature of investment trusts makes them well-suited to technology investing,” said Alex Trett, investment trust research analyst at Winterflood Securities.

“The permanent capital allows managers to take a genuinely long-term approach, supporting investments in private companies and giving them the patience to see investment theses play out over time.

“The structure can also facilitate exposure to smaller-cap technology businesses, where liquidity can be a constraint for other investment vehicles. In addition, it enables managers to build concentrated, high-conviction portfolios, allowing them to express their strongest investment ideas.”

Here’s six of the best-known investment trusts that can offer you exposure to some of the world’s most innovative technology companies.

Scottish Mortgage

Just as many ‘big tech’ companies aren’t designated tech, one of the biggest investment trusts that many people think of as ‘tech-focused’ isn’t actually a technology trust.

Scottish Mortgage (LON:SMT) aims to own “the world’s most exceptional public and private growth companies”. As it happens, a lot of these are tech companies, but the trust emphasises that its focus is on long-term growth potential, whatever sector that may be in.

Still, buy Scottish Mortgage now and you’ll get a lot of tech. As of 30 June, SpaceX accounted for over 25% of the portfolio, followed by Taiwan Semiconductor (6.4%), Nvidia (5.0%) and TikTok’s owner Bytedance (4.2%).

ByteDance and, until recently, SpaceX have exemplified part of the appeal of SMT: its ability to hold private companies alongside publicly listed ones, tapping into the future growth potential they offer. The heavy weighting towards SpaceX is largely a consequence of this and its recent initial public offering (IPO); Trett expects the position to be trimmed once lock-up periods permit.

^{Source: Association of Investment Companies, as of 21/07/26.}

Polar Capital Technology

Polar Capital (LON:PCT) has focused its approach on the hardware and infrastructure underpinning the buildout of artificial intelligence (AI).

“The managers believe these areas offer greater earnings visibility and forecastability, with semiconductors representing the largest exposure at 44% of the portfolio, followed by equipment, components and storage including Advanced Micro Devices and LAM Research,” said Trett.

^{Source: Association of Investment Companies, as of 21/07/26.}

Allianz Technology Trust

All of these trusts are listed in the UK, but Allianz Technology (LON:ATT) is distinctive in having its management team based in San Francisco, giving it close access to many of the companies in its portfolio – approximately 90% of which is allocated to North America, as of 30 June.

“The portfolio provides broad exposure across the technology and AI ecosystem,” said Trett.

“The managers have highlighted the role of technology in creating differentiation across a wide range of industries [and] believe the AI opportunity is continuing to broaden beyond the initial infrastructure buildout, supporting a more diversified and durable phase of growth across the technology sector”.

^{Source: Association of Investment Companies, as of 21/07/26.}

Schiehallion

Like Scottish Mortgage, Schiehallion (LON:MNTN) is managed by Baillie Gifford and, depending on how pedantic you’re feeling, isn’t technically a technology investment trust.

But it has an interesting focus on early-stage companies – even more so than SMT, given that it invests in later-stage private companies.

“While not a dedicated technology fund, technology represents around 47% of the portfolio, with holdings including Anthropic, Bending Spoons, SpaceX, ByteDance and Databricks,” said Trett.

^{Source: Association of Investment Companies, as of 21/07/26.}

Herald Investment Trust

Again, Herald Investment Trust (LON:HRI) technically belongs in the Global Smaller Companies category, but it has a strong focus on technology and communications companies.

It was the subject of a bid from Saba Capital Management to displace its board, which led to a tender offer and for the trust to become part of Aberdeen.

Trett picks out Super Micro Computer, BE Semiconductor Industries, Celestica and Fabrinet as among its key holdings.

^{Source: Association of Investment Companies, as of 21/07/26.}

Manchester and London

Some people use investment trusts to diversify away from big tech concentration. Manchester & London (LON:MNL) is an investment trust for people that want to lean into it.

The fund takes a concentrated approach to investing and predominantly holds large-cap stocks, with AI a high-conviction play for the managers.

“The fund’s concentrated portfolio allows it to hold significant positions in its preferred ideas; Nvidia represented 43.6% of net assets in January before being subsequently reduced to 9.0% as at 30 June,” said Trett.

^{Source: Association of Investment Companies, as of 21/07/26.}

Biotech is one of the most innovative and fast-changing sectors of the stock market, with lots of areas where investors can find value.

It can be a tricky sector to define as the term is so broad. Biotech initially referred to firms using what we know about biology to help treat diseases. But now it's expanded into a more capital markets definition where many emerging, developmental stage companies that combine tech and biology are lumped together.

Biotech firms have long laboured under the unfair characterisation that they are all small, risky, unprofitable, and always going under.

But in the latest episode of the MoneyWeek Talks podcast, Ailsa Craig, fund manager of Schroders’ International Biotechnology Trust, tells Andrew Van Sickle, editor-in-chief of MoneyWeek, that this is far from the truth.

Craig suggests this prejudice may come from a time when many biotech firms were listed in London and failed. However, across the pond in the US, many of these firms have been great successes and some are even larger than well-known pharmaceutical companies.

“For example, Gliead and Amgen, are hundreds of billions in market cap. Glauco is $100 billion. So they are very much in the ‘big pharma’ pack, but are still named and classified as biotech for legacy reasons. So over in the US they have matured.”

“Many companies are still in clinical development – which we would call ‘white coat’ biotech – but many companies are mature, cash flow generating, high growth healthcare companies.”

At the same time as many biotech firms are now maturing, big pharma firms are also finding that patents for their drugs are running out. As the larger pharmaceutical companies are scared of losing revenue, they need to find new drugs to sell. This presents a tailwind for biotech.

Craig said: “Pharma is facing a wave of patent expiries much larger than we've seen before. Hundreds of billions of dollars in sales are going off patent in the next two to five years.

“They've got a problem – their internal R&D [research and development] productivity isn't great, so they're looking to biotech companies to fill that void of sales.”

For more on biotech, the future of weight-loss drugs, and how AI can impact the sector, listen to or watch the full episode of MoneyWeek Talks wherever you get your podcasts.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

There have been just three initial public offerings (IPOs) of investment trusts between 2023 and 2025, and none of them raised over £100 million. Achilles Investment Company (LSE: AIC), an activist trust, raised £54 million last year, while Ashoka WhiteOak Emerging Markets (LSE: AWEM) raised £30.5 million in 2023. Both have received a reasonable amount of coverage.

By far the smallest and least well-known of the three is Onward Opportunities (LSE: ONWD), which has raised £12.8 million through a listing on Aim in 2023. It has since grown in size to £42 million via several follow-on raises and graduated from Aim to the main market this year.

Onward Opportunities has a focused approach

Onward, which focuses on UK smaller companies and micro-caps, set a target of earning an annualised return of at least 15% and doubling invested capital within a three-to-five-year holding period. A share-price return of 18.5% (and a total net asset value (NAV) return of 26%) over three years means that it has so far failed to meet this goal. Still, it has outperformed the UK Aim All-Share total return index (8.4%) and matched the performance of its peer group, the AIC UK Smaller Companies sector.

The trust is managed by Laurence Hulse, who started his career at Gresham House in 2015. He worked on a number of equity funds – including Gresham House Strategic (which is now Rockwood Strategic (LSE: RKW)), the Strategic Public Equity Fund and the Gresham House Smaller Companies Fund – before he moved to Dowgate Wealth in 2022 to start Onward. Hulse and his team own 5% of the trust, and Dowgate owns 33%.

Onward has a concentrated portfolio of ten core positions and 12 smaller holdings (25% of the portfolio), which the team call “nursery” positions. It looks for profitable, cash-generative businesses, while also aiming to take meaningful positions in situations where an activist approach can unlock value.

The top two holdings at the end of June were Likewise (9.5%) and Angling Direct (8.3%). Likewise is a UK distributor of floor coverings, rugs, and matting that Onward first bought in 2024. It doubled down on the position at the end of last year, arguing that Likewise is well-positioned to outperform its “loss-making and heavily indebted rivals”, whose continued decline is a key part of the thesis. CEO Tony Brewer, who co-founded the firm in 2018, was previously at competitor Headlam, where he increased the firm's value tenfold between 2009 and 2015.

Angling Direct, a leading UK retailer of fishing equipment, has been a top holding for the trust since its inception. Onward wants management to reconsider the company's expansion into Europe amid continued losses and to focus on its app and social channels.

Pottery firm Portmeirion is a recent new nursery holding. While this firm has lost money over the past two years, Onward believes its new CEO Michael Scheepers, who comes from Le Creuset, can help drive the company forward.

Onward Opportunities is too expensive

While Onward is establishing a solid record in the small and micro-cap sector, the fees are quite pricey. The management fee is 1.5% of NAV up to £50 million and 1% above £50 million. On top of this, there is a performance fee of 12.5% of the excess return above a non-compounding hurdle of 6% per annum. While this gives managers an incentive to outperform, it's eating into returns.

Ongoing charges, including the performance fee, hit 4.4% in 2024 and 5.2% in 2025. This makes the trust nearly five times more expensive than the weighted average for its peer group, and 2.5 times higher than Rockwood Strategic, which has returned 56% over three years.

It's a shame that performance accrues to the managers rather than to investors. Strip out the fees and it would be a top performer.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Following a considerable run of strength, the price of gold began to settle as this year unfolded. The sudden rise in the price of crude oil and associated products drove the market to free up cash to cover increased costs and buffer against any further uncertainty. As a highly tradeable asset, gold hence fell victim to broad selling.

However, as the market stabilises, an opportunity could appear for those seeking to build up their gold exposure. Gold miners provide a way to leverage bets on gold. Their profits come from the difference between gold prices and the cost of extracting gold and, as gold miners invest in expanding their network of mines, new potential revenue sources appear. Material by-products of gold mining, such as copper, are also valuable and can provide a buffer against declines in the value of gold.

Three gold mining stocks for your portfolio

Barrick Mining Corp (NYSE: B) is a mining company producing gold and copper. Its operations span South and North America, Africa and the Middle East. Barrick was the world's largest gold-mining company until 2019, and its 2026 production guidance totals 2.9 million to 3.25 million ounces of gold and 190,000 to 220,000 tonnes of copper.

Following the broad shift in the industry to an increased focus on shareholder value, Barrick has been a leading example of the success of this move. The firm has strong policies to generate cash flow and a target dividend payout of 50% of free cash flows. A $3 billion share repurchase was authorised in May and the company is moving forward with plans to publicly list its North American gold assets, further strengthening shareholder value.

B2Gold (NYSE American: BTG) is a Canadian mining company operating across Mali, Namibia and the Philippines. It is focused solely on gold mining and produced just under 240,000 ounces in the first quarter of 2026. This smaller output means B2 cannot benefit from the scale efficiencies of larger mining operators, increasing its extraction costs and therefore the leverage of firm value relative to gold prices.

Despite this higher cost base, B2's all-in sustaining cost (AISC), a key metric for the industry, came in lower than predicted in the first quarter, which is particularly beneficial in the current environment of rising fuel costs. What's more, B2's strong financial and liquidity position means that the firm is well placed to deal with any further market shocks or uncertainty. The company's AGM in June revealed a strong commitment from B2's shareholders to leverage this strength to achieve growth and manage risk.

OceanaGold Corporation (Toronto: OGC) is a gold-mining and exploration company based operationally across Canada and Australia. Although costs exceeded expectations for the first quarter of 2026, the company reported strong operational performance. It posted record quarterly revenue and earnings, with a significant year-over-year increase. Furthermore, free cash flow surged by 271% when compared with the previous year.

Despite all this, over the same period, the stock price declined nearly 4%. The strong technical performance paired with observed price weakness suggests a potential buying opportunity. The company predicts a decline in extraction costs as production expands and access to high-grade ore improves. Its Haile mine project in South Carolina is expected to lead to a 35% rise in gold production, while reducing costs by about 25%.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Taiwan Semiconductor Manufacturing Company (TSMC) (Taipei: 2330 and NYSE: TSM) may be the most important business most people have never heard of. Right now, you're probably carrying products that it has made. Most consumers recognise names such as Apple and Nvidia. Yet behind many of the products they sell sits a Taiwanese manufacturer responsible for turning their designs into reality.

Every day, billions of people rely on devices powered by chips produced by TSMC. The company's influence stretches far beyond smartphones. From artificial intelligence to consumer electronics, much of the modern digital economy ultimately depends on a business with headquarters on an island roughly 100 miles off the coast of China.

What makes TSMC remarkable is not simply its scale, but the way it achieved it. Unlike most technology giants, it did not become dominant by creating the best consumer products or developing a monopoly over software. Instead, it positioned itself as a neutral supplier to an industry filled with fierce competitors. In effect, TSMC became the Switzerland of the semiconductor world, doing business with everyone and doing so in secrecy.

How Morris Chang founded TSMC

That strategy was the brainchild of Morris Chang, a veteran semiconductor executive who spotted a flaw in the industry's business model and built an entire company around solving it. Nearly four decades after it was founded, his insight sits at the centre of the global technology industry.

Chang never set out to build one of the world's most important firms. For 25 years, he worked at Texas Instruments, rising high to run its global semiconductor business. During those years, Chang noticed a problem. Brilliant engineers regularly designed innovative chips, but turning those designs into products required vast sums of money.

In the 1970s and 1980s, semiconductor firms were expected to do everything themselves. Designing chips was only half the job. Companies also needed expensive factories, specialised equipment and the expertise to run them. The result was an industry dominated by a handful of large, vertically integrated firms.

Then Chang's own career took an unexpected turn. In 1983, aged 52, he was passed over for the top job at Texas Instruments and left the company. After a brief spell in a senior role at another American chip company, he received an unusual offer. The Taiwanese government wanted to build a domestic electronics industry and was looking for someone with Silicon Valley experience to lead the effort. Chang accepted.

He arrived in Taiwan with decades of semiconductor experience and a conviction that copying America would be a mistake. Taiwan lacked the design expertise, customer relationships and global brands needed to compete. But Chang had spent years watching another problem unfold. The industry was full of talented chip designers who could not afford to manufacture their ideas. What if somebody built the chips for them?

That simple question led to the creation of TSMC in 1987. At the time, the idea looked absurd. Bringing a chip to market required access to a fabrication plant, or “fab”. The industry believed serious companies should own these factories themselves. In practice, that meant chip designers relying on one of the industry giants.

That created another problem. The company manufacturing your chip was often also a competitor. Handing over your most valuable intellectual property required a leap of faith. Chang's solution was that TSMC would make chips for anyone willing to pay, but would never design products of its own.

In 1987, that sounded like madness. When Chang went looking for investors, many of the industry's biggest names rejected him. Texas Instruments and Intel both declined his offer. A factory without its own products looked like a recipe for bankruptcy. How could a manufacturer survive without guaranteed demand?

In the end, Chang persuaded the Dutch electronics group Philips and several wealthy Taiwanese families to back the venture. Even then, enthusiasm was limited. Philips largely viewed the investment as a way of supporting the Taiwanese government's ambitions rather than as a compelling commercial opportunity. It intended liquidating its investment early. Potential customers were hardly more enthusiastic. Many designers saw little reason to outsource manufacturing. A company that only made chips for other people seemed unnecessary.

By now, Chang was a 56-year-old executive pitching an untested business model in an industry convinced it could never work. Then, fortune presented an opportunity. In 1988, Intel found itself short of manufacturing capacity. Faced with the prospect of disappointing customers, it reluctantly turned to TSMC for help. Intel's engineers arrived in Taiwan expecting a low-cost, unsophisticated subcontractor. Instead, they found a world-class operation run by one of the industry's most experienced executives. Passing Intel's quality standards was not easy, but once TSMC secured the American giant's approval, attitudes across the industry changed quickly. If Intel trusted TSMC, others reasoned, perhaps they could too.

That endorsement transformed the trajectory of the company. Designers no longer needed to spend billions building factories before launching a new product. Instead, they could focus on what they did best – designing chips, and letting TSMC handle the rest. Without TSMC, it's unlikely that Nvidia could have existed, nor could a host of other chip companies.

A new generation of semiconductor firms emerged, freed from one of the industry's biggest barriers to entry. While rivals competed to design better chips, TSMC focused on becoming the best manufacturer in the world. By choosing not to compete with its customers, the company turned neutrality into a competitive advantage. That decision would prove far more powerful than anyone imagined. But the success of TSMC's model created an obvious question: if it was such a good idea, why didn't somebody copy it?

Many tried, but almost all failed. For years, Samsung looked like the most credible challenger. The South Korean giant had deep pockets and decades of manufacturing experience. The problem was that Samsung was also a competitor. Unlike TSMC, Samsung sold smartphones and consumer electronics under its own brand. That created a dilemma for customers. Why hand your most valuable chip designs to a firm that might one day compete against you? No customer wrestled with that question more than Apple.

During the early years of the iPhone, Samsung made many of Apple's processors. The arrangement worked, but it became increasingly awkward as the two companies emerged as fierce rivals in the smartphone market. By the early 2010s, they were fighting a series of patent disputes. Apple found itself in the strange position of relying on one of its biggest competitors to make some of its most important components.

TSMC offered an escape route. With the launch of the A8 processor in 2014, Apple shifted production to Taiwan. The move was risky, but Apple concluded that the benefits outweighed the costs. TSMC's neutrality had become one of the most valuable assets in the technology industry. Today, many of Silicon Valley's biggest rivals manufacture their chips at TSMC. Apple, Nvidia, AMD and Qualcomm all rely on the same company, despite competing aggressively in their own markets.

Samsung's problem was a conflict of interest; Intel's was something different: success. For decades, Intel dominated the semiconductor industry. Its factories were among the most advanced in the world. However, the company became increasingly focused on its own products. When Apple approached Intel in the mid-2000s about supplying chips for what would become the first iPhone, Intel declined.

Management believed the opportunity was too small to justify the investment. It was one of the most expensive misjudgements in the history of the technology industry. By the time Intel recognised its mistake, Apple had moved on and TSMC was becoming the manufacturing partner of choice for a new generation of chip designers. When Intel later attempted to open its factories to outside customers, its manufacturing systems had been built around Intel's products, not the needs of third-party designers.

Other competitors couldn't keep up with the investment needs. GlobalFoundries, an American rival, spent years trying to keep pace before effectively giving up on leading-edge manufacturing in 2018. The company concluded that each new generation of chip technology required so much investment that the returns no longer justified the risk.

China's national champion, SMIC, faces a different challenge. Western export controls have restricted access to advanced manufacturing equipment, making it difficult to compete at the industry's frontier.

TSMC's greatest advantage

TSMC's greatest advantage is not its technology, because that can be copied. Its real advantage is the business model Morris Chang created nearly four decades ago. The company sits at the centre of the semiconductor industry, serving customers that often compete with one another. That position generates enormous scale, which in turn funds the next generation of factories and equipment.

The most advanced chips require ultraviolet lithography machines built by the Dutch company ASML. Each cost more than £275 million. A state-of-the-art fab may contain dozens of these machines, helping to push the cost of a new facility beyond £15 billion before production even begins. That creates a problem for potential rivals.

Customers will not trust an unproven manufacturer with their most important products, especially if they don't have advanced fabs. Yet building a state-of-the-art factory requires billions of pounds before those customers appear. Having already achieved enormous scale, TSMC now largely escapes this trap. The company controls roughly 92% of advanced chip manufacturing and generates the cash needed to fund the next generation of technology.

In 2026 alone, TSMC expects to spend nearly £45 billion on new factories and equipment. Few companies in the world could contemplate spending that much. None can do so with the same confidence of earning a return. The result is a powerful feedback loop. Scale attracts customers. Customers generate cash. Cash funds new factories. New factories attract even more customers.

Every year that cycle turns, TSMC becomes harder to catch as the price of entry rises ever higher. That scale gives TSMC another advantage: it allows customers to help fund its expansion. Most manufacturers have to build factories first and hope demand follows. Today, TSMC often works the other way around. Some of its largest customers commit billions of pounds years before new facilities begin production, effectively helping to finance the next generation of capacity.

At the end of 2024, TSMC held more than £7.3 billion of customers' deposits. As production ramped up on newer technologies, some of that money was recognised as revenue, but the balance remained substantial. Technology companies are willing to tie up enormous sums because access to TSMC's manufacturing has become critical to their own growth plans. This arrangement shifts much of the risk away from TSMC.

