For investors in healthcare stocks, the Worldwide Healthcare Trust is a one-stop shop. It is run by experienced academic and industry professionals, all with scientific and healthcare backgrounds. We take a bottom-up approach to stock selection, focusing on innovation and growth, resulting in a portfolio of “best ideas”.

Three healthcare stocks to consider

Nothing has been more innovative or had a greater impact on human health recently than the 20-year-old class of drugs known as the GLP-1s. Years of pioneering work by Eli Lilly (NYSE: LLY) has resulted in a metabolic medicine that is better, stronger and safer than ever before. The weight loss and blood-sugar control offered by tirzepatide (brand names Mounjaro and Zepbound) are best in class, but that is not what we are excited about. It is the multitude of other health benefits that is likely to drive future growth. These include relieving cardiovascular, kidney and liver disease, sleep apnea and arthritic pain, and perhaps will extend to cognitive benefits, mood disorders, addiction, cancer, inflammatory disorders and even disease prevention.

Eli Lilly remains at the forefront of this innovation and its offerings include recently launched oral versions, next-generation injectables that should increase efficacy (retatrutide) and tolerability (eloralintide). We are at the dawn of an era of new “super medicines” that will treat and prevent disease, ease ageing and promote longevity.

Bayer (Frankfurt: BAYN) may be best known for aspirin, but for investors the company has become synonymous with the long-running legal issues hanging over it due to its Roundup (glyphosate) product. This may be obscuring a significant transformation in Bayer's underlying businesses. In pharmaceuticals, Bayer is entering a new period of growth. Demand for newer products for prostate cancer (Nubeqa – darolutamide) and kidney disease (Kerendia – finerenone) continues to grow strongly. The lead asset in its pipeline of new drugs, asundexian, has been shown to reduce the risk of recurrent stroke by 26% in patients who are at risk and is now under regulatory review. Bayer also operates one of the world's largest agricultural businesses and has a pipeline of innovative new products. Importantly, the Roundup saga may finally be approaching a resolution and a proposed settlement could remove much of the uncertainty that has weighed on the shares for years.

CareDx (Nasdaq: CDNA) is evolving from a transplant-focused diagnostics company into a broader, high-growth precision-medicine platform. Its core “AlloSure” franchise is the leader in donor-derived, cell-free DNA testing for organ-transplant surveillance and is benefiting from increasing clinical adoption and expanding testing volumes. Growth momentum is already visible, with second-quarter revenues up by more than 50% and earnings by over 500%.

Importantly, CareDx is now leveraging its expertise in highly sensitive molecular diagnostics. The acquisition of Naveris brings “NavDx”, a blood-based test for viral-mediated cancers, opening a speciality oncology opportunity that management estimates represents a $5 billion addressable market. With accelerating organic growth, expanding margins, new opportunities in oncology and cell therapy, and a streamlined portfolio following the divestiture of its Lab Products business, we believe CareDx is at a turning point and has the potential to compound revenue and earnings at attractive rates for years to come.

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US insurance company Lemonade (NYSE: LMND) was founded just over a decade ago. It uses AI at every stage of the insurance process, from selling policies to dealing with claims, though it still employs human staff, arguing that this helps cut administrative costs.

While it is true that AI is undoubtedly going to change the world, not every AI-related share is a compelling investment. To make a success of AI, a company must pass several tests.

First, it has to come up with a way of doing something more efficiently. Next, it must find a way to make money. It will need to fend off competition, both from incumbents and new entrants into the sector. Finally, even firms that meet all these criteria can become poor investments if the shares rise so far that they become overvalued.

Lemonade is still losing money

Lemonade says it spends approximately 5% of the money it earns from premiums on handling claims, as opposed to the 9% figure typical for the industry as a whole in the US.

Lemonade also believes that AI can significantly accelerate operations, with over half of claims paid out instantly and most policies sold in under 90 seconds. Lemonade is undergoing a period of rapid growth, with sales increasing from $94 million in 2020 to $738 million in 2025. Revenue is expected to keep expanding at around 30% a year.

But the company continues to lose money, with estimates suggesting that – at the very least – it will be in the red both this year and in 2027 (though management believes that the firm may start to achieve positive earnings before interest, taxes, depreciation and amortisation – Ebitda – in 2027).

The competition is catching up to Lemonade

Another difficulty is that while Lemonade may be ahead of the technology curve today, other companies are catching up by pouring large sums into AI. For example, rival Allstate announced this summer that it is launching ALLIE (Allstate's large language intelligent ecosystem), while other major competitors such as State Farm plan to use AI too.

And while Lemonade argues that its status as an AI-driven company will always give it an advantage over companies built around legacy systems, it also has to compete with other AI-driven companies, notably Root.

Lemonade could begin to turn a consistent profit and fend off competition from both new and old rivals. But investors still have to acknowledge that its valuation is relatively expensive.

It trades at 3.7 times sales, more than four times the 0.83 times sales that Allstate, a profitable and fast-growing company, sells for. Moreover, Root, which operates a similar tech-driven model but manages to turn a profit, only trades at 0.48 times sales. Furthermore, Lemonade's recent share-price performance suggests that investors are starting to sour on it. The stock has fallen by more than 50% from its 52-week high and has lagged the wider market over one, three, six and 12 months.

It is also below both its 50- and 200- day moving average. I would therefore go short at the current price of $46.46 at $45 a share. Put the stop-loss at $67.46, which gives you a total downside of £945.

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Coupang (NYSE: CPNG) was founded by South Korean-born, US-raised entrepreneur Bom Kim. Having experienced America's customer-focused retail culture, he believed South Korea's dense cities and digitally connected population made it an ideal market for a modern logistics network.

South Korea may be a technological powerhouse, yet for a long time its retail sector lagged behind. The blame lay with the chaebols, the family-controlled conglomerates such as Hyundai that emerged after the Korean War and came to dominate the economy. Protected from foreign competition for years, they faced little pressure to improve service or convenience. That left a gap for Coupang.