When companies such as Nvidia sign long-term agreements worth billions of pounds, they provide “visibility” – confidence in management forecasts – that few industrial businesses can match. New factories can be built with a high degree of confidence that demand will be waiting when they open. That helps explain why TSMC can continue investing through industry cycles.

AI is a game-changer for the semiconductor industry

For years, Apple was the company's most important customer. The iPhone generated the predictable demand that allowed TSMC to refine successive generations of manufacturing technology and steadily expand its lead. Now a new force is reshaping the industry. AI has become the biggest driver of demand for advanced semiconductors. Training and running large AI models requires vast quantities of computing power, creating an arms race among technology companies desperate to secure enough chips.

The biggest beneficiary has been Nvidia. In 2025, Nvidia overtook Apple as TSMC's largest customer, generating more than £18 billion of revenue for TSMC and accounting for roughly a fifth of total sales. The shift says a great deal about how quickly AI has altered the economics of the technology industry, but the opportunity extends beyond chip design.

Producing cutting-edge AI processors is one of the most demanding manufacturing tasks in the world. The chips themselves are larger, more complex and more difficult to assemble than those used in smartphones. As demand has exploded, bottlenecks have emerged throughout the supply chain. For TSMC, that has translated into even greater pricing power.

The world's largest technology firms are competing for a limited supply of advanced manufacturing capacity. Many have little choice but to accept TSMC's terms because there are few credible alternatives. AI has reinforced the advantages of specialisation. Developing a leading-edge AI chip already costs hundreds of millions of pounds. Building the factory to make it would require billions more. As AI pushes the technological frontier forward, the advantages of specialisation are becoming even more pronounced.

But TSMC's dominance creates a problem. Most of the world's most advanced semiconductor manufacturing remains concentrated in Taiwan. That has become a concern for governments, particularly as tensions between China and Taiwan have intensified. A disruption to TSMC's operations would ripple through the global economy.

Smartphones, data centres, AI systems and countless other technologies depend on its chips. Under pressure from the US and other governments, it's begun expanding overseas. The largest investment is a vast complex in Phoenix, Arizona. Similar projects are underway in Japan and Europe.

Building advanced factories in the US is estimated to be roughly 50% more expensive than doing so in Taiwan. Labour costs are higher, experienced engineers are harder to find and supply chains are less developed. TSMC has reportedly had to transfer experienced staff from Taiwan and create thousands of new operating procedures to support its US operations. Yet even these higher costs have not weakened the company's position.

Customers are willing to pay a premium for chips manufactured on US soil. For many, securing a politically safer supply chain is worth the extra expense. In an ironic twist, efforts to reduce dependence on TSMC have largely demonstrated how dependent the world has become on its expertise.

The future looks bright for TSMC

Whether the company can maintain its current position forever is another question. The semiconductor industry has a long history of dominant firms losing their edge, while geopolitical tensions surrounding Taiwan remain an ever-present risk. Governments are spending heavily to build alternative sources of supply and rivals continue searching for ways to close the gap.

However, history suggests writing off TSMC would be unwise. For nearly 40 years, the company has repeatedly adapted to changes in technology, customers' demands and the structure of the industry. It has survived downturns, outlasted competitors and continued strengthening its position at the heart of the digital economy. The story of TSMC is ultimately the story of how a company became indispensable. In an industry defined by relentless change, that may be its most remarkable achievement.

None of this means TSMC is a bargain. Investors are well aware of the company's strengths and the shares have performed exceptionally well over the past decade. As a result, the stock trades on a valuation that reflects high expectations for future growth. Still, TSMC has qualities that are difficult to find elsewhere. It occupies a dominant position in one of the world's most important industries, enjoys deep relationships with many of the largest technology companies on the planet and continues to invest heavily to maintain its lead.

Most importantly, investors do not need to predict which company will ultimately win the AI race. Whether the future belongs to Nvidia, AMD or some future challenger, there is a good chance that their chips will still be manufactured by TSMC. That does not guarantee attractive returns from today's share price. But betting against the company has rarely been a profitable strategy. For investors seeking exposure to long-term growth in technology and AI, TSMC remains one of the highest-quality businesses in the market.

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The artificial intelligence (AI) boom has so far rewarded the companies building the hardware underpinning it. Experts believe that investors looking towards the future should focus on the companies that will win the next phase of the technology’s rollout.

“The AI story is evolving,” said Lisa Wang, head of EMEA investment strategy at Franklin Templeton Investment Services (FTIS). “For the past two years, investors have been rewarded for concentrating on a small number of technology stocks. We believe the next phase of the AI investment cycle is likely to be broader, creating opportunities across different sectors and markets.”

It may be that the cycle is already beginning to turn against the AI infrastructure suppliers. FTIS recently noted in a multi-asset outlook report seen by MoneyWeek that while AI adoption is continuing apace, there are signs that it is starting to become commoditised and that the customers of so-called ‘hyperscalers’ are less willing to pay for “expensive marginal AI gains”.

If AI is becoming more price competitive, this could play out to the benefit of the companies putting it to use to improve their performance. Where should you go to look for these?

Which sectors are currently using AI the most?

Sanjiv Tumkur, head of equities at wealth manager Rathbones, says the sectors that are currently investing the most into generative AI (genAI) as users (outside the technology sector) are healthcare, financial services, retail and consumer, manufacturing and professional services.

Healthcare

“In healthcare, AI is being used to improve productivity in the pharmaceutical R&D process,” Tumkur told MoneyWeek. “For example, helping design new molecules to optimise potency and reduce side effects, providing tools to create 3D protein structures and predict interactions, identifying promising trial patients, and significantly speeding up the drafting of clinical trial protocols and of regulatory submissions.”

Financial services

Financial services like banking and insurance potentially stand to gain as AI end users as they have substantial middle- and back-office functions as well as customer service operations that could be automated by AI.

“However these sectors are highly competitive and gains typically get eroded and replicated, with few players earning sustainably attractive returns on equity,” Tumkur added, “so we are not confident in the sector being able to see a step-change in profitability through employing genAI.”

An exception to this rule is JPMorgan Chase (NYSE:JPM). Not only is it the US’s largest bank but it is also the one that spends the most on technology, with an annual technology spend of around $18 billion of which approximately $2 billion is thought to be on AI.

“JPMorgan is already seeing significant benefits from genAI (quantified at $2 billion in realised annual value) through cost savings and revenue gains in for example real time fraud detection, much faster processing of loan agreements, and improved regulatory compliance,” said Tumkur.

Retail and consumer staples

Many retail companies have already adopted AI into areas of their business like logistics and online retailing.

Walmart (NASDAQ:WMT) is a prime example of the kinds of retail and consumer staples businesses that are harnessing the benefits in marketing, data analytics, demand forecasting, customer experience and supply chain optimisation that AI potentially offers, according to Tumkur.

Are there buying opportunities in AI end users?

Software, publishing and data analytics companies are all investing heavily into genAI. RELX (LON:REL) for example has a product called Lexis+ AI for legal professionals which uses conversational searching and aids legal drafting.

But these sectors are being punished by the market at present; their “ability to withstand the more general threat of external AI agents is being questioned currently, so stock prices are discounting more risks than benefits from genAI currently”, said Tumkur.

Depending on your perspective, you might see this as a buying opportunity. Many professional investors believe sectors and companies like these have been unduly or prematurely sold off.

But despite its share price falling 39% in the year to 14 July, RELX still trades at 22 times its earnings over the last year – it’s not a cheap stock, but it still has some risk attached to it, so you should think carefully before jumping into opportunities.

How to invest in AI end users

You might feel that you can pick the individual companies that could benefit from being AI end users, and some that the experts see as beneficiaries have been highlighted in this article already.

But in general, picking individual stocks is a difficult challenge, even for the professionals.

As yet there is not a wide array of funds or strategies that specifically target AI end users (without, at the same time, boosting your exposure to the producers).

One possible option to consider though is the iShares AI Adopters & Applications UCITS ETF (LON:AIAA). This exchange-traded fund (ETF) tracks the STOXX Global AI Adopters & Applications Index which mostly includes companies that are adopting AI. Top holdings as of 13 July include cyber security firm Palo Alto Networks (NASDAQ:PANW) and finance companies Barclays (LON:BARC) and Visa (NYSE:V). Meta Platforms is its second-largest holding, though, so it does still add some hyperscaler exposure.

Or, for funds that invest in the sectors that Tumkur highlighted as potential AI winners, you could consider the Worldwide Healthcare Investment Trust (LON:WWH), the Vanguard Financials ETF (LON:FINW) (whose top holding as of 13 July is JPMorgan Chase) or the Xtrackers MSCI World Consumer Staples UCITS ETF (LON:XDWS) (Walmart is the top holding as of 13 July with over 11% of assets).

The second quarter (Q2) of 2026 saw increased enthusiasm from British investors, and they appear to be positioning their assets strategically in order to capitalise on looming challenges for the artificial intelligence (AI) boom.

Data from investment platform eToro shows that their its investors predominantly bought semiconductor stocks, particularly the makers of memory chips, during Q2.

Memory is a key bottleneck for the AI and technology trade. Ownership of memory hardware producer Sandisk (NASDAQ:SNDK) on the platform rose 185% in Q2 compared to Q1, according to the analysis, while ownership of Marvell Technology (NASDAQ:MRVL) rose by 90%.

^{Source: eToro}

“We are entering a more mature phase of the AI trade,” said Lale Akoner, global market strategist at eToro. “Retail investors are no longer just buying the most obvious winners; they are starting to look for where supply bottlenecks, pricing power and capital spending are likely to create the next layer of beneficiaries.”

Despite the rise in ownership of these winners, none were significant enough to knock the AI infrastructure giant Nvidia (NASDAQ:NVDA) off pole position as the most-owned stock for eToro’s UK retail investors.

^{Source: eToro}

Investors became more confident during Q2

According to research from retirement firm Scottish Widows investors were more willing to put funds into their portfolios during Q2 than in the previous quarter.

Average portfolio contributions rose by 47%, reaching £3,554 between April and June, up from £2,413 from January to March, according to the firm’s latest investment pulse survey of 2,000 UK-based retail investors.

“Investors have shown real resilience this quarter, increasing their contributions even as global conflict has escalated and the UK political landscape has shifted expectations,” said Manuel Pardavila-Gonzalez, Scottish Widows’s managing director of investments. “Even as the cost of living continues to bite, most aren’t reacting to short-term noise or alarmist headlines – they’re staying the course rather than making knee-jerk decisions.”

He added that Q2 often sees a seasonal spike in investing as investors top up their portfolios and make use of their ISA allowance around the end of the tax year on 5 April.

The survey also identified a shift in allocations overseas. While UK-held investments remained the largest single allocation at 57% (down from 62% in Q1), allocations to North America increased from 16% to 21% – consistent with eToro’s findings that US tech stocks held high appeal for British investors last quarter.

Similarly, AI was the post popular investment theme – 35% of respondents highlighted this as their favourite theme – followed by renewable and clean energy infrastructure with 25% of respondents.

Where else did retail investors look last quarter?

Memory isn’t the only AI bottleneck that retail investors exploited last quarter.

Energy is another important part of the AI puzzle. With the power demands of AI data centres rising all the time, demands for energy are set to grow, and this was reflected in a dash for clean power and energy infrastructure stocks like GE Vernova (NYSE:GEV), Bloom Energy (NYSE:BE) and NuScale Power (NYSE:SMR).

“Energy remains on retail investors' radar, but the perspective is evolving,” said Akoner. “While traditional oil and gas names feature heavily among the fallers, investors appear to be turning their attention to clean power, nuclear-linked energy and low-carbon infrastructure.”

Akoner added that as well as AI’s increasing power demands, the energy transition away from fossil fuels in order to improve individual countries’ energy security is a further tailwind for clean energy stocks.

Unsurprisingly, given SpaceX’s blockbuster IPO taking place in the quarter, the space economy was another focal point for investors in Q2.

Space infrastructure manufacturer Intuitive Machines (NASDAQ:LUNR) was the fourth-biggest riser among UK users, with holders increasing 62%, while Rocket Lab (NASDAQ:RKLB), AST SpaceMobile (NASDAQ:ASTS) and Ondas (NASDAQ:ONDS) were also among the 20 stocks that saw their ownership on eToro increase most during the quarter.

It remains to be seen whether investors will sustain their current tech optimism going forward, but Scottish Widows’ Pardavila-Gonzalez believes investors should stay the course.

“While we’re expecting more of the same uncertainty in the next quarter, the principles of investing remain the same and it’s important not to let short-term volatility derail long-term plans,” he said.

Since the last time I covered Fuller's – Fuller, Smith & Turner (LSE: FSTA) – in November 2022, the shares have returned around 51% excluding dividends, outperforming the FTSE All-Share index's 41% over the same period. The pub group has not been immune to the headwinds facing the wider hospitality sector, but its robust balance sheet, cash generation and focus on higher-earning consumers in the wealthy areas of London and the southeast have helped it outperform in a tough market. In the past two years, the company has also reorientated its approach to shareholder returns.

How Fuller’s is shifting focus on the customer

For its financial year ending March 2022, Fuller's reported total revenue of £254 million. The following year, the first full year of uninterrupted trading after the pandemic, top-line sales came in at £337 million. However, due to economic uncertainty, rampant cost inflation and disruption caused by Russia's war in Ukraine, operating profit was just £16.5 million and the company reported an operating margin of 3.2% for the year.

Most of this uncertainty-driven disruption is now in the rear-view mirror. For the company's 2026 financial year, it reported sales of £398 million, and analysts at Panmure Liberum have pencilled in sales of £416 million for 2027, rising to £450 million by fiscal 2028. Operating profit was £40 million for 2026 and could hit £51.3 million on current projections.

Fuller's clientele and its aggressive focus on costs are both helping it hit these targets. There is a whole section in the firm's annual report on the customer, which rightly insists that “understanding your customer is key to the success of any business”. To this end, management has invested heavily in a database of 6.9 million customers, 2.6 million of whom are fully contactable to help identify spending patterns and tailor marketing. Fuller's now knows that most of its customers have a household income above £75,000, a group that can be relied upon to spend its spare money on going out.

Management believes that it's this attention to detail that drove like-for-like food and drink sales up 3.5% and 5.8% respectively last year. Meanwhile, continued investment helped hotel sales rise 4.9%. Fuller's has 1,030 bedrooms, up from 1,009 two years ago, with an average room rate of £127.50, up from £120.

Fuller’s champions sustainability

Fuller's has also made progress with controlling costs. Since 2022 it has made a concerted effort to refurbish its pubs and switch from gas to electricity, helping push down energy costs. Its “Too Good to Waste” plan has also helped reduce food waste across its pubs and the group has offset rising costs through labour efficiency improvements and price increases.

One of the biggest problems in the hospitality industry is high staff turnover and inexperienced staff, which can slow service and dent customer satisfaction. To overcome these issues, Fuller's has built a reputation as a leader in training and retaining its staff. Last year, the group opened the new Fuller's Kitchen Academy in Reading, which has already delivered nearly 500 training sessions for chefs, while several thousand team members have also undertaken technical and career-building courses and management training.

New investments in procurement have also yielded significant efficiency savings across the supply chain. Thanks to such initiatives, the overall group operating profit margin hit 11.5% in full-year 2026, up from 7.5% in 2023. The Ebitda margin across the firm's managed pubs – those managed by the group directly rather than leased to individual landlords – hit 21.6%, up from 17.4% in 2023.

Fuller's is a cash machine – here's why you should buy in

With costs under control and margins growing, Fuller's has become something of a cash machine. Last year, it generated £80 million in cash from operations and reinvested £40 million into the business, resulting in free cash flow of around £40 million, suggesting the shares are trading at a free cash flow yield of around 10.5%.

Finance costs were £11.3 million including lease liabilities, or £8.4 million on bank debt and debenture stock (100% of net debt excluding leases). This borrowing looks sustainable given the value of cash flows and assets. The directors' valuation of the entire property estate is £991 million, £397 million higher than the net book value of £594 million, implying a net asset value per share of 1,512p.

Management has laid out plans to continue investing around £40 million a year in its estate, upgrading hotel rooms, adding new rooms to existing pubs (particularly in and around central London to capitalise on a booming tourism market) and pursuing select acquisitions.

The rest of the capital will either be returned to shareholders or used to pay down debt. Fuller's recently declared a full-year dividend per share of 21.2p, up 7.3% year on year. It has also commissioned a series of share buybacks over the past couple of years, in one-million-share lots. Last year, the group retired 2.3 million of its “A” shares and it has returned £54.7 million to shareholders through buybacks since fiscal 2023, retiring around 15% of outstanding shares. Including dividends, total shareholder yield was around 7.5% last year. The forward dividend yield is 3.2%.

As if shareholders didn't need more of a reason to buy, investors who own more than 1,000 A or C ordinary shares can apply to receive a “Shareholder Inndulgence Card”. Cardholders get a 15% discount on food and drinks in any of the group's managed pubs and hotels and special rates on some of its rooms – equivalent to a nice little tax-free dividend.

Rupert owns shares in Fuller's

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In May 2025, Dario Amodei, the CEO of AI company Anthropic, said that the technology his company is helping push forward could drive unemployment up to 10%-20% in the next one to five years and wipe out half of all entry-level white-collar jobs, as Josh Tyrangiel points out in The Atlantic.

Jim Farley, the CEO of Ford, has estimated that AI will eliminate half of all white-collar jobs in a decade. Sam Altman of OpenAI has opined that it is just a matter of time before we see a billion-dollar company staffed by just one person.

That the advent of a new technology has given rise to predictions of disastrous consequences is hardly new. But that the prophets of doom come not from the ranks of the usual suspects, but from the makers of the new technology and those most in a rush to adopt it, is.

So, are they right? AI is clearly already transforming work, says Tyrangiel. Companies including Meta, Amazon, Walmart, and JPMorganChase have recently announced lay-offs due to “automation”.

Three academics from the Stanford Digital Economy Lab have found that entry-level jobs that are exposed to disruption from AI have already seen a 13% decline since late 2022. So the transformation may already be under way, even if it's too early to be sure (other factors could explain the decline and the evidence is sparse and mixed).

If that transformation unfolds slowly and the economy adjusts quickly, then we may, as economists reassure us, be fine, or even better off in aggregate. But if AI instead triggers a rapid reorganisation of work, compressing years of change into months, affecting roughly 40% of jobs worldwide – as the IMF projects – then the consequences could be huge.

Is AI actually any good for us?

Which will it be? Let's remember that humanity has been automating work for 250 years, as technology analyst Benedict Evans has pointed out. History shows that every wave of automation has destroyed whole classes of jobs and created new ones. The process may be painful for some, but over time and in the aggregate the result has been greater prosperity.

Two concepts from economics give us confidence that this time is unlikely to be different. The first is the “lump of labour fallacy” – the misconception that there is a fixed amount of work to be done and that if some work is taken by a machine then there will be less work for people. But if it becomes cheaper to use a machine to make a pair of shoes, say, then the shoes are cheaper, more people can buy shoes, and they then have more money to spend on other things, and we discover new things we need or want, and new jobs get created.

The second concept is Jevons Paradox. In the 19th century, the Royal Navy ran on coal and people worried about what would happen when the coal ran out. Don't worry, said the optimists: steam engines are getting more efficient, so they'll use less and less coal. Not at all, said economist William Stanley Jevons: if we make steam engines more efficient, then they will be cheaper to run, and we will use more of them and use them for new and different things, so more efficient steam engines means we will use more coal.

That paradox has been at work in relation to white-collar work for a long time, says Evans. In the 1880s, typewriters and carbon-copy paper meant that clerks could produce more than ten times the output of the days when they copied out documents one at a time by hand. The result for clerical employment? Far more clerks were hired. If one clerk can do the work of ten, then perhaps you might want to do more of the work that clerks do – more analysis, or manage more inventory, say. You might build a different and more efficient business that is only possible because of the new technology.

It was the same story when, much later, digital spreadsheets were introduced that could do at the click of a button what might previously have taken a whole team of accountants all week. Employment for accountants went up.

The most recent study into what AI is doing to jobs seems to confirm that this is indeed what is happening this time, as Noah Smith reports on Substack. A study by Ara Kharazian, Lisa Simon and Ryan Stevens, researchers at US technology start-ups Ramp and Revelio Labs, examined private data to determine what happens when companies start using generative AI. The answer is that they hire more humans. The number of entry-level jobs rose, too. So it seems that AI is “still mostly a complement to human labour rather than a substitute” for it, says Smith. For now at least, AI is “behaving pretty much like a normal technology”.

AI is just software

That's the usual pattern, and if AI did indeed start to progress at the rates feared and with the consequences predicted, it would be “unprecedented in human history”, says The Economist. New technologies have never spread fast enough to make large numbers of people unemployed for long periods of time because the diffusion of the technology always proceeds slowly.

To see why that is unlikely to be different this time, remember that AI is just software, as Tyrangiel points out. And the thing about software is that “people hate it almost as much as they hate change”. Before AI can transform a company, it has to access data and be woven into existing systems. A “trade secret of most Fortune-500 companies is that they still run critical functions on lumbering, industrial-strength mainframe computers that almost never break down and therefore can never be replaced”. Integrating such legacy tech with AI would mean big changes involving lots of people with strong opinions about the “right” way to proceed. Meanwhile, months pass, then years – and “the CEO still can't understand why the miracle of AI isn't solving all of their problems”.

Indeed, the idea that “one magic piece of software” will change everything instantly and override all the complexity of real people, real companies and the real economy “sounds like classic tech solutionism, but turned from utopia to dystopia”, says Evans. The reality looks rather different, as Zeynep Tufekci shows in The New York Times. Firms that have experimented with fully automating functions such as customer service have been burned. The result has been scammers talking chatbots into handing over control of key functions, promising refunds or incredible deals, such as a new car for $1. The bot taking orders at McDonald's proved “wildly dysfunctional”.

The key thing to understand is that these incidents are not the result of errors, but of the technology functioning as it is designed to do. Currently existing AI technologies are “not reasoning machines” – they simply produce answers that are probable based on the data they've been trained upon. They have no common sense or intelligence. AI can “do many things with astounding efficiency”, especially if those things are formal and structured and can be tested and checked in real time. Most jobs are simply not like that and still require “good old-fashioned human intelligence”.

This doesn't mean the “job apocalypse” definitely won't happen, says The Economist. Maybe this time will be different. Perhaps the technology will transform in ways we cannot yet predict. If so, you may know the apocalypse by these signs: sharply rising productivity combined with weak real-wage growth in the US, the world's frontier economy. This would show up as an increase in GDP per person above the 2.5% upper limit that is the historical norm in frontier economies and a simultaneous jump in corporate profits, reflecting that the gains from higher output were flowing to capital, not labour. Another sign would be big job losses in lots of industries, showing up in a recession. Which jobs vanish in the next recession will “give a hint about the shape of the AI world to come”.

Is there actually any sign of any of this happening? Not really. The labour market “certainly is not cracking yet”, says The Economist. “The share of the OECD's working-age population with a job keeps breaking records, unemployment across the club of mostly rich countries is just 5%, and America employs more people than ever in ‘AI-exposed' industries, such as law.” American graduates have been struggling to find jobs since before the launch of ChatGPT fired the starting gun on the AI revolution in late 2022. Many economists foresee relatively little disruption ahead. Those at America's Bureau of Labour Statistics think the country will add 5.2 million jobs between 2024 and 2034, increasing total employment by 3%.

Robots can't do your job

There are broader reasons for scepticism. The heaviest users of AI have recently been scrambling to curtail its use as the cost of using it outweighs the gains. Surprisingly few people use the technology on a regular basis and the share of companies in the OECD that have adopted AI remains small (about 20% for the latter, although figures for both individual use and company uptake vary widely across different studies, depending on what is deemed to count.) The basic problem here is that most people just don't know what AI is supposed to do for them, as Evans has argued. There's a box you can type stuff into, and you get text in response. Often the text is roughly right, but precisely wrong. For how many people will that be life-changing? As Pablo Picasso perceptively saw in 1968, “Computers are useless. They can only give you answers.”

The likelihood is that AI will not so much replace jobs, as make certain tasks easier and quicker for some people. Generally, says Evans, jobs are a complex mesh of things that we might not even be able to explain explicitly. You may have a good idea of just why a chatbot is never going to be able to do your job, for example, but will be impressed if someone says that it can of course already do the job of a lawyer or a doctor. The blunt truth is we do not know just what is involved in jobs we are confidently predicting will be gone tomorrow, nor do we know how AI will change them, if at all.

What we should most fear is fear itself. A recent poll found that 70% of Americans believe that AI will reduce their employment opportunities, says Robert Shiller, also in The New York Times. That fear could in itself have economic consequences. When millions and millions of people make economic decisions based upon negative expectations, there is a risk that the fear can actually “help birth the reality”. The leaders of Silicon Valley should learn to do better than peddle alarmist narratives in the hope that the resulting media attention will highlight how powerful their latest AI model is. They will find it harder to sell their wares in future if the result is an economy paralysed by fear and recession.

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Our philosophy at the Guinness Emerging Markets Equity Income fund is based on identifying quality firms, defined as those that have consistently generated returns on capital above their cost of capital.

Such companies tend to pay sustainable dividends because of the cash profits they generate. This sets our approach apart in emerging market stocks, which are often characterised by pronounced volatility.

We avoid rollercoaster cyclical sectors and focus on businesses with stable, consistent financial characteristics that can weather different market environments.

Three emerging market stocks to consider

Largan Precision (Taiwan: 3008) is a Taiwanese manufacturer specialising in the design and production of optical plastic lenses and is a key supplier for Apple. Largan's core business has been the smartphone market, but it has recently been expanding into co-packaged optics (CPO) technology.

CPO is essential for data transmission between AI chips and has proved to be more energy-efficient and less heat-producing than copper wires. Exploiting its existing expertise in precision optical lenses, Largan is developing in-house technical capabilities to manufacture fibre array units (FAUs), a central component of CPO, which may prove to be a crucial element for determining success.

Both the momentum behind FAU technology (currently in client testing) and the continued demand from smartphone manufacturers should help Largan to maintain its growth rate. This can be seen in its recent share-price performance, with the stock gaining 44.1% (in sterling terms) over the year to the end of May.

Arca Continental (Mexico City: AC) is one of the largest Coca-Cola bottlers in Latin America and has delivered consistent returns, gaining 22.4% (in sterling terms) in the year to the end of May. The brand itself provides a structural moat, with its pricing power derived from distributing one of the world's most recognised consumer brands.

Additionally, marketing investment from Coca-Cola itself is at a level that would be impossible for Arca to replicate. This is complemented by geographic diversification across the US and Central and South America. A fragmented bottling market in Latin America offers Arca opportunities for expansion through the consolidation of smaller bottlers.

Brasil Bolsa Balcão (São Paulo: B3SA3), also called B3, is Brazil's sole stock exchange. It integrates exchange, clearing-house and depository functions under one entity, making it structurally irreplaceable within the domestic market. Nearly all organised trading and over-the-counter registration of securities in Brazil flows through its systems. Diversification into data analytics and payments – via Trillia, B3's internally formed data-analytics division, and the acquisitions of Shipay and CRDC – provides a buffer against cyclicality in exchange-traded volumes.

Brasil Bolsa Balcão is also competitive on a global scale, having overtaken India's National Stock Exchange to become the world's largest derivatives exchange by volume in 2025. High Ebitda margins, sustained returns on capital and Brazil's growing retail-investor base underpin the long-term investment case. The shares have gained 33.2% in sterling terms in the year to the end of May.

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Good news for shareholders in the International Biotechnology Trust: their fund has a significant holding in US cancer research business Nuvalent, for which GSK has just agreed to pay $10.6 billion– 40% more than its share price prior to the deal being announced. Even better: Nuvalent is the sixth company in the portfolio to have been acquired at a premium this year.

The deals are part of a spree of merger and acquisition (M&A) activity taking place in the global biotechnology sector – to the benefit of many investment trusts and open-ended funds specialising in this area – as part of a marked reversal in fortunes. For much of the past few years, sentiment in the sector has been downbeat – preoccupations about risk, volatility and rising interest rates have overshadowed optimism about the undoubtedly huge long-term potential of the products. More recently, however, the tide has turned. “The outlook is looking increasingly constructive,” says Jo Groves, an analyst at Kepler Trust Intelligence.

The fundamentals of investing in biotech are compelling. You're backing companies that are developing new treatments for health problems ranging from life-threatening cancers to lifestyle-related illnesses. The demand for such treatments is huge, particularly in the context of rising and ageing populations as life expectancies increase. The United Nations estimates that the number of people in the world aged 65 or over will rise from 800 million in 2024 to two billion by 2067. No wonder biotechnology is such a high-growth industry. Precedence Research forecasts average annual growth of 4% over the next decade, which would see the market grow from $1.8 trillion today to $6.3 trillion by 2035. At the same time, biotechnology companies are finding new ways to respond to demand, developing ever more sophisticated treatments, even for the most complex diseases and conditions. For example, they're harnessing technologies such as AI to accelerate drug discovery and to move into areas that scientists previously considered too ambitious.

Another positive factor is the so-called “patent cliff”. Pharmaceutical companies are only entitled to exclusive rights to the drugs they own for a limited period; once this period ends, rivals can make their own versions of the drug. This adds to the demand for biotechnology companies that develop new treatments while individual companies continue to benefit from the enhanced revenues that the patents generate.

Biotech M&A generates positive returns early

All of this can add up to exciting returns for investors in biotechnology companies working on new drugs in high-value areas. And often, those returns materialise early, because a biotechnology company with a promising pipeline of treatments is an attractive takeover target for the global pharmaceutical industry. The biggest companies do blockbuster deals – Novartis alone spent $29 billion on M&A last year.

Investing in biotechnology also carries risks and potential downsides. In particular, most biotech companies are relatively small and focused on a handful of specialist projects – perhaps even a single drug candidate. Trials that start out looking highly promising can – and often do – fail later on, leaving the business without a product to sell. When investors are feeling broadly optimistic, they're more willing to take such risks, but during less confident times their appetite for danger may be diminished. Global trade tensions and international conflict have therefore been challenging headwinds for biotech investment in recent times.

Another factor is the cost of finance – partly as biotechs often borrow to fund their early-stage work, but also because investors are effectively being offered returns that will come in the future rather than today; such returns needed to be discounted by what investors could earn elsewhere on their cash in the meantime. In this context, rises in global interest rates during 2024 and 2025 were unhelpful to biotech businesses; more recent reductions have been a positive.

Policymakers can also have an impact on the industry in other ways. Most countries attempt to regulate drug prices in some way or to restrict intellectual property rights. The US, the world's biggest spender on pharmaceuticals, is especially important; the industry was certainly anxious about the approach Donald Trump would take in his second term of office.

Ebbs and flows in all these positive and negative factors feed the cycle of biotech businesses' share-price performance. The sector performed poorly through most of 2024 and early 2025, but has been much stronger over the past 12 months. The Nasdaq Biotechnology index has risen by more than 51% over the last year; the MSCI World Biotechnology index is up by more than 15%.

Still, sometimes it's also important to look past the numbers. One fascinating part of the biotechnology story is the incredible science that businesses are pursuing – and the advances they're making for humanity. “The development I find most compelling is RAS-targeted therapy,” says Oliver Kenyon, a senior director at RTW Investments, pointing to cancerous tumours caused by mutations in the RAS family of genes. “RAS mutations drive roughly 90% of pancreatic cancers, 40% of colorectal cancers and 30% of non-small-cell lung cancers. It's one of the most common drivers in all of oncology, and for decades it was considered ‘undruggable' – that's now changing fast.” We are seeing the “combination of genomics, gene editing and AI accelerate both the discovery and development of new medicines”, adds Chris Hollowood, CEO of Syncona Investment Management.

AI is helping biotech companies deliver

AI is also helping, says Hollowood. Researchers are analysing complex biological and clinical datasets and identifying promising targets in a “more efficient and robust” way. “The last decade saw the development of a huge number of new ways to make drugs; gene therapy, cell therapy, RNA, gene editing and many others. So as these new targets emerge in the next decade, developers and patients have many more ways to address them, meaning medicines will be more precise and have greater impact.”

So much is possible. “A real hope would be if something works for Alzheimer's disease,” says Marek Poszepczynski, portfolio manager of International Biotechnology Trust. It has been especially tough to find efficacious drugs in this area, but “the industry continues with its efforts and perhaps we will see something in the next decade or so”.

And breakthroughs in mental health are possible, too. “Around a third of the 300 million people living with depression globally don't respond adequately to existing antidepressants,” says Kenyon. “Conventional psychiatry has largely run out of answers for that population, but psychedelic-derived medicines are starting to change that.”

It's not just about developing cures to diseases and conditions previously thought untreatable. Geoffrey Hsu, general partner of OrbiMed, points to the huge and ongoing impacts of weight-loss drugs. “Their effects are not purely cosmetic,” he says. “These medications in clinical trials have reduced the incidence of strokes, heart attacks and diabetes, and have helped alleviate symptoms of patients suffering from sleep apnoea and osteoarthritis.”

Biotechnology firms are at the heart of innovation in all these areas, says Groves, who points to data from industry analyst IQVIA showing that the number of clinical trials currently stands close to all-time highs. “The rapid development of biologic treatments and therapies is constantly expanding the [range] of products, particularly in chronic and complex diseases,” she says. “There has also been a healthy pipeline for novel drug approvals, with recent approvals for treatments for lung cancer, leukaemia, haemophilia, schizophrenia and Alzheimer's, amongst others.”

All of this points to a potentially exciting period for the biotechnology sector – and the prospect of further gains to come. Further M&A would help – while the pace of deals has accelerated in recent months, many analysts think there is more to come. Partly, that reflects the patent-cliff issue, with pharmaceutical companies now approaching a particularly precipitous drop-off. Between now and 2030, the industry will lose exclusivity rights to drugs currently generating $230 billion of revenues a year; they won't forfeit such money overnight, but as patents run out, rivals will be able to produce much cheaper alternatives. Other drivers of M&A include the increasing desire of many pharmaceutical businesses to diversify their holdings, acquiring biotechs with drugs that take them into new areas, and the accumulation of deal finance during a period of fewer deals. It also helps that the US government appears to be taking a more laissez-faire approach to regulation.

In this case, there is still some time to join the biotech party. At an aggregate level, valuations remain reasonable by historical standards – and while there have been good gains from many stocks, the sector's performance has been eclipsed by, for example, the surge in the technology arena. Still, the vast majority of investors will prefer to get exposure through a collective investment fund rather than by buying individual stocks themselves. The science is just too advanced for non-specialists to make realistic assessments of the prospects of individual businesses and their key drugs.

A fund offering diversified exposure to a pool of companies chosen by a professional manager therefore provides relative comfort. Indeed, managers in the sector are often more qualified and experienced than peers investing in other industries, with relevant clinical experience of their own as well as professional investment experience. We look at some of the best options in the box below.

The best biotech stocks to buy now

A broad range of collective funds invest in the sector, but there's a strong argument for considering a closed-ended trust over other types of fund. Biotech can be an illiquid area and prone to exaggerated shifts in sentiment that drive significant inflows and outflows of cash. A trust, where you're buying exposure to the underlying portfolio of assets, provides some insulation from that.

The Association of Investment Companies' healthcare and biotechnology sector offers seven investment trusts to choose from. Its top performers over the past 12 months are the Biotech Growth Trust (LSE: BIOG), with a total share price return of 103%, the RTW Biotech Opportunities Trust (LSE: RTW), up 93%, and the International Biotechnology Trust (LSE: IBT), which has returned 83%.

Alex Trett, a research analyst at Winterflood, points to the potential of two in particular to continue benefitting from M&A activity. “RTW Biotech Opportunities has seen ten M&A-related transactions in the last 12 months, all resulting in an immediate uplift to net asset value,” he says. Worldwide Healthcare Trust (LSE: WWH) is another beneficiary. “In addition to its portfolio holdings, the trust maintains a basket of M&A swaps that provide exposure to potential takeover activity across the sector.” Should the current pace of M&A activity persist, “we believe these trusts remain well-positioned to benefit. They combine extensive sector resources with teams possessing deep scientific and medical expertise, enabling them to identify innovative firms and emerging technologies, which in some cases become attractive acquisition targets.”

That's not to say open-ended funds should automatically be excluded. If you prefer this type of vehicle, Dzmitry Lipski, head of funds research at investment platform interactive investor, picks out the Candriam Equities L Biotechnology Fund, run by Linden Thomson. The Luxembourg-domiciled fund has holdings in around 75 companies.

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SpaceX has joined the Nasdaq 100, meaning passive funds that track the index will now automatically hold positions in the company, which listed on 12 June.

SpaceX (NASDAQ:SPCX) joined the index today (7 July), a week after it was added to the Russell 1000 Index (29 June).

Bloomberg reported SpaceX could look forward to an estimated $5.4 billion of inflows as a result of ‘forced’ buying by index funds that track these two indices.

Elon Musk’s space exploration company was fast-tracked for inclusion following rule changes by the index providers, put in place to reflect the unprecedented size of some initial public offerings (IPOs) coming to market.

Nasdaq’s new rules now allow freshly listed companies to be included in as few as 15 trading days, rather than its previous minimum period of three months after an IPO.

What will SpaceX index inclusion mean for flows?

Nasdaq says globally, there is around $1.4 trillion in assets tracking its component companies’ combined market capitalisation (market cap) of $31.5 trillion, around half of which do so through exchange-traded funds (ETFs). The other half is in derivative products, such as futures and options.

The Nasdaq 100 index represents the largest 100 companies, excluding financials, listed on the Nasdaq Stock Market. Often described as a tech-focused index, it contains all ‘Magnificent 7’ names – Alphabet, Amazon, Apple, Tesla, Meta, Microsoft and Nvidia. But it also contains many other companies with a value of $100 billion or more from healthcare, industrials and materials, for example, with representation across 10 of the 11 standard industry classification sectors.

When a stock joins an index like the Nasdaq 100, funds tracking that index are effectively forced to buy its shares so that they still reflect the index. This creates additional demand for a stock and could push up its share price.

The UCITS version of Invesco’s Nasdaq-100 ETF (LON:EQQQ) is the largest Nasdaq-tracking ETF available to UK investors. Barclays Smart Investor platform lists it as the seventh most popular purchase during the week of 26 June to 2 July.

Alongside the uplift from index fund inclusion, several investment banks have issued positive analyst statements on SpaceX, marking the end of the ‘quiet period’ that typically follows an IPO. Morgan Stanley, Goldman Sachs, UBS and Bernstein Research are among the names backing the stock with ‘buy’ recommendations or equivalent, based on asset strength and long-term growth prospects.

Baltimore-based Constellation Energy, a $90 billion company, generates electricity on a vast scale. And AI's voracious appetite means that electricity is now becoming a very valuable commodity, and the companies that can generate it reliably, cleanly and at scale will see a lot more attention than they're currently getting.

Investors have re-priced entire industries, assuming AI will transform the global economy. Electricity gets less attention, yet the chips, AI models and data centres are all useless without power. Vast data centres consume enormous quantities of power to train and run increasingly powerful models. Electric vehicles, battery factories, semiconductor plants, air-conditioning systems, industrial re-shoring and electrification more generally are all pulling in the same direction.

Tap into the great electrification with Constellation Energy

Constellation Energy (Nasdaq: CEG) owns the largest fleet of nuclear reactors in the US and has more nuclear power stations than anyone else at a time when hyperscalers are searching for reliable and cost-efficient power. Investors increasingly view Constellation less as a utility and more as the owner of scarce infrastructure – an essential asset – which explains its appeal as a long-term growth stock.

Constellation Energy currently generates about 10% of US clean energy. It produces enough electricity to power about 27 million US homes. It is the largest nuclear-energy company in the country and its power stations sit alongside a fleet of gas, hydro, wind, solar, geothermal and oil-fired assets. These produce 55 gigawatts (GW) of capacity.