Kim initially founded a Groupon-style business in 2010, but in 2012 he abandoned the online-coupon model in favour of logistics. The company began building warehouses and acquiring its own delivery fleet. At the time, venture-capital investors preferred asset-light software companies to capital-intensive infrastructure projects, leaving Kim struggling to secure funding.

The strategy required immense scale to become viable, resulting in years of heavy losses. Rather than relying on third-party couriers, Coupang adopted a direct-inventory model. It buys inventory outright and stores it within its own network. To make this work, Coupang developed proprietary software to predict localised demand, positioning inventory close to consumers before orders had even been placed. That reduced delivery times, improved efficiency and made rapid delivery economical in densely populated cities.

How Coupang went global

For the first few years, Coupang burned through cash and at times looked as though it might not survive. But in 2015, the investment firm SoftBank invested $1 billion, giving it the breathing space to keep operating for several years despite its mounting losses. The funding allowed Coupang to continue building fulfilment centres and refining its software. SoftBank's investment encouraged further backers before Coupang listed in New York in 2021. By then, the logistics network had reached sufficient scale for revenues to outgrow costs. Annual losses became progressively more manageable before the business turned profitable in 2023. This demonstrated that an automated infrastructure platform could generate attractive returns once the investment phase was complete.

Coupang now has more than 100 fulfilment facilities supported by proprietary software. Management has shifted its focus from building the network to increasing its utilisation by layering new services on top of the existing infrastructure. With the warehouses, software and delivery fleet already in place, additional transactions carry relatively little incremental cost. Every extra order offers the potential for higher profitability.

The first major extension was the WOW membership programme. Similar to Amazon Prime, it offers unlimited deliveries and free returns for a modest monthly fee. Members also receive Coupang Play, including live sport. The combination encourages customers to concentrate a greater share of their spending on the Coupang app, strengthening loyalty and encouraging repeat purchases.

Other expansions include Coupang Eats, launched in 2019, using the group's logistics for restaurant delivery. Fulfilment and Logistics by Coupang, introduced in 2022, allows third-party merchants to use the company's distribution network. Rather than simply selling goods, Coupang increasingly earns service revenues from businesses that depend on its infrastructure. In 2024 it acquired luxury marketplace Farfetch. The deal gives Coupang access to affluent consumers and the high-margin luxury segment, while extending its reach beyond South Korea and its core mass-market retail business.

Coupang faces headwinds – can it bounce back?

Building infrastructure on this scale also creates vulnerabilities. When millions of households depend on a single platform, failures can become costly. In 2021, a fire destroyed Coupang's Deokpyeong fulfilment centre, wiping out 16 million items. Regulatory problems have also emerged. In 2024, the Korea Fair Trade Commission imposed a 162.8 billion won (£92.4 million) fine after finding Coupang had manipulated search algorithms to favour its private-label products over third-party merchants.

The most damaging blow came in 2025 with South Korea's largest data breaches. A former employee gained unauthorised access to personal data affecting more than 33 million customers. The incident prompted management changes and a 1.7 trillion won (£1.2 billion) customer-compensation programme through platform credits and vouchers, rather than cash payments. In June, regulators imposed fines totalling £300 million over the breach and separate data-handling violations. The penalties were lower than feared.

The fallout extends beyond cybersecurity. In April, South Korea designated Bom Kim as Coupang's controlling shareholder, potentially subjecting it to stricter rules applied to conglomerates such as Samsung. The financial impact is now evident. Second-quarter sales rose 4%, but the firm fell to a loss of $160 million even excluding fines. Its shares have lost more than 60% since last year's highs. Political tension and weaker profitability have overshadowed a sophisticated e-commerce business. Coupang trades on an enterprise value-to-sales ratio of just 0.7, reflecting legitimate concerns over corporate governance, regulatory uncertainty and profitability, but placing little value on a logistics network that would be extremely difficult to replicate. If management can restore trust and recover margins, today's valuation could prove unduly pessimistic.

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The rise of the so-called “experience economy” offers a welcome alternative to our increasingly digitised life. It promises highly curated, in-person experiences offering the sense of community and direct physical engagement with the world that has been stripped from the daily rhythms of life.

It is a truism that people's lives are increasingly digitalised, but the data still retains the capacity to shock. UK adults spent 4.5 hours per day online in 2025, according to Ofcom. For 18-to-24-year-olds, the figure was six hours and 20 minutes, mostly on their smartphones. And it's not as though we are spending these digitalised lives with others. A significant number of people work remotely, at least some of the time. Over 40% of UK workers spend part of their week working from home.

More unsettlingly, when we are online, we often consume content that isn't even generated by a fellow human being. The marketing platform Ahrefs recently conducted a remarkable study showing that almost 75% of new websites contained significant AI-generated content. The machines aren't just delivering entertainment; they're creating it.

But as investors, we know that when something becomes abundant – screen time, digital content, isolation – something else becomes scarcer, and, typically, more valuable. Today, some of that scarcity seems to be migrating towards the experience economy.

An “experience” might be a trip to a concert or a sports match. It might be dining at a restaurant whose kitchen offers a special menu, or taking a trip to a beach with the softest sand and the bluest water. This isn't new. Business strategists Joseph Pine and James Gilmore coined the phrase “experience economy” in 1998, with the idea that companies could command pricing power through events that engaged consumers on a memorable, emotional level. But the forces that created the need for such an economy have only become stronger over the last quarter of a century.

What is the experience economy?

The evidence for an experiential boom in spending is already widespread. In its 2026 State of the Consumer report, consultancy McKinsey highlighted that the global experiences market between 2023 and 2025 grew more than three times faster than spending on non-essential goods. Mastercard recently found that 88% of British consumers would be happy to redirect their spending on things towards experiences.

Michelle Evans, data group Euromonitor's Global Lead on Retail & Digital Consumer Insights, says there is a broad rotation among consumers from “owning more to experiencing more”. The trend has been building for over a decade, but has accelerated since Covid.

It seems to be a reaction to digital saturation: “In an increasingly digital world, consumers are placing greater importance on experiences that improve wellbeing, create memories, strengthen relationships and feel genuinely human.” And young consumers, those most exposed to digital lives, are leading the rotation.

Live music and sports are among the purest embodiments of these experiential urges. Think of Taylor Swift's Eras Tour, the 149-concert extravaganza in 2023 and 2024, which became an economic phenomenon in its own right. It was the most financially successful tour of all time, generating over $2 billion in direct box-office sales, more than twice its nearest rival.

How Swifties are fuelling the experience economy

Twenty-two million people joined the virtual queue to buy tickets for Swift's Singapore concert, almost four times the country's population. The vast majority of these would-be attendees were planning to fly in from overseas; they were going on a musical pilgrimage. The quasi-religious nature of this fandom is underlined again by the fact that in Philadelphia over 20,000 ticketless fans stood outside the stadium during the concerts, night after night, just to be physically close to the Swiftian phenomenon.

A similar devotion characterises live sports. According to entertainment analytics firm Two Circles, 79.4 million fans attended ticketed professional sports events in the UK in 2025, 1.7 million more than the year before, and this despite a 5% increase in ticket prices. Attendance levels are far above pre-Covid figures.

When the Premier League first started, in the early 1990s, stadium utilisation rates sat at 70%. In the 2024-2025 season, that had risen to 98.8%. There is a sense in which attending a concert, or a Premier League match, is not just entertainment; it is a way for people to forge their identities and feel part of something larger than themselves.

This matters economically. AI may be able to commoditise digital content, but it cannot replicate the experience of standing next to 60,000 people at Anfield. “Travel, wellness, live events and community-based experiences all benefit from the fact that they are difficult to replicate digitally and often become more valuable as consumers spend more of their lives online,” says Evans.

Economist Alex Imas has argued that as AI makes some forms of production abundant, scarcity will not disappear, but will relocate towards what he calls the “relational sector”, where the human element itself contributes to the value of the product. As investors, we want to be in the businesses of monetising this relocated scarcity.

There are several ways we can invest in the experiential economy. Live Nation Entertainment (NYSE: LYV) is the world's largest live-entertainment company, operating concert promotion, venues and ticketing services. It is positioned between consumers and the increasingly valuable experiences they are seeking. Concerns over competitive practices have dogged the stock. A federal jury earlier this year found it operated a monopoly, and it is unclear how this will be rectified.

The experience economy is safe from AI

However, the underlying business, protected by exclusive, multi-year venue and artist contracts, remains structurally difficult even for AI to disintermediate. The extraordinary demand for the sort of experiences it facilitates was illustrated by the collapse of Ticketmaster's system under the weight of 3.5 billion ticket enquiries for Taylor Swift's Eras Tour.

Airbnb (Nasdaq: ABNB), the world's largest platform for booking alternative accommodation, is another interesting play on the experiential economy. The company has a valuable set of inventory consisting of millions of homes across the world, which it has spent almost 20 years building. While its product (accommodation) isn't scarce, Airbnb's value lies in facilitating the increasingly valued experience of global travel, taking a healthy commission in the process.

A third way to play consumers' strong desire to invest in live experiences is TKO Group (NYSE: TKO), a firm roughly split between the UFC, the world's leading mixed martial-arts business, and WWE, the dominant player in the world of professional wrestling. These distinct, but related, businesses are near-monopolies in their respective domains.

TKO Group differs from Airbnb or Live Nation. It is not an intermediary; it owns the product itself. Live sports are perfectly placed to resist the commoditising effects of AI. Their essence is that they are unique and occur in real time; even if you cannot be there in person, you must be sitting in front of a screen as the event unfolds. The fact that there is no algorithmic substitute for their product gives them low price sensitivity.

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Judges Scientific (Aim: JDG) was once a favourite of the London market. Over the years from March 2004 to March 2024, the shares rose 10,300%, compared with a return of just 160% for the FTSE All-Share excluding dividends. But since reaching an all-time high in 2024, the shares have lost nearly two-thirds of their value. Investors have clearly lost patience with the group, which once commanded a valuation of 40-plus times forward earnings. However, the issues seem to be more cyclical than structural, and the underlying business model is far from broken.

How Judges Scientific profits from niche industries

Judges Scientific isn't really one single business. The group operates as a collection of businesses acquired over time and owned under one holding company. Former CEO David Cicurel founded and seeded the firm in 2002. It started as an activist investment company, but shifted direction shortly after its initial public offering in 2003 (priced at 95p per share vs the recent peak of 12,000p).

Rather than buying stakes in public equities, Cicurel decided the business would achieve better returns by acquiring whole companies, particularly small firms serving a niche in key scientific and testing end markets. The first entity acquired under this new regime was Fire Testing Technology, which specialises in measuring how different materials react to differing levels of fire and heat. With $3 million in annual sales and an earnings before interest and tax (Ebit) margin of 25%, the deal became the blueprint for further acquisitions.

Cicurel and his team continued to build Judges Scientific with similar acquisitions. The template they used and continued to use hasn't really changed. Judges acquires small, usually owner-operated entities, and leaves them to it. It provides the capital and funding to develop new technology or processes, while the underlying businesses continue to focus on what they do best – serving their customers with small, but vital tools and products.

A key metric for the group has always been return on tangible invested capital (ROTIC), a measure of profit for every £1 invested in tangible assets. For Cicurel, any business with a ROTIC below 20% was a no-go and, as a group, Judges has tended to earn a ROTIC of 20%+ across the 23 core businesses it owns today.

Why is Judges Scientific struggling?