To put that into perspective, the UK's recent winter peak demand for electricity was typically around 60GW, according to the National Energy System Operator. Constellation has 2.5 million customer accounts across the US and counts 80 of the country's 100 biggest firms by revenue among them.

Results in May showed first-quarter sales up 64% from $6.8 billion to $11.1 billion year-on-year. While impressive, roughly $2 billion-$3 billion of that reflected the acquisition of Calpine, a largely gas and geothermal power generator. Constellation Energy generated roughly $25 billion of revenue over 2025 as a whole. Earnings per share were $2.74 in the quarter, up 28% over the year and beating analysts' estimates by 14 cents.

The firm's nuclear fleet achieved an excellent 92.3% capacity factor, meaning its reactors were producing electricity at close to their maximum potential for almost the entire period. Management isn't seeing any slowdown in demand from the hyperscalers, with projected spending levels continuing to rise to reflect the growing need for computer processing.

Management has reaffirmed its expectation of 2026 earnings per share of around $11, up from $9.39 and $8.67 in 2025 and 2024 respectively. It's targeting 20%-plus annual earnings per share through to 2029 led by higher prices and rising demand, including improved long-term contracts.

Analysts have $13.50 pencilled in for 2027. Their 12-month share-price target is $362, about a third higher than now. Of course, in a world hungry for electricity, existing generation capacity may prove considerably more valuable than investors currently assume.

Don't chase the chips

The curious thing is that investors can currently buy a company expected to grow earnings by more than 20% annually at a valuation broadly in line with the wider market. Usually, investors are asked to pay a substantial premium for that combination of growth and strategic importance. The market's comfortable paying premium valuations for businesses that consume computing power. But it's a lot less interested in businesses that sell the vast amounts of electricity that makes such computing possible now and in the future. Look beyond that “utility” label and there is an opportunity to be had.

The immediate objection is that electricity is hardly scarce. If demand goes up, the power generators can build more capacity. But new power stations need planning permission, endless environmental reviews, financing, engineering expertise, political support and years of construction. And then transmission networks need upgrading.

This is where Constellation Energy's nuclear fleet becomes particularly interesting. Investors spend a great deal of time discussing technological moats. Yet there may be few barriers to entry that are more formidable than a collection of fully operating nuclear reactors. The market's growing interest in Constellation Energy reflects a simple reality: it already owns large-scale electricity infrastructure that is built, connected and delivering cleanly at scale. Building more is possible, but doing so quickly is another matter.

Nobody can yet say with certainty which company will dominate AI. What already seems clear, however, is that the modern economy wants far more electricity. Investors have spent the first phase of the AI boom chasing the chips. The second phase may belong to those pumping the power. Investors may find it easier to back the latter than gamble on the eventual winners of the AI race.

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Dr Douglas Williams is a veteran senior executive and board member for several biotech companies. During his time at Biogen, ZymoGenetics, Amgen Immunex and Seattle Genetics, he was involved in the development of several multibillion-dollar treatments, including Enbrel, Tecfidera and Spinraza.

Matthew Partridge: The time and cost of clinical trials has been seen as one of the big stumbling blocks to the emergence of new drugs. Do you see any developments that could help speed up the process?

Douglas Williams: Anything you can do to speed up the process is beneficial – after all, time is money. I think the real benefits will come as we become more efficient at targeting better-defined populations of patients [those who meet highly specific and uniform criteria, thus making it easier to gauge the exact effect of drugs]. In a field with a high rate of failure, improving the chances of success by even a small percentage can have a huge impact on the bottom line.

Matthew Partridge: Have the recent changes at the US Food and Drug Administration (FDA), the regulator of federal health, helped or hindered the clinical-trial process?

Douglas Williams: It's all a bit chaotic at present. You're seeing reversals of long-standing policy with political interference in what should be scientifically driven decisions. The “willy-nilly” nature of the Department of Government Efficiency's (DOGE) cuts has also led to a brain drain at the FDA itself, with some of the most experienced staff leaving.

Matthew Partridge: The FDA is seen as a gold standard when it comes to getting drugs approved first. Could there come a day when drug companies start looking to regulators in Europe or elsewhere?

Douglas Williams: This is already happening at the front end of the clinical-trial process, where Australia has become a key destination for early phase-one studies [the first of three stages of clinical trials, when scientists test the safety of the drug]. The regulatory process there is relatively quick and streamlined, making it a cost-effective place to run studies. And Australia's consolidated healthcare system makes the process of finding patients and enrolling them in studies more efficient.

Similarly, I've been working with Chinese companies and the system's low cost of capital, overall efficiency and rapid trial process are remarkable.

Matthew Partridge: The Trump administration has been threatening tariffs on drugs. Do you see geopolitical issues as a major risk for the drug and biotechnology sectors?

Douglas Williams: I do think there is logic in wanting to onshore some of the manufacturing for crucial drugs. There has been this enormous migration offshore from the US on the manufacturing side. So to try to bring some of that back, certainly for vital components of key drugs, makes a lot of sense. But there are surely better ways to achieve this than tariffs, which are a blunt instrument.

Matthew Partridge: Do you think America's dominance of the biotech and drug sectors is at risk?

Douglas Williams: I think that it's very much at risk for a variety of reasons. There definitely need to be some major changes to the FDA to bring the regulatory regime closer to what's happening in China and Australia. Firms are moving to the latter for early-stage studies, although people will still want to enrol patients in later-stage trials in the US and Europe.

The other thing that's happening in the US that I worry about from a longer-term perspective is that the reduction in the National Institutes of Health's funding for basic science grants is chasing away a whole generation of PhD students and postdoctoral candidates. This is already starting to create a hole in the pipeline for talent, and the longer this goes on, even if it's just for the four years of the current administration, the longer it will take to rebuild.

The engine driving the innovation that creates new companies in the sector and allows for new intellectual property to be created and new breakthroughs to take place is being eroded.

Matthew Partridge: What should the UK do to make itself more friendly to biotech and pharma companies?

Douglas Williams: The UK can streamline the process of starting studies and enrolling patients quickly and easily through the NHS, and raising patients' awareness of the trials on offer. More specifically, it could learn a lot from what the Chinese have done around streamlining the rules governing which particular regulatory bodies you need to secure approval from to begin a trial.

Matthew Partridge: Turning to the wider sector, GLP-1 drugs are changing the way we deal with weight-loss, diabetes and perhaps other conditions as well. Do you think the firms that pioneered GLP-1s are going to be able to stay ahead of the competition, or will it be like the computer industry, where firms such as IBM were unable to maintain their control of the industry?

Douglas Williams: The biotech industry is based on the expectation that there will be a rotation of dominance, as patents only last a certain amount of time before rivals are allowed to produce generic versions of a drug, causing prices and profits to collapse. But until that happens, the first-movers in this area, such as Novo Nordisk and Eli Lily, will dominate it. They've also pursued new approaches for delivering the drug – shifting from injectables to oral tablets, for instance. So they're creating scope for multiple waves of innovation, which could extend their dominance.

However, biotech is ultimately all about building a better mousetrap: there are other young companies coming in that are attempting new methods that don't come with the side effects, such as muscle loss, that are associated with the GLP-1s, for instance.

Matthew Partridge: Are there any other big leaps forward that could take place in the next five years or so?

Douglas Williams: I find the work around the role of sleep in dementia and brain conditions very interesting, and the idea that deep sleep can help combat those conditions is certainly an elegant theory. Neurology, in general, has become much hotter from an investment perspective. I'm involved with several companies in the neuropsychiatry sector, including being chair of Draig Therapeutics, a Cardiff-based company developing treatments for major depressive disorder.

The analogy people have used is that neurology is going to become the next oncology, where the precision approach to well-defined populations of patients is going to dominate drug development. So, you'll essentially be treating slices of the populations that have a particular broad definition of a disease.

Matthew Partridge: What about advances in medical imaging, such as MRIs and CT scans?

Douglas Williams: During my career, I was involved in the early development of some of the first approved drugs in the amyloid reduction arena and what really turned the tide was being able to understand what these drugs were doing inside the brain; it's hard to do without some way of looking at the target. I think faster and more effective scanning technology has already fed back into neurology-drug development.

Matthew Partridge: Do you think in five years' time the range of treatments for neurological conditions, things like dementia, could be radically different?

Douglas Williams: Yes, there's so much activity in this area, a reflection of the problems posed by ageing populations.

Matthew Partridge: How is AI going to change drug development?

Douglas Williams: It depends on your definition of drug development. Taking the all-encompassing view, where a fully integrated company does the discovery, drug development, manufacturing and sales and marketing, it will change the whole process. One example is in manufacturing. Already, we can take real-time data from the bioreactors that are used to manufacture proteins, and AI can use this to tweak the process to make sure that you maximise productivity. There's an increasing amount of work now on using AI in the clinical-trial process, both in terms of designing the trials and dealing with back-office operations.

I've been in this field for 40 years, and it's remarkable what some of the young companies I'm involved in are doing with AI. I'm optimistic that in the next ten years, we'll start to see the impact of AI on designing new molecules and finding new drugs too.

Matthew Partridge: Do you think that there will still be a need for actual scientists, rather than AI alone, to be involved?

Douglas Williams: Without question. If you ask ChatGPT or Claude a question, how the question is worded matters a lot, and that's where the role of the scientist really shows itself – the better the question, the better the answer. So, there will always be a place for the human element in terms of driving science.

Matthew Partridge: Have investors in the sector learnt to tune out political noise and focus on the long-term growth story?

Douglas Williams: I think so. Stock market valuations have risen while mergers and acquisitions have proliferated, which is always healthy because it gives investors capital to put back to work. So a virtuous circle has developed. There's never been a more amazing time in terms of the tools that we now have for drug development, while our understanding of biology continues to expand.

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UK small and mid-cap stocks have been in the shadow of their larger peers, but are beginning to reassert themselves. Since the start of April, the FTSE 250 has outperformed the FTSE 100 by around 6% – a notable development given ongoing macroeconomic and political uncertainty. Investors are increasingly recognising the opportunity, particularly as valuations for UK small and mid-cap stocks remain well below historical levels. At the end of the first quarter, the FTSE 250 was around 21% below its long-term average compared with a more modest 4% discount for the FTSE 100.

The FTSE 100 is often favoured for its global diversification and income profile, but small and mid-cap stocks offer many of the same characteristics. More than half of revenues are generated overseas and dividend yields of around 3% are broadly competitive with large caps. Some domestically focused UK businesses face headwinds from softer demand, cost inflation and the wider economic backdrop, but others continue to deliver strong growth and resilient earnings. The breadth of international exposure is also important, spanning sectors from mining to US infrastructure, defence and global industrial production – providing access to a wide range of end markets.

Three UK small and mid-cap stocks to invest in

AJ Bell (LSE: AJB) is well positioned within UK asset management, benefiting from long-term structural growth, supported by favourable demographics and a gradual decline in state provision for retirement. The platform market has expanded at an annual rate of around 11% since 2018 and AJ Bell continues to gain market share, with roughly two-thirds of the addressable market still yet to move onto platforms. Its diversified model spans both adviser and direct-to-consumer channels, supported by strong client retention. Around 81% of revenues are recurring, complemented by excellent Trustpilot ratings.

Ongoing investment in the brand, technology and pricing is driving growth in customer numbers and earnings, underpinned by a strong record of execution from the management team.

Helios Towers (LSE: HTWS), an Africa-focused telecoms tower operator, is supported by sustained investment from mobile-network operators looking to expand coverage and improve the quality of service. Key growth drivers include increasing mobile penetration, rising data usage and the rollout of 4G and 5G networks. Mobile connectivity plays a central role in everyday life across the region, reflecting its importance not just for communication but also as critical payments infrastructure. Helios benefits from a scalable, largely contracted revenue model that provides good earnings visibility. The company is also building long-duration infrastructure assets, designed to generate cash flow and returns while supporting the continued rollout of its tower network.

Paragon Banking (LSE: PAG) focuses on specialist lending across the buy-to-let and commercial sectors. Sentiment remains cautious, but the stock trades on seven times earnings and a yield of 6% and there is an ongoing £100 million share buyback programme. It continues to deliver attractive returns of around 17% while maintaining strong credit quality, having successfully lent through multiple cycles. Its focus on professional landlords – typically less affected by government intervention – alongside a well-structured funding base, supports the case to buy for long-term investors.

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Healthcare is particularly well placed to benefit from artificial intelligence (AI), which is revolutionising data-heavy industries. If there's one thing AI can do better than anything else, it is to sort, analyse and draw patterns from data. And if there is one sector with more data than anywhere else, it's healthcare.

AI tools and increased computing power give us the ability to interpret CT scans in milliseconds; comb through drug-trial data in minutes rather than months; and discover new treatments by analysing hundreds of historical studies. This is unlocking results that researchers could only have dreamed of five years ago.

Moreover, demand for healthcare is unlikely to be hurt by AI. Humans won't stop getting ill as tech gets better. They may even require more healthcare as AI unveils more solutions to previously incurable diseases and extends lifespans.

Yet the market does not seem to care about this healthcare revolution. Investors are going all-in on the market's leading AI companies, but they are ignoring this thematic play.

AI can help healthcare profit margins recover

The valuation of the global healthcare sector is trading broadly in line with its own long-term history, according to broker Panmure Liberum. However, when adjusted for normalised profit margins, it's trading at levels not seen since the 2009-2012 period. That is because margins have fallen from 10% to 6%-7% over the past five years as costs have risen – a trend that AI should help to reverse.

Healthcare sector is trading at a discount

The overall healthcare sector is trading at a discount of roughly 50% to the MSCI All Countries World Index (ACWI) on a normalised earnings basis. That said, in the pharma sub-sector, the opposite is true. It looks cheap on a price-to-earnings basis, but verges on the expensive when margins are adjusted back to historical levels (14% vs 18% today).

Still, both sectors deserve a premium valuation. Over the past ten years, the MSCI ACWI Healthcare and MSCI ACWI Pharmaceuticals sectors have booked revenue growth of 7.6% and 5.9% per annum, respectively, compared with 2.5% for the wider MSCI ACWI. Earnings have grown at 5.9% and 7.1% respectively, against 4.5% for the ACWI.

The best ways to invest in healthcare

One way to play this theme is Worldwide Healthcare Trust (LSE: WWH), managed by specialist investment advisor OrbiMed (over $20 billion in assets under management with a focus on healthcare). The trust has been hurt by its overweight exposure to China and biotech over the past five years, but this paid off in 2025 when it outperformed its peer group by seven percentage points. Over the long term, it has beaten the MSCI World Health Care by 2.3% per year since 2010. The shares are at a 7% discount to net asset value (NAV).

Polar Capital Global Healthcare (LSE: PCGH) is more exposed to the undervalued healthcare sector than to biotech. The trust traded at a discount of about 12% four years ago, but is now trading at a premium and has been issuing shares this year. It has outperformed its benchmark by 39.2% over the past five years. After a restructuring last year, it has leaned into low valuations by adding gearing of £40 million (9.7% of NAV).

RTW Biotech Opportunities (LSE: RTW), the Biotech Growth Trust (LSE: BIOG) and International Biotechnology (LSE: IBT) all sit at the more speculative side of biotech. While they are trading at near double-digit discounts, their positioning means investors should be more cautious.

BioPharma Credit (LSE: BPCR), managed by specialist investor Pharmakon, takes a different approach by making loans secured against companies' drugs and products. It has a great record – just one loan since 2009 hasn't performed as expected. The trust is trading at a 5% discount to NAV and yields 10.9%.

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Some analysts have proclaimed that AI is more important and will be more transformative for human development than the creation of the railways. With the world's largest technology companies now spending more than $1 trillion a year expanding their presence in the market, there's no doubt this theme will dominate for the foreseeable future.

However, as investors focus on the so-called hyperscalers – Alphabet, Microsoft and Amazon – which are building their AI infrastructure at an alarming rate, as well as chip manufacturers such as Nvidia and Micron, which are supplying the industry, not much attention is being directed to the infrastructure that will power this revolution. This is where bottlenecks are now starting to throttle growth.

The energy grid needs an upgrade to power AI

The critical one is the power grid. In the US, for example, the grid is around 50 years old and was not designed to handle the current level of rapid growth in demand. The graphics processing units, or GPUs, that underpin AI data centres today are vastly more energy-intensive than their previous counterparts.

Research compiled by Goldman Sachs and JPMorgan estimates that by 2027, AI server racks will require 50 times more power than the equivalents that formed the backbone of cloud infrastructure five years ago.

The computing power of any facility consumes only around 60% of the total energy requirement. The rest is taken up by cooling systems and other infrastructure.

As the hyperscalers expand, they are learning that Silicon Valley moves much faster than the rest of the world. GPUs have become 50 times more energy-intensive over the past five years, but global energy output has risen by just 1%-3% per year. In the real world, it can take five to seven years just to secure permits and sign initial contracts to build the power infrastructure. This has started to change in the past two years, but there's still a long way to go. According to the International Energy Agency (IEA), global electricity consumption by data centres will double to 945 terawatt-hours (TWh) by 2030, representing roughly 3% of global demand for electricity. That's roughly the same as adding 34 Hinkley Point C-scale nuclear-power plants to the global grid. Between 2025 and 2030, data-centre electricity consumption is expected to grow by 15% per year, four times the growth rate of total electricity consumption across all other sectors.

Electricity consumption from accelerated AI data centres, the most intensive units that train AI models, will rise by 30% annually. In the worst-case scenario, the IEA estimates that global data-centre demand for electricity could exceed 1,700 TWh by 2035, nearly 5% of global demand for electricity. If the industry becomes more efficient at utilising power, that figure could fall to 970 TWh. If the electricity industry fails to rise to the challenge, demand could be limited to 700 TWh by 2030, nearly 25% below the base-case scenario.

This bottleneck is most apparent in the US and China, where the most time and energy are being spent on AI development. China and the US will account for nearly 80% of global data-centre electricity consumption growth to 2030, according to the IEA. The US, in particular, is facing a projected power access shortfall ranging from 10.4 gigawatts (GW) up to 49GW by 2028, even though projections from the US Energy Information Administration (EIA) show the grid adding 86GW of new utility-scale electricity-generation capacity in 2026, the largest single-year rise since 2002.

Rise of the ‘Bring Your Own Power’ model for data centres

To get around some of these issues, data-centre providers are increasingly seeking to innovate. The “Bring Your Own Power” (B-Y-O-P) movement, for example, is bypassing grid-connection bottlenecks by building on-site microgrids, utilising utility-scale batteries, solar panels, fuel cells and wind and gas turbines. Elsewhere, data-centre operators and hyperscalers are working with utility providers to purchase and install natural-gas power stations.

Data-centre providers are also shifting their attention to gas-rich zones such as the Permian Basin in Texas and New Mexico, where natural-gas pipeline capacity is severely constrained (gas prices recently dropped below zero despite the war in the Middle East). Companies are building off-grid data centres directly at these extraction sites, monetising otherwise stranded gas that would have zero economic value.

For example, Microsoft (Nasdaq: MSFT) and Chevron (NYSE: CVX) are partnering to build a $7bn, 2.5GW off-grid natural-gas power complex in Pecos, Texas, specifically to supply Microsoft's AI data centres under a 20-year agreement. Williams (NYSE: WMB), a pipeline company transporting a third of the natural gas moving across the US, is developing “Neo”, a $2.3 billion project utilising gas turbines paired with battery energy storage systems (BESS) for a major hyperscaler. This is the company's fifth BYOP agreement.

Some providers are also turning to AI to help mitigate AI's impact on power grids. A recent report from the World Economic Forum notes that “power-flexible” AI factories can dynamically modulate their electricity use, throttling energy-intensive tasks such as model training during periods of stress for the grid and routing more mundane tasks (such as answering simple questions on ChatGPT) to other locations. This flexibility enables data centres to capitalise on the volatile nature of renewable-energy generation.

Energy prices take the strain

As the utility market has struggled to adapt to the surge in demand for electricity, prices have responded. Wholesale electricity prices have jumped across all global markets, and the impact is particularly acute in the US. In some eastern US states, prices have risen 76%. According to the Bureau of Labour Statistics, across the country, electricity prices are rising nearly 61% faster than general inflation. The entire supply chain is feeling the pain. Lead times for the production and delivery of grid equipment have skyrocketed. Standard electricity transformers now take 128 weeks to deliver, compared with just 16 weeks in 2019. In some cases, specialist transformers are being delayed for nearly three years.