After nearly two decades of near-continuous growth, Judges Scientific's growth story stalled in 2024. After its Geotek subsidiary reported delays to a key high-margin project, sales ended the year 2% lower. In November of that year, the firm also issued a profit warning, the only one in its history. Profit fell 21% for the full year. Still, three new businesses were acquired across the holding firm and via subsidiaries as the group continued to execute on its acquisition strategy.

In 2025, clouds continued to gather. These included the hit to global research spending following US budget cuts, higher operating expenses and a slowdown in orders from China. North American revenue fell 25% overall. Net profit declined from £22 million in 2024 to £21 million in 2025. At the end of November 2025, Cicurel also announced he would step down as head of the business in February 2026, to be succeeded by former group business development director Tim Prestidge. The group's long-standing CFO also said he would step down in September 2027. Investors didn't hang around to find out how Judges would navigate the transition. Stock sales pushed prices down 50% from their all-time high in 2024 to the end of 2025.

Unfortunately for the new CEO, the outlook doesn't look set to improve anytime soon. Revenue in the first half of the fiscal year fell 21% year on year to £55.7 million, with adjusted pre-tax profit down 75%. Order intake fell 12% in the first half, driven by lower demand from the US and China and softer sales from renewable energy customers. However, Judges says momentum has picked up since the period ended, with order intake running just 1% behind the levels of the prior year.

Judges Scientific is priced for perfection

Judges Scientific's underlying business performance tells one story, but it's also worth noting that the shares have rerated substantially over the past two years. In 2024, before the recent sell-off began, the shares traded at a forward price-to-earnings ratio (P/E) of around 43, a premium multiple by any yardstick. After the recent decline, the shares are trading at just 19 times forward earnings, a much more realistic multiple, but arguably still a bit high for a zero-growth business.

Still, it's clear the company is suffering from cyclical, not structural issues. Underlying end markets are robust and demand for scientific equipment hasn't vanished. Granted, it will take time for funding to return to the sector after budget cuts, but Judges' underlying businesses are still investing, developing the cutting-edge kit that'll be required when funding returns.

What's more, Judges Scientific has the cash to buy peers that might also be struggling and don't have access to the same capital reserves. The group has also extended its banking facilities to 2030, which will underpin its ability to keep growing through its buy-and-build strategy. Net debt of £41 million is equivalent to roughly 1.9 times earnings before interest, tax, depreciation and amortisation (Ebitda), giving headroom for further borrowing. Most of Judges' end markets are highly fragmented, served by smaller owner-operated businesses that may not survive alone.

Analysts at Berenberg say the group's margins will stabilise and sales will improve next year as funding and spending recover. They've then pencilled in a small recovery in 2028, before growth really returns in 2029. Based on these forecasts, now could be a good time to start accumulating shares in this one-of-a-kind business, which is going through a rough patch.

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Our fund, JSS Sustainable Equity – Strategic Materials, invests across the whole value chain for strategic materials. Around 70% to 80% is invested in upstream mining companies. The remainder goes to recyclers, mining equipment manufacturers, battery producers and advanced materials companies. These businesses benefit from the same structural trends, but their earnings often swing less than those of miners.

I score every commodity each month on five factors: the marginal cost of production, inventory levels, the economic cycle, the supply-demand balance and trade barriers. This framework helps us to invest when prices are low. I then rank mining stock by operating cash costs, execution track record, jurisdictional risk, balance-sheet strength and valuation. This is augmented by detailed mine-by-mine valuation models, allowing us to stress-test valuations.

The fund is classified under Article 8 in the EU's SFDR sustainability regulations, meaning we promote environmental or social characteristics, which is relatively rare in the mining sector. For us, sustainability is closely linked to returns. Poor relationships with local communities, regulators, or governments can result in mine delays, higher costs, or loss of a licence to operate. Strict environmental and social standards therefore help protect returns. Here are three of the stocks we like.

Three strategic materials stocks for your portfolio

Acerinox (Madrid: ACX) is a Spanish stainless steel and speciality alloys producer. Through its Haynes International business, the company builds high-performance alloys designed to withstand extreme heat and pressure. These specialised strategic materials are used extensively in aircraft engines and industrial gas turbines. Furthermore, they serve critical aerospace applications such as rocket nozzles and pumps aboard vehicles exploring the frontiers of space.

Wheaton (LSE: WPM) is a streaming company rather than a traditional miner: it provides upfront financing to mining companies in exchange for the right to purchase a portion of their future gold and silver production at predetermined prices. The attraction is the business model. Wheaton does not operate mines itself, so it avoids much of the exposure to rising wages, energy prices, equipment costs and operational problems that can squeeze traditional miners. This gives it a structurally different and, in my view, lower-risk exposure to precious metals. I also see a robust pipeline of future growth.

Large copper projects often contain valuable gold and silver byproducts. These create opportunities for companies like Wheaton to provide financing through streaming agreements. Wheaton can participate in the growth of new mines without taking on the full operational risk of owning and running them.

Freeport-McMoRan (NYSE: FCX) is one of the world's largest copper producers, giving investors exposure to what I see as a critical commodity for the coming decade. Copper is essential for electrification, power grids, data centres and heavy industry. Demand is likely to rise, while supply is proving hard to bring online quickly. That gap between demand and supply could support prices. US trade policy may also favour domestic producers over time. Freeport's giant Grasberg mine in Indonesia is ramping back up. This follows a disruption last year that cut output. Restored production offers a path to growth. The company also carries meaningful gold exposure alongside copper.

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ASML (Amsterdam: ASML) is the only commercial supplier of EUV lithography systems – machines that sit at the heart of the modern semiconductor industry. An extreme ultraviolet (EUV) lithography system is roughly the size of a double-decker bus, weighs roughly 180 tonnes and costs more than €180 million. It fires lasers at tens of thousands of microscopic droplets of molten tin every second, creating a plasma that emits light at a wavelength of 13.5 nanometres. That light is used to print the extraordinarily fine patterns from which the most advanced computer chips are made.

In 2025, ASML recognised revenue from 48 EUV systems and generated €32.7 billion of sales overall, including €8.2 billion from servicing and upgrading its installed base. The Dutch company does not manufacture every component itself. Instead, it coordinates a network of specialist suppliers that has taken decades to assemble. German company Carl Zeiss makes the mirrors at the heart of the optical system. Trumpf supplies the lasers used to generate the EUV light, while other specialists provide components ranging from wafer stages to sensors and software.

Its customers include TSMC, Samsung and Intel, companies with the scale and expertise to develop much of their own technology. Yet when it comes to leading-edge lithography, they have little choice but to buy from ASML. The machines are expensive because the economic cost of falling behind in semiconductor manufacturing is greater still. So how did a struggling Dutch start-up build a position that has become so difficult to challenge? And can that advantage survive the next stage of the industry’s development?

How ASML grew from humble beginnings to industry leader

ASML was established in 1984 as a joint venture between Philips and ASM International. The two companies brought different capabilities to the new business. Philips had already developed the PAS 2000 lithography system, while ASM International specialised in semiconductor manufacturing equipment. The timing was difficult. The company entered a competitive market dominated by established American and Japanese companies and initially had few customers. It also struggled financially. ASM International eventually withdrew after struggling to justify continued investment in a business that was consuming cash, while Philips was cutting costs. ASML survived because its management and shareholders continued to back the technology and because Philips provided further support.

ASML spent its first decade building the business and developing its technology. Rather than trying to make every critical component itself, ASML worked with specialist suppliers and concentrated on integrating their technologies into a complete lithography system. The breakthrough came in the 1990s with the development of the PAS 5500. Its productivity and resolution helped ASML win the customers it needed to become profitable. The company went public in 1995, giving it access to the capital needed to expand its research and manufacturing operations.

The approach mattered because lithography was becoming too complex for one company to master every discipline itself. ASML could concentrate on integrating the system while drawing on specialists in optics, lasers, metrology and other fields. The strategy eventually produced a decisive lead over its two big rivals, Nikon and Canon. But the biggest test was still to come. EUV had been discussed for years as the technology that might allow chipmakers to keep shrinking transistors, yet turning the idea into a machine capable of high-volume production proved difficult. ASML and its customers spent years developing the technology, with Intel, Samsung and TSMC helping to fund the effort.

In 2012, those customers committed €1.38 billion of research and development funding to ASML’s next-generation lithography programme and took minority stakes in the company. Intel alone committed €829 million of R&D funding alongside an investment of up to 15% in ASML. The arrangement illustrates how dependent ASML’s customers had become on its technology. They were helping finance development because the machines would determine how far their own manufacturing could advance. The result was to bring EUV into commercial production, but by then ASML had spent decades building the supplier network, engineering expertise and relationships needed to make it work.

ASML’s competitive moat

That combination forms ASML’s competitive moat – the technology, expertise and relationships that make the business difficult for rivals to challenge. Its position in EUV was therefore built long before the first commercial machines were sold. To understand why ASML can charge hundreds of millions of euros for a single machine, one must consider the economics of modern semiconductor manufacturing. A cutting-edge fabrication plant, or “fab”, can cost more than $20 billion to build and equip. Much of that investment goes on the machinery inside it, with lithography scanners among the most expensive tools.

For a company like TSMC, the economics of a fab come down to how many useful chips it can produce, how quickly, and for how much. Smaller transistors allow more computing power to be packed onto each wafer – a thin disc of silicon on which chips are made – while higher throughput and better yield improve the economics of the plant. This is why lithography matters. The machine prints the patterns that become the transistors and other structures on the chip. If those patterns cannot be printed accurately enough, the economics of the entire fab suffer.

That gives ASML an unusual position. Its customers include some of the world’s largest companies and most buyers of that size would have considerable bargaining power over suppliers. When it comes to leading-edge lithography, their options are much narrower. TSMC, Samsung and Intel cannot simply switch to another supplier offering an equivalent EUV system. A more capable machine can also allow a chipmaker to produce more wafers from an expensive fab, while improvements in accuracy and yield can increase the proportion of those wafers that become saleable chips. The return from a lithography investment therefore depends on the additional output and yield it enables, rather than simply on the purchase price. This helps explain why ASML’s customers have been prepared to commit capital years before they receive their machines.

The company now sells its low-NA EUV systems for roughly €180 million and high-NA ones for more than €350 million. NA means numerical aperture, a measure of the optical system’s ability to resolve very small features. The higher the NA, the more detail the machine can print. Customers continue to buy the machines because the cost has to be weighed against the price of falling behind. EUV system sales reached €11.6 billion in 2025, while ASML’s gross margin was 52.8%. Those figures suggest that customers have little choice but to accept the price of staying at the leading edge.

Customers cannot treat an ASML machine as a one-off purchase. Once a fab is built around its equipment, maintaining and upgrading that equipment becomes part of the production process. ASML continues to service its machines throughout their working lives, helping customers maintain performance and install upgrades. Its installed-base business therefore grows as the number of machines in operation increases, creating a source of revenue alongside new system sales.

How ASML stays ahead of the game

Why can’t another company simply build an EUV machine and compete with ASML? The answer lies in how much has to work together for a lithography system to operate in a semiconductor fab. ASML acts as the system architect, drawing on a network of specialist suppliers that has developed alongside the company. ASML then has to integrate all of the high-precision parts into a machine that can operate reliably in production. Precision matters because an error that would be invisible to the human eye could make a machine unusable for leading-edge production. This is very hard for a competitor to replicate. Roughly 80% of ASML’s bill of materials is sourced from its global supplier network. A rival would have to recreate that network, integrate thousands of precise components and persuade the world’s leading chipmakers to install an unproven machine in their most valuable factories.