The production of highly efficient combined-cycle gas turbines can take up to four years, more than double the length recorded in 2022, and across the entire supply chain analysts put the average price rise at 30% across all grid equipment. There's also been a dramatic shortfall in the number of construction engineers and electricians, with the figure put at nearly 300,000 construction engineers and electricians in the US over the next decade. There are no quick solutions to any of these problems. While producers try to scale up output to meet rising demand, it looks as if they will continue to hold all the cards for the next five years at least.

There are three ways for investors to play this trend. There are the companies that generate power, those that make equipment for power stations, such as gas turbines, and those that manufacture cables and equipment to transmit electricity from A to B.

Tap into the AI energy boom with power players

One of the hottest plays is GE Vernova (NYSE: GEV). Created as part of General Electric's break-up, GE Vernova specialises in designing, manufacturing and maintaining equipment for the power-generation industry. Its technology provides roughly 25% of the world's electricity and the group has an order backlog of $163 billion, or 3.5 times sales. Its order backlog for gas turbines sits at around 100GW – around 2.5 times the UK's total daily electricity consumption. UBS has modelled 14% annual organic sales growth for the group through 2028 based on its current order backlog, with a 22.7% Ebitda margin by 2028, up from 8.4% in 2025.

Unlike the GPUs that power data centres, which have an estimated average life of around five to eight years, gas turbines can last up to three decades, locking in a multi-decade service contract for Vernova. The firms also offers kit for firms running older units (20 years and upwards) to help improve reliability and efficiency. Despite this growth and its key market position, there's a lot priced into the stock at a mid-30s price-earnings (p/e) ratio, but UBS argues that the valuation is worth it given the revenues and potential for margin growth.

Rolls-Royce (LSE: RR), which came close to a government bailout in the pandemic, is now one of the world's most sought-after power engineers. For the year to the end of 2025, the company reported a 12% jump in underlying revenue to £20 billion and underlying operating profit rose by 41% to £3,462 million, equating to a margin of 17.3%. Profit growth was driven primarily by the power-systems arm (25% of revenue), where the divisional margin expanded by 430 basis points to 17.4%. The firm put this down to “growth driven by data centres” and it's hoping its “power-dense” next-generation diesel and gas engines will continue to drive growth. Its technology is in demand as data-centre providers seek alternatives to bypass ever increasing queues for power-grid connections. The FTSE 100 company recently noted that orders across gas and diesel engines in the first quarter was around 50% higher than last year and March was a record month. Power Systems' order backlog was £7.3 billion at 31 March.

But Power Systems isn't just about data centres. The business also produces battery energy-storage systems and engines for Leopard tanks. What's more, last year Rolls-Royce conducted the world's first successful test of a high-speed marine engine running on pure methanol. There's also the company's nuclear business. A long-time supplier of nuclear reactors to the Royal Navy, Rolls-Royce has begun moving into the civil market with its small modular reactors (SMRs). In June last year, Rolls-Royce's SMR was chosen as the sole provider in the Great British Energy – Nuclear competition to build three SMR units in the UK.

Rolls-Royce SMR also received a strategic investment from CEZ Group, alongside a commitment for up to six units in the Czech Republic. In mid-June, the division was selected to deliver three SMRs on Sweden's west coast in partnership with Videberg Kraft. Based on current estimates, Rolls-Royce is trading at a forward p/e of 38.2, falling to 32.7 in 2027, according to average analysts' estimates. Those have ticked higher after the company's latest upbeat trading update and Berenberg has pencilled in a forecast of £8 billion of share buybacks over 2026-2028, split by £2.5 billion in 2026, £2.7 billion in 2027 and £2.8 billion in 2028, with scope for more cash returns if cash flow beats projections over the coming months.

A US peer of Rolls-Royce is BWX Technologies (NYSE: BWXT). Like its UK counterpart, BWX has the backstop of a US Navy contract in its back pocket to support its general operations – it has been the sole nuclear-fuel provider to the US Navy for more than 70 years. It's now seeking to grow in the civil market, where it provides specialised, complex, high-precision equipment used in nuclear reactors, including steam generators, reactor-pressure vessels and piping. It has an order backlog of $8.7 billion (around 2.2 years of revenue) bolstered by the recent $1.4 billion set of contracts through the US Naval Nuclear Propulsion Programme. However, at nearly 50 times forward earnings, there's a lot baked into the current share price.

How to invest in the undersea cable kings

The energy-transfer market is more concentrated than the other two potential investment segments. The renewable-energy transition has triggered an unprecedented global demand for ultra-high-voltage subsea cables to transport power from offshore wind and solar sites to urban centres, a market that did not exist 15 years ago. It's currently dominated by a European oligopoly consisting of Prysmian (Milan: PRY), Nexans (Paris: NEX), and NKT (Copenhagen: NKT). These companies emerged as the winners in what was an incredibly competitive market, with lots of smaller players that couldn't keep up with the capital-spending commitments required to manufacture vast undersea sea cables.

High-voltage direct-current (HVDC) cables can be thick, and they must be kept completely straight during manufacturing, which often requires companies to hang them inside skyscraper-high warehouses. The capital required to build this infrastructure runs into the billions. For example, the 500-kilometre Eastern Green Link 2 (EGL2) project in the UK, the single largest ever investment in electricity-transmission infrastructure in the country, has a price tag of £4.3 billion, with £2.7 billion of that for the cable itself.

The global high-voltage submarine cable market is expected to grow at a compound annual growth rate of 17.3% over the next decade. Production hit 7,000 kilometres in 2025, an all-time high, and the major players are rapidly ramping up production. Prysmian is drawing on its experience in this market to expand in the DC inside-building segment – essentially wiring up the power inside data centres. The company believes it will become a one-stop shop for data-centre construction contracts, building long-haul subsea connections and shore-based transmission infrastructure, and then for infrastructure throughout the building to power GPUs and air-conditioning units.

Management has estimated that overall global demand for DC power will expand at a compound annual growth rate of 33% over the next five years, with the bulk of this coming from AI-related data-centre growth. Analysts have pencilled in earnings growth of 25% for 2026, followed by 23% for 2027, with a net profit of €1.7 billion projected for 2027, up nearly ten times from 2020. Based on these projections, the shares are trading at a 2027 p/e of 24.9, which doesn't seem too demanding for a high-growth business operating in an oligopoly.

Prysmian is around three times the size of its smaller peers, both of which are using their growing profitability and cash flow to expand into newmarkets. Of the two, Paris-listed Nexans is the cheapest, trading at a 2028 p/e of around 13 based on management's growth targets. The group has laid out a road map to achieve an adjusted Ebitda of €1.2 billion by 2028 (up from about €750m) through growth in its three main businesses: PWR-Transmission, PWR-Grid and PWR-Connect. Sales are already locked in with a backlog of €7.9 billion by early 2026, enough to cover sales through to 2028.

Deals will also be a major part of the future growth plan. It recently added US-based Republic Wire to the stable to bulk out its US arm (about 15% of revenue). Republic reported sales of €52millionmn in its latest fiscal year and will be a key conduit for Nexans to enter the US data-centre market. Nexans plans to use Republic Wire's established channels to sell its own comprehensive offering of medium-voltage and grid technology into premium US end markets. The acquired business is currently finalising a significant expansion programme, which will increase its production capacity by about 30% by the end of 2026.

How to play coal

Another FTSE 100 company that's strategically well placed is National Grid (LSE: NG). Although still small compared with the US and Chinese markets, the UK data-centre market is the largest in Europe. National Grid believes demand for electricity in the UK will increase by 30% by 2035 to 290GW with a 90% increase in installed generation capacity to 370 TWh. To meet this demand, the company is investing £41 billion by 2031 to expand its regulated asset value by 60% to £60 billion. It is also going to invest £29 billion to expand its US business to a regulated asset value of £45 billion, with a focus on its key markets of New York and Massachusetts. The shares currently look cheap, selling at a forward p/e of 13.9.

One sector investors could also consider is coal. According to Global Energy Monitor, more than 2,200GW of coal-powered generation still operates worldwide, with another 710GW under development. China is scaling up its coal-output market to meet increased demand for energy and a total of 32 countries are proposing, or building, new coal plants to meet the growing need for power. At the beginning of June, Donald Trump announced plans to build two new coal plants in Alaska and West Virginia under the Defence Production Act, adding to the US coal fleet, which supplies 15% of the country's demand for power. Alliance Resource Partners (Nasdaq: ARLP), Peabody Energy Corp (NYSE: BTU) and Warrior Met Coal Inc (NYSE: HCC) are three left-of-field plays worth considering here.

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What exactly is an emerging market? You can debate all sorts of measures of economic development and levels of income as the cut-off point, but as far as the financial world is concerned, what matters most is whether the stock market is part of the MSCI Emerging Markets (EM) index or not.

The AI boom is starting to stretch this line of reasoning, as we have noted a few times in recent weeks. The performance of a handful of stocks that are integral to the semiconductor sector means the index is increasingly heavy in tech (now 43% of the total). It has almost 50% in two economies – Korea and Taiwan – that are clearly advanced, wealthy countries. Yet while AI has made this very obvious because of its impact on the index, the underlying point has been true for much longer. Korea and Taiwan are “emerging” under MSCI's market-access criteria, but they fully emerged in an economic sense a while ago.

Is China an emerging market?

You can go further. The third largest weight is China, at about 20%. China's GDP per capita in purchasing power parity (PPP) terms is still firmly in emerging market territory – it's about half of the UK's, for example – but this disguises enormous variation between the wealthier coastal provinces and those further inland. It is also by far the world's second-largest economy in nominal terms. To what extent can we view it as a traditional emerging market?

Note, too, that all these three countries – almost 70% of the index – are in East Asia. At this point, is the MSCI EM vastly different to the little-quoted MSCI AC Asia, which adds nearby Japan into the mix? The chart above suggests not.

A “true” emerging market ETF

The practical investor may be happy enough. After all, if returns are good, why split hairs about definitions? Yet it's important to understand where returns are coming from, how an end to the AI boom might change this, and what the options are if you want more traditional emerging market exposure.

I have previously mentioned Barings EMEA Opportunities (LSE: BEMO) and BlackRock Frontiers (LSE: BRFI). Both are interesting, but neither is broad (BEMO is Eastern Europe, Middle East and Africa, while BRFI excludes the eight largest emerging markets).

Instead, we could look at a relatively new exchange traded fund (ETF): WisdomTree True Emerging Markets (LSE: WEMP). This drops China, Korea and Taiwan, with India and Brazil as the largest positions. There is very little tech; you get a classic emerging-markets portfolio with more than 35% in financials.

To my mind, this goes too far for most investors as a standalone holding. It might be preferable to just cap exposure to the big three. Still, owning this alongside a conventional EM fund would be one way to get more balance in a portfolio.

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The Magnificent 7 stocks (Mag 7) are starting to look mediocre. The group, which is made up of Nvidia, Alphabet, Apple, Microsoft, Amazon, Tesla and Meta, has been in the vanguard of the AI boom. Between the beginning of 2023 and the start of this year, the seven US technology mega-caps added $15 trillion in value between them and grew to account for a third of the entire S&P 500 by market capitalisation, say Emily Herbert and Tim Bradshaw in the Financial Times. Yet over the past month, they have collectively lost $2.2 trillion in value. Many of these firms are “hyperscalers”, with plans to lavish about $1 trillion on AI data centres. Investors are increasingly sceptical about whether such huge sums will ever generate a meaningful return.

Microsoft's and Meta's shares are in a “bear market”, having fallen more than a fifth from their peak, says David Goldman on CNN. The others are down at least 10%. There are growing signs of nervousness about technology valuations. The Nasdaq index fell every day last week. Korea's Kospi, which plays host to some major AI plays, has been on a wild ride this year, including another 10% plunge on 23 June.

Magnificent 7 stocks decline, but semiconductors soar

Yet while the Magnificent 7 stocks are falling out of favour, a boom in the firms selling computer chips to them at eye-watering prices has “more than made up the difference”. Micron's shares have gained 265% this year, Samsung is up 144%, and Intel has surged 254%. The semiconductor industry alone now accounts for 19% of the S&P 500's market value. The iShares Semiconductor exchange-traded fund (ETF) rocketed a staggering 110% in the first half of the year, says Ines Ferre for Yahoo Finance.

That pushed the US technology sector to its best first-half performance in three years, the slump in the Magnificent 7 stocks notwithstanding. AI data centres require specialised computer kit, but there is now an acute shortage and “it takes years to build new production facilities” for chips, says James Mackintosh in The Wall Street Journal. The result has been soaring prices: Micron's have “quadrupled” in the past year. Consumers have been caught in the crossfire, with Apple hiking prices for its computers. The net effect is “an enormous transfer of cash” from the AI hyperscalers to memory-chip makers. The problem for the AI industry is that firms such as ChatGPT-maker OpenAI were already loss-making (venture capital has been subsidising an expensive grab for market share). Now the maths looks even more challenging for the businesses that started the AI boom.

In retrospect, the best thing to do over the past six months would have been to go long chip stocks while shorting software firms, says John Authers on Bloomberg. Korea's chip-dominated Kospi stock market index has almost doubled since 1 January, while the S&P 1500 software index is down 17.5%. US technology-related capital expenditure is now slightly above the 5% of GDP peak it reached in 2000 during the dotcom bubble. By attracting “more capital than they can productively use”, investment bubbles ultimately “sow the seeds of their own destruction”.

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Investing in the shipping industry may seem like the ultimate contrarian trade. After all, the ink on the deal between the US and Iran to reopen the Strait of Hormuz is barely dry, and volumes are sharply down in the Suez Canal. Throw in the disruption caused by the Russian invasion of Ukraine and the perceived threat to global trade from US president Donald Trump's tariffs, and it does seem like a sector under threat. But if you look beyond the headlines, far from diminishing, the amount of goods shipping around the world “is only going to increase”, says Daniel Cunningham, founder and CEO of logistics firm Shiplo. At the same time, digitalisation and sustainability are creating new opportunities.

The bull case for the shipping industry

Perhaps the best reason to be bullish about shipping is that for many goods and commodities, it has few competitors. “From the days of horse and cart to the present day, sea travel still provides the most direct and efficient mechanism for moving large quantities of freight,” says Nick Bartlett, co-founder and director of Wayfindr, a Hong Kong-based 4PL logistics provider. Air travel has chipped away at this a bit, especially for immediate deliveries of individual packages, but shipping remains – and will continue to be – the “most cost-effective mechanism for moving large amounts of freight”.

Indeed, it is “one of the most economically efficient mechanisms for moving large volumes of goods across borders”, says Nadiya Albishchenko, founder and managing director of international trading company Inas Exim. This economic advantage means that the industry's long-term future should remain “fundamentally strong”, enabling it to overcome any short-term disruptions caused by geopolitics and continue to be the “backbone of international trade and global supply chains”.

At the same time, despite Trump's protectionist rhetoric, global trade “has never had it so good”, says Simon MacAdam, deputy chief global economist at Capital Economics. His tariffs have “not damaged bilateral trade between the US and other countries to the extent that most people were predicting” and the US “only makes up around 15% of world trade”. Meanwhile, the rest of the world “remains committed to free trade and is resisting the temptation to get stuck in a beggar-thy-neighbour spiral”. The AI boom is also a tailwind “as it is not only very goods-intensive, but also import-intensive”.

Similarly, while the shutdown of the Strait of Hormuz created a lot of short-term disruption for specific markets, that will be less of an issue in the longer term, says MacAdam. Proposed alternatives, such as new oil pipelines, “will be expensive and subject to many of the same risks as shipping” and, with Iran and the US committed to reopening trade routes, the Strait of Hormuz should be able to return to normal levels of traffic volumes by 2028. In any case, although the Middle East clearly remains a big shipping hub for oil, it doesn't play as large a role in global trade as people tend to assume, accounting for around 10% of overall global shipping volumes.

Geopolitical turmoil could even provide a silver lining for the industry, as it is forcing firms to move away from the idea of “very lean supply chains” in favour of having locations in several countries, with “more duplication and regionalisation, leading to more trade, not less”, says MacAdam. Albishchenko has already found that her customers have moved away from choosing the cheapest shipping option towards arrangements “that emphasise continuity of supply, reliability and availability of alternatives”.

New shipping routes and ports are being built

One of the best indicators that transporting goods by sea has a rosy future is the amount of money that has been going into upgrading port infrastructure around the world. A case in point is the Middle East. Current tensions haven't dissuaded governments in the region from investing in some major projects, as Bartlett points out. These include Saudi Arabia's Neom city; the aggressive capital-spending programme of AD Ports, the developer and regulator of ports and related infrastructure in Abu Dhabi; and Iraq's Grand Faw port. Taken together, these projects represent the biggest concentration of new capital invested largely in ports anywhere in the world.

Governments and industry are also increasing their port capacity elsewhere around the world. There has also been a lot of investment in the Indian Ocean, for example. India is opening its first deep-water port at Vizhinjam and DP World is pouring billions into a programme stretching from India through Senegal and the DRC to London, says Bartlett. But the region that will see the most explosive growth over the next decade is Africa, especially on the western side.

When Bartlett co-founded Wayfindr around ten years ago there was virtually no trade between Asia and Africa. But the development of online marketplaces such as Jumia means that Africa is beginning to import huge volumes of Chinese products. At the same time there has been an increase in industrial production within Africa, “which means that it is now starting to become a significant exporter of goods in its own right”. The continent is therefore going to need big investments in transport over the next decade or two. Ports such as Senegal's Ndayane and Bakassi Deep Seaport in Nigeria are positioning themselves as the “next generation of Atlantic gateways”.

There has also been awakened interest in developing new trade routes. The need for additional capacity and developments in technology have led to an explosion of interest in the trans-Arctic shipping route (or “northeastern passage”) connecting the Atlantic and the Pacific via the Arctic coasts of Norway and Russia, says Jonathan Colehower, a managing director at infrastructure services company UST. “We don't yet have the infrastructure or ships to make that viable, but these will be in place within the next five years, which is why there's already a fight to lay out landmarks and claim territory.”

Shipping is going digital

All parts of the industry are also investing in digital technology, notably in technology to achieve “end-to-end visibility”. Track-and-trace tools have come a long way in the last few years, allowing vessels to be tracked almost in real time, but there are challenges whenever goods change hands. The next five years are going to see a shift to more comprehensive and secure tracking, says Colehower.

Digitalisation will also reduce the time and money spent getting goods to and from ships, says Ben Slupecki, an equity analyst for Morningstar. Many of the big freight-forwarding companies, who deal with transporting goods to and from ships, “are seeing more and more opportunities to use AI in their work”, he says. The technology is helping them boost efficiency by cutting the cost of dealing with routine paperwork, such as processing invoices and getting goods through customs.

Digital technology and AI will also improve efficiency by enhancing the ability of shipping companies and the firms that they serve to anticipate demand, says Albishchenko. Traditionally, companies have based their forecasts on historical sales and then periodically adjusted them. Digital forecasting approaches allow firms “to consider broader variables, including seasonality, customers' behaviour, market trends and changing commercial conditions”. Better forecasts “can reduce shortages, excess inventories and the need for emergency logistics decisions”.

Progress will come when the industry finds a way to break down the “data silos” held by different firms to allow better co-ordination of shipments, says Cunningham. Many decisions in all parts of the shipping industry will eventually be carried out by AI agents, autonomous programs that can carry out tasks on their own without any human supervision, he believes. These will reduce waste by making sure that every bit of spare capacity on vessels is used, as well as tweaking routes in real time to ensure that they are optimised for speed and cost.

The shift to greener transport

Opposition from the Trump administration may temporarily have put a dampener on the costs of complying with stricter environmental regulations, and so shipping companies don't for the time being have to worry too much about ambitious schemes such as the proposed global carbon tax. But the expectation that shipping companies will try and work in a more environmentally friendly way remains, says Bartlett. Younger generations in particular care about the planet and the shipping industry cannot ignore changing social attitudes. Indeed, despite opposition from Saudi Arabia and the US, the EU has already taken matters into its own hands by adding shipping to its carbon-taxation framework, as Nikos Petrakakos, managing director at Tufton Investment Management, points out.