ASML also has an advantage that is harder to see. Every machine it installs adds to its practical knowledge of how its technology behaves in a real production environment. ASML has about 10,000 customer-support employees working around the world to keep its systems running. That operation is a continuing relationship with customers after the initial sale; engineers work with chipmakers to maintain performance, solve problems and install improvements. A machine can be designed on a drawing board, but making it run reliably, at high throughput and with the precision required for commercial chip production, is a different problem. Each generation provides information that can be fed into the next one.

ASML therefore remains the company best placed to develop whatever lithography technology chipmakers require next. But that position does not make its earnings immune to disruption. Geopolitical restrictions can limit where it sells its machines. The semiconductor cycle can cause large swings in orders. Changes in chip design could reduce the industry’s reliance on successive generations of lithography.

Threats to ASML’s dominance

China accounted for 29.1% of ASML’s sales in 2025, although much of this was mainstream semiconductor equipment rather than the EUV systems at the centre of its monopoly. Export controls have already restricted the sale of some of ASML’s systems and the provision of certain services to Chinese customers. Losing access to part of the Chinese market reduces revenue, but avoids giving Chinese chipmakers access to an alternative source of EUV machines.

There is also geographic concentration beyond China. Taiwan accounted for 25.5% of ASML’s 2025 sales and South Korea another 25%. ASML has customers and suppliers in both markets, leaving the company exposed to tensions over Taiwan and the Korean peninsula. A serious disruption would affect semiconductor production well beyond ASML itself.

The nearer-term risk is more familiar. ASML sells relatively few machines at very high prices, making the timing of customer capital expenditure critical. It recognised revenue from 327 new and refurbished lithography systems in 2025, compared with 418 in 2024 and 449 in 2023. Its largest customer accounted for 23.9% of sales and its two largest customers for 38%. A major customer delaying a fab or moving its spending into a different year can therefore produce a significant swing in ASML’s results.

The more fundamental threat is technological. ASML’s business depends on chipmakers continuing to invest in new generations of process technology. The company itself acknowledges that customers could delay adoption of new technologies if the economics do not justify the cost, or shift towards architectures that rely less on lithography. The price of each technological advance is rising. High-NA EUV machines cost hundreds of millions of euros, while chipmakers can also improve computing performance through chiplets, advanced packaging and architectural changes. If these approaches deliver better returns than simply shrinking transistors, the industry could become less willing to pay for each successive generation of lithography.

For now, there is little evidence that this is displacing leading-edge lithography. AI is increasing demand for advanced logic and memory, and ASML says growth in both markets helped drive demand for its EUV systems in 2025. This remains the most important long-term question hanging over the investment case. Export controls can reduce sales, a semiconductor downturn can defer orders and customers can become more selective about expensive new technologies. So far, none has emerged at commercial scale as a way of displacing ASML’s leading-edge lithography technology.

The outlook for shareholders

For shareholders, ASML offers a combination of growth and recurring revenue. In 2025 it generated €32.7 billion of sales, a 52.8% gross margin and €9.6 billion of net income. Installed-base management revenue, mainly servicing and field options for machines already in customers’ fabs, reached €8.2 billion, up 26% on the previous year. The outlook has strengthened since then. ASML reported €9.3 billion of sales in the second quarter of 2026, with a 54% gross margin, and raised its full-year revenue guidance to €43 billion-€45 billion, up from €34 billion-€39 billion at the start of the year. It says AI-related investment is driving demand for advanced chips and customers are accelerating expansion plans.

The longer-term opportunity remains substantial. ASML’s modelling puts its 2030 annual revenue opportunity at between €44 billion and €60 billion, with gross margins of 56% to 60%. Those figures are an opportunity range rather than a forecast, but the rapid increase in 2026 guidance shows how quickly the business can scale. AI is helping to drive that growth.

AI should still be viewed as an accelerant rather than the foundation of the investment case. The more durable thesis is that computing demand continues to rise and chipmakers need increasingly capable manufacturing equipment. ASML does not need every future semiconductor application to be an AI application for its long-term case to work. ASML remains a capital-equipment company and its earnings are therefore exposed to the spending decisions of its customers. Even a customer convinced of the long-term need for additional capacity can delay an order for a year. The result is an earnings profile that is more cyclical than the competitive advantage might suggest.

Are ASML shares worth buying?

ASML shares have generally commanded a premium valuation because investors recognise the quality of the business. At roughly €1,700 a share, the stock trades on around 35 times consensus 2026 earnings and 25 times projected 2027 earnings. Those multiples can look reasonable if earnings grow rapidly. ASML is now aiming for €43 billion–€45 billion of revenue in 2026, up from €32.7 billion in 2025, while analysts expect further earnings growth in 2027. The valuation leaves less room for disappointment. A weaker semiconductor cycle, slower high-NA adoption or further restrictions on China could cause investors to reassess the multiple even if ASML’s competitive position remains intact.

The question for a long-term investor is whether earnings can grow fast enough to justify the high price. If growth falls short, the multiple provides another source of downside. More attractive entry points are likely to come when the semiconductor cycle turns down and investors focus on near-term orders rather than the decade ahead.

The investment question is whether the future earnings from ASML’s competitive position justify the price of the shares. A business can continue to compound while its shares fall if investors have already priced in too much of that growth. ASML has spent four decades building one of the most formidable competitive positions in the global economy. The investment case now depends on whether it can turn that position into enough future earnings to justify the premium investors are being asked to pay today.

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Norwegian arms manufacturer Kongsberg Gruppen (Oslo: KOG) is likely to benefit from a big increase in defence spending. The Nato summit in Ankara in July 2026 reported that European allies and Canada had invested more than $139 billion in core defence requirements over the previous year, together with $50 billion of new procurements and a commitment to expand manufacturing capacity. In addition, the allies pledged $70 billion of military equipment, training and support to Ukraine for 2026, with at least that amount again for 2027.

At the 2025 financial year-end, Kongsberg’s order backlog was NKr157 billion (£12.4 billion); the chief executive officer said that, in his ten years in the job, he had never seen such high demand.

Kongsberg 's focus on growth

In February 2026, Kongsberg announced that it had spun off its maritime division as a separate listed company (Kongsberg Maritime) to concentrate business on the three higher-growth divisions. Defence Systems is the largest division (47% of revenue) with Missiles & Aerostructures (30%) and Discovery (23%) together accounting for 53% of revenue.

Then, in June 2026, Kongsberg announced it had completed the acquisition of Zone 5 Technologies, a Californian company that is the market leader in affordable, mass-producible munitions. These include long-range strike and interceptor missiles. Zone 5 will add to Kongsberg’s existing US business since Zone 5 has won US contract including one for the US Air Force’s AGM-188 FAMM (Family of Affordable Mass Missiles).

In September, Kongsberg also acquired Sonatech of California, an underwater acoustics specialist whose technology will be used in Kongsberg’s autonomous underwater vehicles. In July, Kongsberg won a $100 million contract from the US Air Force for stealth air-to-surface Joint Strike Missiles (JSMs), which can be carried internally in the F35-A fighter; deliveries are scheduled up to 2030. The JSM has also been selected by Australia, Canada, Germany, Japan and Norway.

Kongsberg’s results for the three months to the end of June 2026 were the first without the maritime division and showed revenues up 31% from the same period in 2025, rising to NKr10.4 billion. Earnings before interest and tax (Ebit) were up 48.9% to NKr1.67bn and the Ebit margin rose to 16.1%. The order intake for the second quarter rose by 164% of second-quarter revenue, taking the order backlog to NKr157 billion.

New growth drivers for Kongsberg

In the second quarter of the year the Defence Systems division saw strong demand for air defence and counterdrone systems. An agreement was reached with partner Raytheon to start deliveries of the NASAMS air defence system to Kuwait. The Missiles & Aerostructures division was awarded JSM missile contracts totalling NKr10.9 billion to Canada, Germany and the US. The Discovery division also won contracts, including one for the monitoring and protection of critical subsea infrastructure.

The growth drivers for Kongsberg are, firstly, the large and increasing order backlog, which is driving increased investment in new and expanded production facilities. Secondly, acquisitions, new product development and capacity expansion is supported by cash outflow of NKr3.7 billion in the second quarter.

The existing Norwegian missile plant is being supplemented by new factories in Australia and the US, with expanded production of subsea technology in Norway. The Australian and US missile facilities will be operational in late 2027, with full-rate production by 2028, so will contribute to the 2029 revenue target of NKr100 billion by 2029 – 2.3 times the projected revenue for 2026 – rising to NKr150 billion in 2033.

Kongsberg's earnings are on the rise

Kongsberg Gruppen has a market capitalisation of NKr275 billion at the recent share price of NKr312.7, with a one-year price target of NKr396.4. The forward dividend yield is 0.7%.

The balance sheet is strong with cash and equivalents of NKr4.9 billion at the end of the second quarter of this year, compared with loans and lease liabilities of NKr2.1 billion.

Analysts predict 2027 revenues of NKr64.2 billion, a 49% increase over 2026. Earnings per share are projected to rise to NKr11.2 in 2027, a 52% increase over 2026. The contributors to the projected revenue growth of more than three times by 2033 include the Zone 5 and Sonatech US acquisitions and new missile factories in Australia and the US.

There is also the NKr16b billion contract signed with Poland in January 2026 to provide counter-drone (C-UAS) batteries, forming a multi-layered anti-drone wall as part of Poland's East Shield initiative for protection against Russia. Further contracts for C-UAS could follow if other European nations follow this Polish initiative.

At the recent share price of NKr312.7, the price/earnings ratio for 2027 is 27.9. If Kongsberg hits its 2029 revenue target of NKr100 billion and earnings per share rise only proportionately to revenue, then the 2029 p/e would be 18.3.

Kongsberg is a growing defence company with a massive order backlog of 3.6 times annual revenue, substantial sales in the important US defence market, significant sales in Asia and is playing an important part in upgrading European defence capabilities to counter the threat of Russian aggression.

The company plans to more than treble turnover by 2033 and is investing in both acquisitions and new production facilities to achieve this. Directors have significant shareholdings. The chief executive officer holds 250,000 shares and two executive vice-presidents together hold 230,000 shares.

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Aim, the London Stock Exchange's market for smaller or growing companies, is in the doldrums. Hit by negative sentiment towards UK small caps, plus tax reforms that have reduced the attractiveness of many Aim stocks, London's junior stock market has struggled to keep its head above water. The FTSE Aim 100 index, which charts the share-price performance of the largest companies on the market, currently stands at around 3,650. That compares with a peak of almost 6,550 in September 2021.

In fact, the malaise goes back even further. Looking across the whole of Aim, returns over the past ten years are near zero, compared with a 60% gain from the FTSE All-Share index over the same period. And it's not only investors who feel disenchanted; far fewer companies now see a compelling case to list their shares on Aim. In 2007, some 1,700 businesses had Aim quotes, while today the figure is barely above 600.

For all that, “I remain an Aim bull,” says Alex Game, a fund manager in the Economic Advantage team at Liontrust. “We like to back businesses with high levels of founder and manager ownership. These are entrepreneurial companies focused on [growth] and many of them are high-quality businesses, in market leading positions with well-capitalised balance sheets.”

“There's also a diversification angle,” adds Eustace Santa Barbara, co-manager of the IFSL Marlborough Special Situations, UK Micro-Cap Growth, Multi-Cap Growth and Nano-Cap Growth funds. “We're now seeing… the potential perils of holding just a handful of household-name, mega-cap businesses that dominate their indexes and can leave investors at the mercy of market shocks.”

Aim is under domestic pressure

To decide whether you share such optimism, you must first understand why Aim has underperformed in recent times. That is partly explained by the difficult macro environment the UK has faced, with ongoing challenges such as elevated inflation, driven by higher food and energy prices, depressed domestic demand amid the cost-of-living crisis, and political instability. Smaller companies, which tend to have less international activity, are more exposed to these domestic pressures.