This will naturally cost money. Decarbonisation of the global shipping fleet alone may cost as much as $1.4 trillion, reckons Petrakakos. At least $500 billion of this will be spent on retrofitting existing ships to take greener fuels, or building new, more sustainable ships from scratch. That is at least good news for the shipbuilding industry. Indeed, shipyards are so busy that “if you order a new ship now you will have to wait until at least 2030 to get it”. Most major shipbuilders have a backlog of at least three years.

The changing face of insurance

The growth of volumes and the digital revolution that is taking place within shipping is also good news for those firms that offer services to the shipping industry. Albishchenko sees a greater role for those companies that can provide communications services and data, especially as all parts of the supply chain “increasingly depend on faster information exchange across procurement, suppliers, freight partners and customers”. Indeed, “delayed information can sometimes create as much disruption as delayed cargo”.

One major support industry that will benefit from the continued growth of shipping is insurance. The market for insurance “is becoming more dynamic”, says Albishchenko, and insurance companies are moving away from basing their pricing on “historical routes, standard risk assumptions and established coverage models” to a more bespoke approach that considers such things as changing geopolitical conditions and operational resilience. This approach will mean that there will be “greater interaction between insurance providers” and logistics planners, “rather than treating insurance as a separate administrative function”.

Insurers are becoming much more selective about who they will insure and the prices that they are willing to offer, says Lale Akoner, eToro's global market strategist. The overall market is becoming “more data dependent”, with some insurers even requiring real-time updates about vessels' location, routes, history, cargo data and even exposure to sanctions. This is good news for the advisory firms, the data providers and the specialist brokers.

Compliance is also becoming a bigger issue, especially around sanctions, which is leading to increased demand for “sanction-screening tools, counterparty due diligence, legal advisory and general insurance compliance checks”. All this is good news for specialist insurers that will benefit from higher rates. But brokers and advisers may have the cleaner business model, “as they earn commissions from advising clients about the risk and providing data, without directly bearing any insurance risk themselves”.

We look at some of the best plays on all of these themes below.

The best shipping investments to buy now

One investment trust focused on shipping that's worth considering is Tufton Assets (LSE: SHIP), which invests in a diversified portfolio of second-hand commercial seagoing vessels. These range from dry bulk carriers that carry grains and cements to container ships and gas carriers that carry liquefied petroleum gas, with 21 ships in its portfolio as of April. Tufton has a strong record of increasing its dividend, which has more than doubled since 2020. The stock trades at around a 14% discount to its book value and has a yield of 7.75%.

One of the world's largest shipping companies is Matson (NYSE: MATX). It focuses on the Pacific Ocean, moving goods between Asia and Alaska, Hawaii and California. It also offers freight-forwarding, warehousing and supply-chain services and owns a stake in terminal-services company SSA Terminals. Matson has seen its revenue grow by around 40% between 2020 and 2025, and its stock trades at 12.6 times expected 2027 earnings.

Lale Akoner is keen on Clarkson (LSE: CKN), which operates a range of integrated shipping services, mainly broking and advisory services. Its asset-light business model is “supported by good market fundamentals” and will “experience rising demand” as the industry looks for the necessary expertise to navigate changing markets. The company has a very strong balance sheet and a long record of paying dividends. Clarkson's revenues nearly doubled between 2020 and 2025 and are expected to keep growing. The stock trades at a modest 16 times expected 2027 earnings.

A promising play on shipbuilding

One of the world's largest shipbuilding companies is Korean firm HD Hyundai (Seoul: 267250). HD Hyundai is a large conglomerate involved in everything from oil refining to robotics, but shipbuilding is currently its main segment, accounting for around 40% of sales and a similar share of operating profits. Recently, its shipbuilding arm has been performing strongly, boosted by both higher prices and improvements in productivity. HD Hyundai has seen its total revenue go up by around 275% between 2020 and 2025, but the stock only trades at 8.7 times expected 2027 earnings. The dividend yield is 2.2%.

A purer play on continued demand for new ships is Samsung Heavy Industries (Seoul: 010140), which makes the vast majority of its revenue from shipbuilding. The company is investing heavily in sustainability, with project ranging from producing more efficient designs to switching to alternative fuels, such as ammonia and even nuclear power. Other technologies in the pipeline include floating nuclear-power plants and autonomous ships. The company's revenue has grown by more than half between 2020 and 2025, and is forecast to grow strongly in the next few years. The stock is more expensive than HD Hyundai, but still trades at a modest 16.4 times expected 2027 earnings.

Morningstar's Ben Slupecki likes the Danish firm DSV (Copenhagen: DSV), which focuses on logistics and freight-forwarding services. It deals with road and rail transport as well, but much of its business involves transporting goods to and from ships. Slupecki considers DSV to be a strong business, and its integration of DB Schenker, which it bought in 2025 from German rail operator Deutsche Bahn, is also “going well” and has made it the largest freight-forwarder in the world. The stocks trade at 17.6 times expected 2027 earnings.

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The SVS Baker Steel Electrum Fund invests in mining stocks that produce the metals and materials needed to power the global economy. While technology and consumer stocks receive significant attention from investors, the mining sector is often overlooked yet offers exposure to commodities that are essential for everything from electricity generation to renewable-energy infrastructure.

Metals have become strategic again, with demand growth driven by electrification, rising energy consumption and increasing concerns about energy security. At the same time, years of underinvestment in mining and resource development have resulted in tight supply across many markets. This combination of rising demand and constrained supply is creating compelling opportunities for investors. Here are three stocks that currently stand out.

Three promising mining stocks for your portfolio

A play on geopolitics

Century Aluminium (Nasdaq: CENX) is a play on both geopolitics and industrial demand. It produces aluminium in the US, a metal that is vital for construction, transport and technology. Aluminium is also a beneficiary of structural tailwinds from electrification, being increasingly used in energy infrastructure. The investment case for aluminium producers has strengthened as governments place greater emphasis on domestic manufacturing and secure supply chains. Trade tariffs have highlighted the strategic importance of producing key industrial materials closer to home and reshoring supply chains. The war in the Middle East has also reminded investors how quickly global supply routes can be disrupted. Aluminium prices have risen during the crisis.

Strong demand boosts silver

Pan American Silver (NYSE: PAAS) is a mining stock that offers exposure to silver and gold at a time when interest from investors in precious metals is on the rise. The company operates a portfolio of high-quality mining assets across the Americas and is one of the world's leading silver producers. The importance of world-class silver assets is growing amid strong demand from investors and a tight supply side, with the silver market having faced a supply deficit for several years now.

A part of silver's appeal is that it is both a precious metal and has industrial uses. Investors often buy it as a store of value, much like gold, but it is also used extensively in certain fast-growing technologies, notably solar panels and more broadly across electronics. These dual sources of demand are supportive for silver prices and miners.

A mining stock with exposure to nuclear energy

Cameco (NYSE: CCJ) is one of the largest uranium producers globally, with exposure to the development of reactors, offering investors a way in to the growth of nuclear energy globally. As demand for electricity rises, governments and companies are increasingly seeking reliable sources of low-carbon energy. Nuclear power is becoming a more important element in the energy mix as a reliable source of baseload power, without the intermittency issues associated with wind and solar generation.

We consider that his trend could support demand for uranium or many years to come. Countries are extending the lives of existing reactors, while others are planning new nuclear projects as they seek to improve energy security and reduce carbon emissions.

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Tech shares have sold off over the past week with SpaceX stock seeing steep declines days after the company’s spectacular initial public offering (IPO).

The Nasdaq 100 – a US index mostly containing technology stocks – fell 2.1% in the week to 23 June and the S&P 500 fell 1.9% over the same period.

SpaceX (NASDAQ:SPCX) also saw steep declines, shedding 26.2% to bring its share price to below the level it closed its first day of trading following its IPO less than two weeks before.

SpaceX is not yet included in either index, but given the immediate success of its IPO its slide reflects a pessimistic shift in the market mood towards tech stocks.

“Investors remain super-cautious, nervous that high valuations could be chipped away at again,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club. “Even a fresh easing of the energy crunch, with oil prices dipping further, isn’t lifting sentiment much.”

What’s driving the latest sell-off, both for the tech sector and for SpaceX in particular?

Why did tech shares sell off?

Several factors are converging to create a cautious air around technology stocks.

One is the fragility of the peace agreement reached between the US and Iran last week.

“Despite threats over the weekend from Iran that it could re-close the Strait of Hormuz following continued fighting between Israel and the Hizbollah militia it supports in Lebanon, talks continue in Switzerland with the US to turn a memorandum of understanding and a ceasefire extension into something more like a permanent solution to the war that began nearly four months ago,” said Tom Stevenson, investment director at Fidelity International.

Markets are also spooked at the prospect of central banks hiking interest rates in response to rising inflation. While the Federal Reserve and the Bank of England both held rates when they met last week, international counterparts in the EU and Japan both raised their respective rates by a quarter of a percentage point.

Underpinning much of the negativity around tech specifically is a rising concern over whether the artificial intelligence boom can pay for itself.

“With doubts about the returns that can be achieved on investments worth hundreds of billions of dollars, together with a rising challenge to equity investors from rising bond yields, more equity issuance and fewer share buybacks, the boom feels fragile,” said Stevenson.

SpaceX shares fall on debt issuance

Debt issuance is a crucial top for tech investors at present, as SpaceX shareholders found out the hard way this week.

On 22 June, the company announced that it was seeking to raise $20 billion in debt, with the figure rising to $25 billion the following day.

Shares in SpaceX fell 16.4% on 22 June before recovering slightly on 23 June.

“Issuing debt at such a heady valuation raises questions about cash flow for this hugely capital-intensive venture,” said Wealth Club’s Streeter. “SpaceX has come down to earth with a bump, burning off most of its post-launch steam.”

Despite these declines, SpaceX shares closed 23 June 15.6% above their IPO price of $135 and 4.1% above the $150 at which they opened trading on 12 June.

Should you buy tech shares?

There is always a potential buying opportunity when sectors or markets sell off.

Whether you want to take advantage of the recent pull back in tech stocks depends largely on your circumstances and goals. It is worth bearing in mind, though, that the sector is still highly valued, and as recent days have shown it is prone to volatility.

If you are looking to buy tech shares, you could consider the following investment trusts and exchange-traded funds (ETFs) which offer exposure to the sector:

• Allianz Technology Trust (LON:ATT). Top holdings Nvidia, Alphabet, Micron Technology and Apple account for 30% of the portfolio as of 31 May, but the trust trades at a 7.3% discount to net asset value (NAV) as of 23 June, according to data from investment trust industry body the Association of Investment Companies.
• Polar Capital Technology (LON:PCT). Similarly, large tech companies account for most of the portfolio (over 96% of holdings have a market cap above $10 billion as of 29 May), but trades at a 9.2% discount to NAV.
• WisdomTree Space Economy ETF (LON:WSPG). From 29 June, SpaceX will enter the ETF’s portfolio with an initial 5.5% weighting. As of 23 June top holdings include space launch provider Rocket Lab and Japanese industrial firm Mitsubishi Heavy Industries.

A new world calls for new stocks. In the VT De Lisle America Fund, we use the paradoxical combination of value plus momentum to find winners for the next decade. For 40 years, declining interest rates and disinflation created a powerful tailwind for steady growth stocks such as McDonald's, Nike and Procter & Gamble. Their predictability was rewarded with rising price-to-earnings (p/e) multiples, thus they strongly outperformed the market. That all changed in 2021 with the return of higher interest rates and inflation, combined with the launch in 2022 of ChatGPT, which funnelled capital into AI infrastructure.

Higher rates and inflation tend to push down p/e multiples and put pressure on profits due to rising costs of materials and labour. At the same time, the urgency to spend on building out AI pushed capital into different, previously unloved, parts of the economy: construction, manufacturing and blue-collar jobs. Investors like to find a comparison with past cycles. We think the 1970s provides the best precedent, but with the addition of AI. So how will that play out today?

Companies that own scarce real-world assets and have growing order backlogs gain pricing power in this new capital-expenditure-driven cycle, positioning them to thrive in the new industrial economy. Within these big macro themes, minor ones are also emerging. One we like is the break-up of old industrial conglomerates via “spin-offs” – the packaging of overlooked industrial assets into attractive new listed companies.

Three stocks for your portfolio

In 2025, Honeywell spun off its speciality chemicals division, Solstice Advanced Materials (Nasdaq: SOLS). Solstice holds an oligopolistic position in refrigerants (its cash cow, increasingly necessary for data-centre cooling) while expanding capacity in its specialist chemicals business, supplying America's semiconductor supply chain. But the hidden crown jewel is its stake in the only US uranium conversion facility – one of only seven in the world – and a scarce asset during a nuclear renaissance. Although expensive-looking at a high 20s p/e, its earnings power is underappreciated as its chip exposure grows and higher-priced uranium contracts begin to roll in.

Forum Energy Technologies (NYSE: FET) makes high-tech parts for oil wells and subsea exploration. It is a picks-and-shovels play on rising global energy needs due to AI and on the increasing complexity of extraction. Forum operates in a high-value niche and is a leading player in all its product lines. The company prides itself on its patented technical know-how, which makes it hard to compete against. Low reinvestment requirements also provide high levels of cash generation. Even after a near tripling over a year, we think Forum's stock is a buy given its cheapness relative to cash flow.

Demographic trends offer another type of steady growth. Pennant Group (Nasdaq: PNTG) owns, leases and operates care facilities for the elderly and sees the ageing population in the US as a steady tailwind to increase sales for years. Its ability to renovate old buildings to add value in a market where supply is constrained by the cost of new-builds is impressive. Growing demand and scarcer assets, plus entrepreneurial local management teams, are giving it the chance to execute its vision. Pennant trades on a low 20s p/e and has a high double-digit growth rate, giving it an enviable p/e to growth ratio of not much above one.

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This year marks the tenth anniversary of an event that has proved to be of huge consequence for the UK stock market. No, not the Brexit referendum – 2016 was the year in which Japanese company SoftBank, led by founder and chief executive Masayoshi Son, acquired the UK's leading technology company, Arm, for £24 billion. Unlike American investors, professional UK fund managers became permanently disillusioned with the technology sector as a result of the collapse of the technology, media and telecoms bubble in 2000-2002, and so were delighted to be shot of its flagship domestic representative at a 40% premium to the prevailing share price.

With the yield on ten-year gilts at historic lows below 1.5%, pension funds were desperate to ditch equities and buy even more gilts, even leveraging up in their chase of the “liability-driven investment” delusion, which was to cost them hundreds of billions six years later. New solvency rules introduced after the 2008 financial crisis required insurance companies to invest in “safer, more liquid” securities, that is, short-dated gilts. Wealth managers could crow to their clients about short-term performance.

Only one major investor vehemently disagreed; James Anderson, the then manager of Scottish Mortgage Trust, bitterly criticised the sell-out on behalf of Baillie Gifford, with a holding of more than 10%. “We found it deeply depressing that Arm's management, and particularly its chairman, were so influenced by short-term shareholders.” Anderson said it was a premature sale of the UK's leading technology and intellectual property champions, “Britain's sole serious shot at building a global tech giant”.

In September 2023, Arm again went public when SoftBank floated the company on the New York Stock Exchange at a valuation of £40 billion, while retaining 90% of the shares. Unsurprisingly, pleas to list the shares in London were shunned, though Arm remains a Cambridge-based company. Since then, the shares have multiplied more than sixfold, although they are now down 17% from their early June peak.

Had Arm listed in the UK, it would be by far the biggest company on the London Stock Exchange. London is now only the world's eighth-largest stock market, accounting for just 3.1% of the MSCI All Countries World index. It has been steadily slipping down the rankings owing to its low exposure to the technology sector, which accounts for just 1% of the FTSE 100. This compares with 8%-9% in Europe, 27% in the US (not including Alphabet and Amazon) and 37% in Asia.

Britain's technology firms are condemned to stagnation

Also easily forgotten is the 2014 sale of Britain's DeepMind, a pioneer in AI, to Google for just £400 million. In 2006, US-based Illumina bought Solexa, the UK-based inventor of gene sequencing, for £315 million. It became the key building block in Illumina's climb to a market value of more than £50 billion (although the shares have fallen by two-thirds in the last five years). These and other examples show that Britain has a good record of creating and building technology champions, but that unambitious management, combined with uninterested and short-sighted institutional investors, means that they sell out rather than scale up in the way that American giants have shown is possible.

Without the “ecosystem” that results from successful technology firms, Britain's pool of talent will go elsewhere, there will be no pool of capital looking for the next potential breakthrough, a diminishing appetite for risk and no list of success stories to inspire future entrepreneurs. The London Stock Exchange has become a value trap – a shrinking pool of reasonably managed solid businesses with mediocre prospects. Such a market can have an occasional catch-up year of outperformance, but without a cadre of proper growth firms, is condemned to an ever-shrinking share of global capitalisation. Arm's sale to SoftBank, now Japan's largest company, didn't start this process, but it marked the point at which it became irreversible.

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Alphabet, Google's parent company, is listed in the US with a total value greater than that of the entire UK stock market. Billions of people use its search engine every day – indeed, the Google name has become so ubiquitous that it is now used as a verb around the globe. Yet there is more to Alphabet than Google.

Beyond search and advertising revenues lies an empire that includes everything from deep-sea cables to self-driving cars and energy storage. The business uses the billions harvested from search advertisements to fund massive bets on the future and is fast becoming one of the most influential companies in history.

The Alphabet name reflects a corporate mission to fund independent bets that produce “alpha” – the term in finance for an investment that outperforms the broader market. Alphabet wants to be the structure underpinning countless future innovations. The name signalled to the market that the firm was no longer just a search engine, but an incubator of new technology.

Alphabet's rise from Google search to global dominance

Search remains Alphabet's largest source of profits. Its enormous scale explains why the company can afford to fund so many broader ambitions. When the business launched from a garage in 1998, it was just one of many experimental search engines competing on the early World Wide Web. Its rapid rise to dominance was driven by a proprietary algorithm called PageRank. Unlike rival systems that mainly counted how often a keyword appeared on a page, Google ranked pages based on the quality and importance of links pointing towards them. A link from a respected university or major news site carried far more weight than one from an obscure blog. This breakthrough produced far more useful search results, triggering a wave of adoption that quickly led to dominance. Put simply, Google search worked much better than everything else.

Today, Google remains the search engine used by most. It controls more than 90% of the worldwide search market and processes billions of queries every day. Its closest rival, Microsoft's Bing, holds only a tiny share by comparison. Google's reach also extends far beyond its own homepage. The company provides the underlying search infrastructure for countless browsers and software applications around the world. Competitors struggle to replicate what Google has built because search engines improve through users' behaviour. The more people who use the platform, the more data it collects and the better the system becomes. By capturing most of the world's search data, Google continuously improves, creating a self-reinforcing cycle that keeps competitors behind.

This constant stream of searches is transformed into revenue through a system of paid results. When a user searches for a term with commercial value, the engine places sponsored links at the very top of the page, positioned directly above the information. Google avoids charging businesses a flat fee simply to display these links. Instead, it operates on a pay-per-click model, collecting a fee when a user selects a sponsored result. Because millions of consumers use the search box to find products, services and local businesses every second, these small fees accumulate into billions of dollars of highly predictable revenue.

This is so profitable because the underlying mechanics require little human involvement. Traditional advertising agencies only grow by hiring armies of account managers and media buyers to manage campaigns. Google removed much of this by building an automated, self-service advertising platform to run its pay-per-click business. Advertisers simply log into a dashboard, set their budgets and bid against one another for visibility tied to specific queries from users. Valuable searches, such as those related to legal or financial services, command extremely high advertising prices. This allows Google to generate enormous profits from everyday internet traffic without relying on large numbers of highly paid employees.

At the end of last year, Alphabet employed roughly 191,000 people worldwide. However, those workers are spread unevenly across the business. Most do not work directly on the core search or advertising operations. Instead, they are concentrated in labour-intensive divisions such as Google Cloud and areas such as compliance and other administration. The core systems and software that power Google's search engine require only a small group of engineers to maintain and monitor it. By the end of 2025, Alphabet was generating annual revenue equivalent to more than $2.1 million per employee, although the figure within search alone is probably far higher, perhaps as much as $10 million per employee. This ultra-low headcount relative to sales creates a self-operating engine that supports the rest of the organisation, funds Alphabet's broader ambitions and produces vast profits – thought to be $1 billion every two to three days.

Branching out into Google Cloud and beyond

The fastest-growing large-scale part of the business outside of search is Google Cloud. This division sells computing power and data storage to large corporations and public-sector organisations, providing a platform for businesses to build, host and run their own software applications. Unlike the search engine, the cloud business is inherently labour-intensive, requiring a global sales force. By the end of 2025, the unit had exceeded $70 billion in revenue, driven by demand for machine-learning applications. This segment spent years burning cash to build physical data centres, but has now matured into a highly profitable operation, generating billions in quarterly operating income. The third large division within Alphabet is subscriptions and devices. This includes premium, advertising-free access to YouTube, digital storage upgrades through Google One, which pools together personal consumer storage for Google Drive, Gmail and Google Photos. This is distinct from the corporate cloud, focusing instead on individual consumers' hardware, such as Pixel smartphones. Total consumers' subscriptions have climbed past 325 million globally. This division generates more than $50 billion annually.

What ultimately cements Alphabet's dominance is how seamlessly it intertwines these separate businesses. Google Video's early failure was solved by acquiring YouTube, for example, which was then deeply integrated into core search results. Google Maps was built to serve local search needs, but is now embedded directly into the Android operating system and Android Auto vehicles' dashboards. This interconnected web provides built-in, zero-cost marketing across the entire portfolio, making the user's experience smoother while locking consumers firmly inside Alphabet's systems.

The relentless flow of cash allows the parent company to invest on a scale few companies in history can match. Rather than returning profits to shareholders through dividends or share buybacks, Alphabet operates like a vast venture-capital fund. Its investment strategy is divided into three tiers. For near-term product improvements, it uses Google Labs, a fast-moving environment where software teams test early features, such as improved AI systems, directly with the public. For medium-term time horizons, the company focuses on strategic acquisitions, buying external platforms and scaling them over time. Finally, the long-term horizon is handled by X Development (formerly Google X), the “Moonshot Factory” created to back speculative technologies ranging from self-driving cars to grid-scale energy storage. In these ways, Alphabet channels its search, cloud and subscription revenues into tomorrow's cutting-edge technology.

Alphabet's formula for acquisitions

Alphabet has acquired more than 250 technology companies over the years. Each deal has followed a similar formula: acquire a promising but financially constrained technology and scale it using the company's engineering expertise and vast profits. Google Maps originated from Keyhole, a struggling start-up founded in 2001. Keyhole developed a 3D digital globe called EarthViewer 3D and even received early backing from America's Central Intelligence Agency. The technology was impressive, but the business model weak. Keyhole sold its software on physical CDs to real-estate firms and defence agencies. Google recognised that around a quarter of all web searches were location-related and acquired Keyhole in 2004 for roughly $35 million. It removed the expensive pricing, introduced a cleaner, more accessible interface, and relaunched the platform as Google Maps. In the process, it transformed a niche military-style tool into a free utility that has become almost as recognisable as the search engine itself.

The acquisition of YouTube in 2006 stemmed from Google's own failure in online video. Its in-house platform, Google Video, was losing ground to its rapidly growing rival. YouTube succeeded by offering a simple interface that allowed anyone to upload and stream videos easily. However, by the summer of 2006, the company was struggling under the weight of its own popularity. Hosting costs were soaring, while copyright lawsuits from traditional media companies threatened its survival. Realising Google Video had lost the battle, management stepped in with a $1.65 billion acquisition. The takeover rescued YouTube from likely insolvency and allowed Google to secure the leading destination for online video before legacy media companies could shut it down. By the end of 2025, YouTube was generating more than $40 billion in annual revenue.

The 2005 purchase of Android is probably the most successful acquisition. As a start-up, it had been developing an operating system for mobile handsets, but ran short of cash to fund engineering salaries. At the time of its purchase, it was a small company employing eight people and was bought for just $50 million. This was such a small sum at the time that it wasn't even disclosed to the stock market. The goal of the acquisition was to prevent competitors from blocking its search engine on mobile devices. By making Android free, Google rapidly came to dominate mobile software, eventually capturing more than 70% of the global smartphone market. This comparatively small investment helped ensure that the search business continued to grow even as smartphone usage overtook computer usage.

The 2014 acquisition of DeepMind secured Alphabet's lead in AI. The laboratory, which was founded in London by Demis Hassabis, Shane Legg, and Mustafa Suleyman, had assembled one of the world's strongest machine-learning research teams. DeepMind focused on neuroscience-inspired AI and deep reinforcement learning. Yet cutting-edge AI research is very expensive, requiring vast computing resources and highly paid engineers while producing little immediate revenue. Much of Hassabis's time was spent raising venture capital. Recognising that DeepMind needed the support of a company with deep pockets, the founders agreed to a £400 million sale to Google, with Hassabis taking on the role of CEO of the renamed Google DeepMind. The deal kept the research group based in London and provided the resources needed to pursue foundational scientific breakthroughs. That long-term backing ultimately paid off. Among other things, Hassabis's work on protein folding using DeepMind recently won the Nobel Prize in chemistry.

How Alphabet is shooting for the moon

Where Alphabet stands apart is its willingness to invest in technologies that may take decades to mature. The X Development division filters all ideas through a demanding three-part screening process to protect capital. Projects must address a global problem affecting millions, propose a radical breakthrough solution and rely completely on technology that does not yet exist. Incremental improvements are rejected outright. To encourage bold experimentation, X is also designed to reward failure. Teams are expected rigorously to test their ideas and can even receive bonuses for proving a project is technically or economically unworkable before significant resources are wasted.

This strategy has produced a trail of discarded technologies, including mysterious, giant floating barges intended to be high-end, floating marketing showrooms; a technology for storing renewable energy by pumping electricity into massive tanks of molten salt and chilled liquid; high-altitude, helium-filled balloons designed to float in the stratosphere, creating a shifting network to beam wireless internet down to remote rural communities. But the crown jewel of the moonshots to date is Waymo, the autonomous-vehicle division that began life in 2009. Waymo shows how a massive cash cushion allows a company to outlast an industry cycle. While some car makers promised self-driving fleets by 2018 only to scale back their ambitions when machine learning proved too difficult, Alphabet simply maintained its multi-billion-dollar funding trajectory. By refusing to rush out unproven systems to market, the division solved the major challenges.

Waymo has now achieved scale, with roughly 3,700 vehicles operating, servicing half a million paid rides per week. Its fleets of autonomous vehicles operate robotaxi networks across major American cities, including Phoenix, San Francisco and Los Angeles, completing passengers' trips without human drivers. In September of this year, it is due to launch in London. What began as a highly speculative experiment has matured into a genuine advancement in transportation.

Deep underwater, Alphabet is also building global subsea cable infrastructure. This is an ongoing project that has so far created a total of 60,000 miles of armoured cabling crisscrossing the oceans. To support the growth of its cloud services and advertising, Alphabet shifted from renting space on third-party telecommunications networks to owning its own. These subsea lines are the plumbing of the internet, moving vast amounts of data across the world at the speed of light. In owning this infrastructure itself, Alphabet ensures its consumer services operate with lower latency than that of competitors.

Is Alphabet worth owning?

Turning digital advertising revenue into real-world infrastructure requires enormous investment. For investors, the key question is whether these assets will create lasting value or simply become an expensive distraction. The shares of Alphabet rarely look cheap on any conventional valuation metric, but waiting for a deep-value entry point has been a fool's errand. Ever since the company listed on the stock market in 2004, there has never really been a bad time to buy its shares.

Not that the shares have risen consistently. Alphabet's shares have fallen quite significantly a few times over the years, dropping roughly 50% during the 2008 financial crisis and weathering several 20%-30% declines since. Every single decline has proved to be an exceptional buying opportunity, as the underlying earnings have moved relentlessly higher. This compounding has generated astonishing wealth, transforming its founders into centi-billionaires and ranking them among the wealthiest individuals on Earth. The model does not just reward senior executives. In 1999, when Google employed just 40 people, massage therapist Bonnie Brown joined the company part-time. Her pay was only $450 a week, but she also received stock options. Five years later, she retired a multi-millionaire and went on to create her own charitable foundation. Had she kept her shares, she would now be a billionaire.

Despite a massive market valuation of about $4.5 trillion, Alphabet is still growing remarkably quickly. A simple heuristic for evaluating growing companies is to ask whether the business can generate enough operating profit within five years to make its current enterprise value look cheap. Specifically, can its future operating profits reach a tenth of that valuation? For Alphabet, that means aiming for roughly $450 billion in annual operating profit. Last year it made about $190 billion and is forecast to grow at 20%-25% per annum for the next five years. At that level of growth, the company's current trajectory makes $450 billion perfectly feasible.

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Did you miss out on the SpaceX initial public offering (IPO)? Perhaps you missed the cutoff altogether or failed to get your desired allocation of shares, given its fourfold oversubscription? In either case, you can still look forward to subsequent opportunities to get involved in the investment story du jour.

While most IPOs trigger a period of volatility the expectation with this one is that it will be sharper and more protracted. Given the huge level of attention, limited allocation available to UK retail investors and the staggered timeline for expected trading (selling as lockups expire and buying as the underlying indices of various tracker funds bring the stock onto their benchmarks), investors can expect swings in SpaceX’s share price to continue through the second half of the year, at least.

Lynn Hutchinson, head of ETF and index solutions at Charles Stanley, said: “It’s [not only] one of the most talked about stocks of the last few months but retail investors quite like a new stock becoming available. Plus it’s got the ‘Elon Musk factor’ – who has a huge retail fanbase as well, albeit not across the board. Many investors have wanted access to this company for years.”

Multiple buying opportunities as shares are released

Funds tracking the Nasdaq-100 will be among the first index funds to include SpaceX, in line with newly amended rules.

These include fast-tracked entry, allowing inclusion to Nasdaq’s flagship index fund 15 days after an IPO instead of the previous window of three months, and removal of its minimum float requirements. A three times multiplier will be introduced; rather than the currently tradable market cap – or free-float – of $75 billion, the stock will be weighted based on a market cap of $225 billion, which could force passive investors to chase the stock, further fuelling volatility across the index as a whole.

Index providers MSCI and FTSE Russell will include SpaceX after 10 and five trading days, respectively.

S&P 500 index funds will include SpaceX later after S&P Dow Jones Indices confirmed it won’t fast-track the company’s inclusion in the index.

“There will be an initial dash for the shares because of the limited availability but after that, the next release will likely be after Q2 earnings, so more shares will likely come on between July and September, if indeed the holders (employees and early investors) decide to sell them,” said Hutchinson.

Early investors, staff and other insiders are subject to staged lockups to manage supply and demand, she added.

“It looks like it will be staged, with some released earlier, and the full lockup expiration after 180 days. We expect it will be staggered and therefore volatile for several months yet.”

She said clients had been in touch asking whether they should sell the Nasdaq in favour of something else. But she warned investors not to get carried away, reminding that the allocations within many of these funds would be tiny, given the 5% expected free-float stock being made available.

“Perhaps as it gets further along and if the stock’s still really volatile, it might make more of a difference. But at the moment we’re looking at, in some cases, 0.2% to 1% depending on which index it’s going into because there’s not enough free-float available.”

Hutchinson urged investors to think about the underlying inclusion criteria, whether they’re looking at a broader index fund or a specialist thematic exchange-traded fund (ETF).

“The VanEck Space Innovators ETF (LON: JEDG) is the largest space ETF by assets under management, which you’d expect [SpaceX] to go in, but it’s unlikely to go into that until September because it’s got a 10% requirement of free-float, and there won’t be 10%. It will go in at some stage, and I guess they’ll look at it around September again.”

Speaking to MoneyWeek, Moritz Henkel, product manager at VanEck EU, concurred; the company said it will wait until the September review before deciding if SpaceX will be added to the ETF, subject to it meeting the criteria at that time.

“There will be no pre-IPO or super fast-track inclusion, nor rule change,” he said.

From a governance perspective, his team believes any new company should be assessed against the full set of index rules, not on an ad hoc basis, especially because increased volatility makes it more difficult to find a fair price in the beginning.

“For us, it’s more important to stick to defined rules and have a consistent rules-based exposure than to chase this early onboarding of SpaceX.”

Elon Musk and his team have blazed the trail, bringing a government industry into the private sphere as a commercially viable ecosystem. Henkel said the reusable Falcon boosters were a turning point, dramatically lowering launch costs and enabling new space companies, seen in the proliferation of IPOs and special purpose acquisition companies (also known as SPACs) coming to market.

Yet much still depends on launch execution, R&D and mission reliability. As SpaceX transitions to public markets it will essentially rerate the whole sector, bringing greater transparency, investor scrutiny and pressure to meet deadlines, amplifying its successes and failures.

“We’ve seen much hype and the current growth estimates are obviously very ambitious. But we’re talking about decades, not months for their business strategies.”

He said the focus on risk is a real point of difference, which was highlighted in the IPO prospectus.

“A couple of failed missions may only have a small impact to the balance sheet – even though they are very costly – but they’re potentially having a much larger effect on the actual stock price. Failed missions lead to decreased investor confidence in the technical abilities, which can cause you to lose trust.

“When we’re looking at SpaceX in the coming months and years, and capabilities of meeting deadlines, and commitments they’ve communicated to the open market, these are now more pressured because they are in the public market.”

Where will the money come from for this massive IPO?

Several reports cite JPMorgan’s estimates that roughly $95 billion worth of holdings – likely in the big tech names – will be sold off to accommodate new positions in SpaceX.

In her blog last week, Boring Money’s Holly Mackay makes a similar point: “If large investors want to buy in, they will need to free up cash by selling other holdings. They might take some profits from high-performing shares like Nvidia, so I’d expect some knock-on volatility in other shares which have had strong gains so far this year.”

What other IPOs have shown parallels to SpaceX?

While the hype may be comparable to Google’s IPO back in 2014, the reality for those trying to participate in a hugely popular public listing may more closely mirror that seen when Royal Mail floated in October 2013, with a seven times oversubscription.

Jeremy Fawcett, head of Platforum – a retail investment consultancy – said Royal Mail was the last big one in the UK, comparable to the government sell-offs during the move to privatisation in the 1980s.

If the amount you actually buy is significantly lower than what you’d hoped for, by the time you come to sell, taking into account trading fees and foreign exchange, you have to really think about how much you end up with.

“There’s a huge amount of uncertainty… if you remember the 2012 Olympics, we all applied for hundreds of tickets. And most people got nothing. So you get excited because you think, ‘I put my money on the line’, and then you get very little out of it.”

Small-cap stocks have been abandoned by investors. That is bad news not only for the companies themselves, but for the wider UK economy. In the past, the smallest businesses listed on the London stock market have played an important role in Britain's economy. Ambitious young companies could raise money, expand their operations and, if successful, grow into much larger businesses. Investors who backed them early often enjoyed excellent returns along the way.

Today, that system is breaking down. A series of regulatory changes and industry shifts has steadily diverted money away from smaller companies and towards the largest firms in the market. The result is a funding drought for many promising businesses and fewer opportunities for savers seeking long-term growth. Because these changes are now deeply embedded, a reversal looks unlikely anytime soon.

That does not mean investors should ignore small caps. In fact, the current environment may offer some of the best opportunities seen for years. But investors need to adapt. Simply buying cheap shares and waiting for the market to recognise their value is no longer enough. Many small-cap stocks remain overlooked for years. The most attractive opportunities are often companies that can grow rapidly, recover from temporary setbacks, or unlock value through corporate activity. In other words, investors should be looking for tomorrow's mid-caps rather than today's statistically cheap shares.

Finding bargains in small-cap stocks isn't enough

The UK stock market is shrinking as listed companies disappear through takeovers, private-equity bids and delistings. At the same time, fewer investors are directing money towards small caps. As a result, prices at the lower end of the market often fail to reflect the underlying performance of a business. In theory, that should make stockpicking easier. If markets become less efficient, bargains should become more common. The problem is that cheap shares can now remain cheap for a long time. Buying undervalued stocks only works if someone eventually notices that they are undervalued.

To understand why this is happening, it helps to look at how the wealth-management industry has changed. Not long ago, stockbrokers and fund managers devoted considerable resources to researching smaller companies and allocating clients' capital across the market. That process helped ensure that money flowed to promising businesses and that share prices broadly reflected reality. Things have changed. Building bespoke portfolios has become increasingly expensive and administratively burdensome. Faced with rising compliance requirements and growing scrutiny over fees, many advisers have stopped making investment decisions themselves. Clumsy rules from the regulator triggered this shift. To eliminate compliance risks and operational costs, advisers stopped managing money altogether. Instead, they outsourced the process entirely to mass-market model-portfolio services (MPS).

That trend has concentrated massive wealth into a handful of firms. Four dominant discretionary managers now control the bulk of the UK MPS market. Quilter WealthSelect, Tatton Investment Management, Timeline Portfolios and AJ Bell Investments manage more than £70 billion combined and are growing rapidly. Today, the MPS marketplace relies almost entirely on passive tracking funds. Driven by regulatory pressure to keep fees low, providers invest in cheap index funds that replicate the wider market. Human judgment has been replaced by algorithms. Instead of analysing whether a business is worth buying, a passive fund allocates cash based purely on how large a company it already is.

The big four allocate a combined £9 billion to the UK stock market. Yet tracing the money down to the underlying holdings reveals that almost none of it reaches smaller companies. When investment committees use passive UK equity trackers, index rules determine where the money goes. These index rules explain why the largest wealth managers hold next to nothing in smaller companies. In the past, a balanced portfolio routinely allocated several percent to small caps. Today, that support has vanished. Quilter WealthSelect and Tatton Investment

Management control around £50 billion between them, yet their reliance on broad market benchmarks dilutes actual small-cap exposure to around 0.3% of total assets. AJ Bell relies on trackers that systematically lop off the bottom 3% of the investable market, so its allocation to pure small caps sits at virtually nothing.

This starvation of capital has triggered a destructive feedback loop, worsened by past regulatory mistakes. New rules permanently damaged the stock market by forcing brokers to charge separately for research and trading. When active funds dominated the market, brokers employed armies of researchers to write detailed reports, helping fund managers choose where to invest. In the past, brokers spent time analysing small companies to drum up interest among investors and find buyers for their shares, funding the work through trading in large companies. This research gave smaller firms visibility and kept their share prices accurate. Once the regulator banned this so-called bundling, the commercial model for small-cap broking collapsed because passive tracking funds do not buy research.

Analysts' coverage for companies valued under £250 million has all but vanished. Today, hundreds of listed British businesses are completely ignored by the market. With no regular broker reports, private investors have to work much harder, using specialised resources to find out how well these businesses are performing. Institutional investors will not buy shares in a company that nobody covers and brokers will not spend money writing about companies that the big wealth platforms are blocked from buying. Investing is becoming a purely automated exercise driven by index size, leaving high-quality small companies completely cut off.

How to find the right small-cap stocks

Yet all is not lost. For savvy investors who understand this breakdown, the dysfunction creates a lucrative hunting ground. To succeed, investors must leave behind old-style value investing. Buying a stock simply because it looks cheap on paper is a mistake, as passive investing means that value stocks may remain cheap forever. Instead, investors must look through these three specific lenses to find the stocks that can entice money from investors.

The first lens focuses attention on structural growth – that is, high-quality businesses expanding their operations and becoming more valuable in the process, generating high levels of real growth by deploying a proven commercial formula. This could make them the mid-caps of the future. When a company grows its earnings consistently, the compounding effect eventually overwhelms the lack of market interest. Even if the valuation multiple stays depressed, the sheer scale of the underlying profit expansion forces the share price higher, dragging the business out of the small-cap index to where there are far more investors.

The second lens reveals recovery plays that have hit cyclical lows. The turbulent economy of the last few years has battered corporate earnings, causing share prices to collapse and pushing formerly substantial businesses down into the small-cap sector. But this is often a temporary condition driven by external cyclical factors rather than permanent structural decline. The goal is to identify businesses that have survived the worst of the downturn and have the strength to capitalise on the inevitable rebound. When the cycle turns, these companies will enjoy a dramatic recovery, delivering an explosive bounce in earnings.

The third lens focuses on corporate activity – revealing under-the-radar businesses where an activist investor has built a stake to force operational change, unlock shareholder value or streamline the group. The activity can take many forms – from cost-cutting programmes to selling off non-core assets, or shrinking the share count using excess cash – and create prime targets for full takeovers by external corporate buyers. Private-equity firms and larger international corporations routinely scan the UK small-cap market for high-quality assets trading at steep discounts to their private market value. When a corporate buyer launches a full cash takeover bid, the market reaction can deliver value for shareholders. The following companies are examples that meet some of these three criteria.

Nine of the best UK small-cap stocks

Fintel (LSE: FNTL) is a structurally growing business that is priced as if it is not. It provides critical compliance data and fintech software to thousands of British financial advisers through its dominant SimplyBiz and Defaqto brands. The result is a highly predictable stream of recurring subscription income, with demand likely to increase as regulation across the retail wealth sector becomes more stringent. Yet the market prices the combined entity at a steep discount to the price that other similar businesses have been acquired for. This allows investors to buy a highly scalable fintech at a bargain valuation, long before the compounding earnings force a market rerating.

Software Circle (LSE: SFT) aims to generate structural growth via a disciplined consolidation strategy. It is actively buying up niche software businesses within highly fragmented sectors across the UK. Operations are at an early stage, but management is progressing sensibly, securing acquisitions at very attractive multiples while maintaining a lean head office and a decentralised operational structure. This playbook closely mirrors the model of other firms that have generated immense long-term wealth. Though tiny today, this firm has all the traits necessary to deliver exceptional multi-year shareholder returns.

Amcomri Group (LSE: AMCO) operates a strict buy, improve, build strategy across the fragmented UK engineering and manufacturing sectors. The business targets high-quality industrial firms facing the owner's retirement, acquiring them at low single-digit multiples before driving organic margin improvements. This roll-up model generates highly predictable structural growth completely independent of the wider macroeconomic backdrop. Recent final results confirm this operational formula is working, with pre-tax profits significantly ahead of market expectations.

Vanquis Banking Group (LSE: VANQ) is a cyclical recovery play. Formerly a FTSE 100 stock called Provident Financial, the lender shrank into a micro-cap minnow after major operational disasters. Management has finished cleaning up the wreckage, yet the market still prices the shares as if collapse is certain. Vanquis provides credit cards and vehicle finance to millions of sub-prime borrowers that mainstream banks ignore. Management targets mid-teens returns on tangible equity by 2027. If they deliver, the shares will be unbelievably cheap and a sharp market rerating should drive the share price up to reward investors who timed the recovery correctly. The bank operates as a far better business than its depressed price reflects.

Focusrite (LSE: TUNE) is a clear case of a former stockmarket darling caught at a cyclical low. The audio-products group enjoyed an unprecedented sales boom during the pandemic. However, as global demand normalised, the business wrestled with severe inventory overstocking and costly distribution headaches that clouded performance for several years. Recent trading updates indicate that these operational problems are finally clearing. Trading on a low multiple of its current depressed earnings, Focusrite offers massive upside. As underlying profits recover toward historic levels, this corporate recovery could trigger a rise to a much higher share price.

Marshalls (LSE: MSLH) serves as another example of a business hitting a cyclical low, operating as a highly respected supplier to the struggling UK building industry. High interest rates, inflation and uncertainty about policy have brought domestic construction to its knees, dragging the business down with it. This company once commanded a premium valuation as a well-known mid-cap, but it has now fallen into obscurity. The shares historically traded at a multiple to book value, yet they currently languish at a clear discount. When building activity inevitably recovers, Marshalls will benefit immensely, potentially driving a sharp recovery in its share price.

Capita (LSE: CPI) is another cyclical recovery play, a fallen angel offering massive potential for recovery. The outsourcing giant once sat in the FTSE 100 before a collapse dragged it down to micro-cap levels. New management has aggressively cleaned up the balance sheet, selling non-core software assets to eliminate debt. The business still generates more than £2.4 billion in annual revenues, yet trades at a deeply depressed valuation. This turnaround relies entirely on internal cost-cutting rather than macroeconomic growth. As administrative cost-cutting leaves more free cash in the bank, the shares could enjoy a substantial and justified market rerating.

Funding Circle (LSE: FCH) is an underappreciated growth story driven by massive operational gearing. The digital platform matches small business borrowers with institutional lenders. This matching model requires very few incremental cost rises to service new volume. This structural efficiency allows expanding revenues to drop straight to the bottom line. Pre-tax profits recently surged from £3.4 billion to £20.3 billion and are on track almost to double again to £35 million this year. The wider market remains blind to this compounding scaleability, mispricing a high-margin financial matchmaker as just another lender.

SDI Group (LSE: SDI) offers a double whammy by combining structural growth with a cyclical margin recovery. The company runs a highly disciplined buy-and-build strategy, acquiring niche scientific-instrument businesses that specialise in optics and photonics for laboratories. This consolidation model delivered excellent long-term returns until a recent downturn in its core scientific end markets depressed the group's earnings. This temporary pain leaves the shares trading at a very cheap valuation. As laboratory budgets normalise and operating margins recover, investors could capture the combination of compounding growth and an explosive rebound.

The best specialist funds in the sector

Picking individual micro-cap stocks requires patience and knowledge, and is certainly not for everyone. For investors who prefer to delegate the task, backing a specialist fund manager with a proven record is sensible. Two specific investment trusts have proved their ability to navigate these markets with skill. The lead manager of Rockwood Strategic (LSE: RKW), Richard Staveley, has more than 25 years of experience and runs a concentrated portfolio of undervalued businesses. He engages directly with boards to unlock value, a strategy that has delivered a stellar record. Staveley targets unloved, mispriced assets and drags them through a turnaround process until the wider market is forced to pay attention.

For those looking even further down the market scale, Onward Opportunities (LSE: ONWD) provides exposure to some of the smallest companies listed in the UK. Lead manager Laurence Hulse launched the trust in March 2023 on the Aim junior market and took it to the main market in April 2026. He deliberately operates in the smallest, most illiquid territory and his execution has been outstanding, delivering a very good performance since the trust's inception.

For those selecting individual stocks today, three of the stocks mentioned above look particularly interesting. Focusrite is a cyclical recovery play that has finally cleared some post-pandemic hurdles and positioned its manufacturing operations for a strong earnings recovery. Vanquis Banking Group remains absurdly mispriced, trading at a steep discount to its underlying net asset value while the market completely ignores its mid-teens profitability targets. And Software Circle provides an underappreciated growth story with a disciplined, decentralised model for integrating niche acquisitions efficiently. Investors who back these stocks will gain direct exposure to tangibly improving businesses.

For investors who prefer to delegate the stockpicking, Rockwood Strategic is the ideal vehicle. It has a long record of active engagement by the board and offers instant diversification across a concentrated basket of deeply undervalued turnaround plays.

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RentGuarantor Holdings (Aim: RGG) has been given a boost by the Renters' Rights Act, one of the most significant pieces of legislation to hit the UK rental market in decades. It's only been in force since the beginning of May, but the Act is already driving a complete rewriting of the market.

Under the new law, fixed-term tenancies have been abolished, “no fault” evictions are no longer allowed, rents can only be raised once a year, and during the first 12 months of the tenancy, the landlord cannot serve notice to move back into the property or sell it. These changes, far from protecting tenants, have forced landlords to become more defensive.

The changes have made it much harder for landlords to evict tenants who can't or won't pay their rent, piling pressure on a system that's already on the verge of collapse. According to professional body Propertymark, due to lengthy court backlogs, the average time from claim to repossession has risen to more than 68 weeks, compared with just over 20 weeks in 2019. At the point of eviction, average unpaid rent stands at £12,708 across England and Wales and £19,223 in London.

Landlords have responded by demanding that tenants provide a guarantor before they agree deals. According to multiple reports, around 40% of landlords now require guarantors for both new and existing tenants. This is where RentGuarantor comes into play.

How RentGuarantor works

The firm is a rare example of how effective London's capital markets can be for early-stage growth businesses. Founded in 2016 by Paul Foy, a property investor since the mid-1980s, RentGuarantor does what it says on the tin – guarantees rents. Tenants pay a fee (£20) for an initial background check and the firm uses tools such as Open Banking and AI to calculate how much the tenant can afford and if they're able to maintain payments. If the tenant passes the check, which should be completed the same day, RentGuarantor can offer the guarantee.

This incurs a further fee, usually around three to five weeks' rent, depending on the underlying risk profile. When the tenant has paid and signed, RentGuarantor provides a legally binding guarantee of rental payments to the landlord or letting agent. Unlike traditional guarantors, such as parents or grandparents, this provides an extra layer of protection for the landlord. RentGuarantor passes the risk to a panel of insurers while collecting the origination fee and remaining the key point of contact for customers.

Five years of RentGuarantor Holdings on the London market

After spending five years building the foundations, Foy and his team took the company public in 2021. It listed on the Aquis exchange in 2021 with hardly any revenue and moved to the Aim junior market in the second half of 2025. The new listing raised £4 million in 2025 to support its growth efforts and it ended the year with revenue of £2.4 million, up 87% year-on-year. The founder has remained a key shareholder with a 30% stake.

RentGuarantor hasn't charged into the market seeking break-neck growth and drawing down shareholders' goodwill to fund spending. There's a very tight grip on marketing spending, which totalled just £200,000 in 2024 and £500,000 in 2025 against revenue of £2.4 million, or around £165 per contract (based on the year-end figure of 3,123 contracts). The focus over the past five years has been on getting the offering right and putting in place the right technology and team to scale up effectively.

The firm has now reached the point where this hard work is beginning to pay off. In May, the month the Renters' Rights Act came into force, RentGuarantor recorded a 115% increase in unaudited revenue compared with the average for the first four months of the year. Moreover, revenue per contract was up 24%. The group also recorded its first positive monthly Ebitda earnings since its admission to trading – well ahead of the board's expectations.

The challenges facing RentGuarantor Holdings

The key risk for the group here will be scaling up without falling flat on its face, as so many firms do when they encounter a sudden surge in demand. The Act is driving demand for guarantees, but it'll also lead to a surge in disputes.

To help, RentGuarantor is looking to AI and has an expert on the matter in its orbit. The AI strategy is being led by Dave Cliff, a non-executive director and professor of computer science at the University of Bristol. He previously worked at MIT's artificial intelligence laboratory, so unlike many other businesses, which seem to be turning to AI with little actual understanding of the benefits, drawbacks and costs, RentGuarantor looks well-placed to exploit the benefits of the technology fully. Management estimates the group can process 20,000 contracts per year, but that will rise to 100,000 with AI's help.

According to house broker Shore Capital, RentGuarantor could agree 7,000 contracts this year, 13,000 in 2027 and 62,000 by 2030. Revenue could hit £6 million in 2026, rising to £19 million by 2028 and £54 million by 2030. Even if it achieves this lofty growth, it would still leave the group at only 3.4% of the potential total market.

Now that the firm is essentially self-funding, there's scope for marketing spending to rise. Shore Capital expects a ten times rise by 2030, easily covered by the firm's 79% gross margin. The broker has pencilled in adjusted earnings per share of 3.6p by 2028. As with all early-stage firms, these forecasts are likely to be wrong, but they illustrate the growth potential if the firm manages to scale up over the next 12 months. This is a high-risk play, but one with a huge and growing market to support it.

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The emerging market (EM) universe is very diverse in terms of what drives individual economies. What does China have in common with India (other than being populous and in Asia) or either of them with Brazil? Yet they are treated as a block, and recent trends are stretching these contradictions further than ever.

A top-down investing strategy often involves assigning things to groups, then buying the most compelling groups or choosing the most attractive within a group. These groups can seem arbitrary – the difference between members can be as big as the similarities. Yet in the investment business, classifications that seem easy to understand can stick around well past the point where they make sense.

Standard rules of thumb for emerging markets would tell you that the last few months have been difficult. Many emerging markets are energy importers, so will suffer from higher oil prices. Markets also tend to be affected by inflows and outflows from foreign investors. If global investors get more nervous, they would be expected to cut emerging-market exposure first and take their money home. Yet the MSCI Emerging Markets index is up by 20% in sterling so far this year. How?

AI stocks are over-represented in emerging markets indices

The explanation hinges on two points. The first is that two of the biggest markets in the index are emerging markets only in one very specific sense. South Korea and Taiwan retain certain restrictions, mostly around their currencies, that MSCI deems incompatible with being in the developed markets group. Yet in many respects, they are both wealthier and more advanced than many developed economies.

The second is that a few huge companies – Taiwan Semiconductor (TSMC), Samsung Electronics, SK Hynix – are huge beneficiaries of the AI boom and are driving their markets even more than the Magnificent Seven drives the US market. Those three stocks account for almost 30% of the MSCI Emerging Markets index. Taiwan and Korea together make up 50% of the index. In turn, TSMC is 55% of the MSCI Taiwan, while Samsung Electronics and SK Hynix account for 60% of the MSCI Korea.

These are eyebrow-raising numbers. They have worked out very well for any broad emerging-market investor. Still, we must remember that if the AI boom ends and the US market slumps, the emerging market index will do the same – it's been a play on the same theme.

If you want diversification, you will only find it in funds whose mandate does not bring in these stocks – BlackRock Frontiers (LSE: BRFI) or Barings Emerging EMEA Opportunities (LSE: BEMO), for example. Of course, these funds have lagged in recent months, held back by the lack of tech exposure or battered by the Middle East crisis. I would not say it is yet time to rotate out of broader emerging market funds. But it is something to keep in mind if the crisis passes and the AI boom falters.

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As Elon Musk’s SpaceX gets ready to list on the Nasdaq, investors are poised for what is expected to be the biggest initial public offering (IPO) ever.

SpaceX has targeted an IPO price of $135 per share to raise around $75 billion, with a target valuation of roughly $1.75 trillion. Shares will start trading on 12 June.

High-profile events like an IPO can serve as a ‘rising tide’ for a sector and others that are closely related; adjacent companies that might have otherwise been overlooked can benefit from a halo effect. This might include satellite technology, launch services and defence infrastructure stocks.

“A SpaceX listing could do exactly that for space,” said Darius McDermott, managing director at Chelsea Financial Services.

It’s important to remember that an IPO isn’t always a ‘one and done’ event. While there’s often (but not always) a ‘pop’ the day after a company floats, the period immediately after a listing can be volatile – and SpaceX is expected to bring more share price movement than usual, and for longer. So while these ideas present opportunities that may benefit by proxy to the main headline act, investors across the broader sector could be in for an equally bumpy ride.

Investors flocked towards space stocks and funds in the run-up to SpaceX’s initial public offering (IPO), according to data released by investing platform AJ Bell.

Analysis of the platform’s most popular stocks and funds in the three months leading up to the IPO show that investors have been eager to invest in the space economy, with funds and investment trusts like Scottish Mortgage (LON:SMT) and exchange-traded funds (ETFs) like VanEck Space Innovators ETF (LON:JEDG) rocketing in popularity.

“Investors keen to join the race to space haven’t sat on their hands waiting for the SpaceX IPO,” said Dan Coatsworth, head of markets at AJ Bell. “Space-related investments feature heavily in the most popular purchases on the AJ Bell DIY investor platform over the past three months, as excitement builds ahead of SpaceX’s stock market debut on Friday 12 June.”

How SpaceX’s IPO could lift the space sector

AJ Bell’s analysis ranked the most popular stocks and funds that tie into the space theme ahead of SpaceX’s IPO, based on net buys on its DIY investor platform.

^{Source: AJ Bell. Based on highest number of net buys 8 March to 8 June 2026 on AJ Bell DIY platform.}

It is noteworthy that many of these investments have had greater demand than otherwise staple investments.

“More people bought shares in Scottish Mortgage, Seraphim or the VanEck Space ETF during the past three months than blue chip stocks Shell, BP, AstraZeneca and National Grid, all of which regularly feature in the most popular names with UK investors,” said Coatsworth.

“That’s remarkable as these names are stalwarts of ISAs and pensions across the country, with investors often buying shares in them every month for their attractive dividends and long history of generating solid earnings.”

Not all the investments gained in value in the months running up to SpaceX’s IPO: aerospace contractor BAE Systems (LON:BA.) fell 12% over the past three months.

Some, however, have soared. SpaceX supplier Filtronic (LON:FTC) and spacecraft builder Redwire (NYSE:RDW) both more than doubled in value in the three months leading up to SpaceX’s IPO.

How can you access other upcoming IPOs?

Anthropic and OpenAI, both private AI developers, have announced plans to IPO since the start of June, and should these be a success then it could usher in a new wave of tech IPOs.

“SpaceX may be the IPO of the moment but there are plenty of other exciting private companies in the pipeline for a potential public offering,” said Chelsea Financial’s McDermott.

“Without specialist knowledge, it can be hard to know which ones to back, but investment trusts offer retail investors a ready-made route to some of the best pre-IPO opportunities”.

For a ‘pure-play’ private company focus, Chelsea favours Baillie Gifford’s Schiehallion (LON:MNTN).

“It holds eight of the 10 largest private companies in the world, with the majority of its portfolio in unlisted names, including Bending Spoons, ByteDance, Databricks, Revolut, Stripe and Anthropic.

“These managers have deep private equity networks and the expertise to value private businesses that most ordinary investors simply cannot replicate, and by getting in before a listing, investors can capture far more of the growth,” he said.

Chelsea’s Managed Funds range also holds Chrysalis (LON: CHRY) and Seraphim Space (LON: SSIC), which offers exposure to the space sector specifically with both ordinary and C-shares available.

Should you buy private or public shares?

Once a company lists, its shares become available on the secondary (or open market) and are far easier to buy.

Many of these companies are remaining private for longer (before moving into public ownership when they IPO), generating huge amounts of revenue while doing so, meaning once they list they’ve already enjoyed rapid growth.

For investors keen on space investing broadly but put off by the perceived risk or administrative burden that can be associated with an IPO, it might be worth looking for similar companies already listed; sometimes the more attractive entry points may not be the headline names but companies further along the supply chain.

McDermott said Schroder US Mid Cap Fund is one such option for indirect, diversified exposure.

“[Its] holdings include Hexcel (NYSE:HXL), which makes composite materials used in spacecraft for clients such as SpaceX, Blue Origin and Lockheed Martin; MACOM Technology Solutions (NASDAQ:MTSI), whose semiconductors are critical to satellite communications; and BWX Technologies (NYSE:BWXT), which provides nuclear propulsion and power components for NASA space programmes,” he said.

Investing in a specialist fund

You might prefer to invest in the theme with a more targeted approach. ETFs are common routes to investing in a specific theme, such as the space economy. Some broad portfolios available to UK investors include the ARK Private Innovation ELTIF (only available via a financial adviser), VanEck Space Innovators UCITS ETF, or a new vehicle from WisdomTree, whose Space Economy UCITS ETF (LON:WSPG) launched on the London Stock Exchange on 5 June.

Pierre Debru, head of research, Europe at WisdomTree, said while the SpaceX IPO could be a “defining milestone” in driving the sector’s broader appeal, the fundamentals behind the investment case look robust and durable.

As the sector matures, he believes launch systems will become more efficient, easier to access and cheaper, expanding the opportunity set across the value chain.

Earth observation and geospatial intelligence are increasingly feeding into the real economy, supporting industries from agriculture to critical infrastructure.

“Emerging applications, including in-orbit manufacturing, servicing and space-based data infrastructure, are also opening new markets and reinforcing the long-term growth potential of the theme,” added Debru.

If actively managed funds are your preference, one dedicated option is Neuberger Berman’s Next Generation Space Economy Fund. When the fund launched four years ago, the group said the space economy was so much “more than rockets and satellites”, influencing sectors as diverse as banking and precision agriculture to air traffic control and ride sharing.