It is also a reflection of the bias in the smaller companies sector towards growth stocks. These are companies where investors are betting on the long-term prospects of the business, rather than performance right now. When interest rates rise – and the rapid climb from a base rate of near zero five years ago to above 5% was unprecedented – investors tend to avoid such stocks. They calculate they will need much higher returns to compensate them as they wait for jam tomorrow.

Such worries have prompted a flight of capital. Funds investing in UK small caps have seen withdrawals of £6.1 billion, according to analysis by Hargreaves Lansdown. Most of that cash has gone overseas. Aim, moreover, is at the sharp end of this perfect storm. It's home to many of the smallest listed companies in the UK and features a disproportionate number of growth stocks. No wonder investors have steered clear. That said, Aim has also been hit by problems specific to it.

Above all, the decision by the government in its first budget in 2024 to reduce the value of a key tax incentive for Aim investors has had a significant impact. Many Aim shares qualify for Business Property Relief (BPR), a tax break intended to encourage investment in small businesses – by entrepreneurs starting their own companies, but also by investors backing the ventures. Until April, BPR meant that once you had held qualifying Aim shares for two years, there would be no inheritance tax (IHT) to pay on the assets following your death. This was a powerful incentive to consider Aim stocks, particularly since they can be held inside an individual savings account (ISA), sheltering them from all tax charges on income and capital growth.

Since April, however, BPR has fallen from 100% to 50%. This means the value of Aim shares bequeathed to your heirs could now attract an IHT charge, assuming your estate is valued above the £325,000 threshold at which the tax becomes payable. The rate charged would be 20%, rather than the usual 40%, but the tax bill could still be significant. Importantly, the change applies both to any new investments you make on Aim and to Aim assets you already hold. This has seen some investors opt to sell out – the Tax Efficient Review says investors in specialist Aim portfolio services have sold roughly £170 million worth of shares this year, around 10% of the value of assets held in these services overall. Such sales represent a brake on Aim's potential, even before you factor in reduced future demand for stocks now the IHT tax break is no longer so attractive.

Aim shares are going cheap

Other Aim-specific concerns include something of a dearth of exciting new businesses coming to the market. In today's investment environment, there are more sources of growth capital available to early-stage businesses than when Aim launched 30 years ago. The plentiful supply of venture capital, private equity and even debt finance means companies don't necessarily need to jump through the administrative and regulatory hoops required for a stock market listing to raise money. Corporate governance concerns still worry some potential Aim investors, too. The point of a junior market is to enable less mature companies to secure a public listing even if they are not ready to meet all the requirements of a traditional stock exchange. The London Stock Exchange therefore imposes fewer responsibilities on would-be Aim businesses. Unfortunately, this light-touch approach also increases the potential for governance failures and criminality. The LSE has periodically tightened the rules, but scandals at firms such as Langbar International, Globo and African Minerals continue to cast a long shadow.

All of which explains why Aim has struggled. But as Game points out, the market has been through difficult periods before – and then bounced back. “Aim does go through these spells and right now we're at the nadir of the market,” he says. “But performance is cyclical: throughout its history, there have also been times when Aim has performed really well.”

Santa Barbara adds: “It's easy to claim Aim's glory days are long gone, but it's impossible to argue with Aim's proven track record as an engine of growth. The founding principle of the market – to provide the most promising smaller companies with access to capital and ongoing finance – still applies.”

It's certainly possible to make the case that Aim now looks very cheap. Valuations of UK small caps generally look attractive. The price/earnings ratio on the FTSE Small Cap index is currently 10.6, compared with 15.0 for the FTSE 100 index of large companies, for example. Comparative data for Aim is not available, given issues such as the lack of revenues and profits at some businesses, but many stocks are on low valuations by all historical comparisons. “Private equity has been acquiring Aim companies at quite a pace, suggesting sophisticated investors believe many of these businesses are fundamentally undervalued,” says Jonathan Moyes, head of research at investment platform Wealth Club. What the market needs, then, is a catalyst for a change of sentiment. Investors need a reason to look at Aim afresh – and to decide whether those valuations now represent opportunity. One such catalyst could be lower interest rates. The Bank of England's Monetary Policy Committee cut rates six times during 2024 and 2025 and was widely expected to make further cuts before the Iran war saw energy prices spike.

That prompted the MPC to step back from cuts, but a decisive end to the crisis could prompt looser monetary policy. It helps that early expectations of an inflation spike have so far proved overly-pessimistic.

Another potential game changer would be an influx of new companies that excites investors to return to the market. Initial public offerings (IPOs) have been in short supply on all markets in recent times, but more private companies do now appear to be thinking about going public. That includes potential new entrants to Aim, adds Moyes. “Companies raised around £3.3 billion in the first seven months of 2026, compared with just £1.6bn during the whole of 2024,” he points out. “A significant proportion of this year's fundraising came from one very large transaction, and that activity has been driven by secondary raises rather than new listings; nevertheless, capital is flowing again.”

The LSE is trying to do its bit. It has already unveiled plans aimed at reducing the costs of listing on Aim and at making it easier to raise capital. Greater political stability, particularly once the fiscal and monetary plans of the Andy Burnham-led government become clearer following next month's Budget, could also support an increase in Aim IPOs. Aim may not need seismic shifts in sentiment to change the direction of travel. The market for shares in many Aim companies is illiquid – there are fewer buyers and sellers – so even small shifts in mood can have a significant impact. This is one reason why Aim has often proved volatile, but that can work in investors' favour as well as against.

Aim is a stock-picker's market

One other important point is that Aim investors don't need the whole market to change gear – just the companies in which they are interested. Investment experts agree Aim is an active stock-pickers' market. It's natural to focus on the performance of the market overall, but the qualities of individual firms vary enormously; the dispersion of returns at a stock-specific level is much wider than on other markets. The focus on flat returns over ten years overlooks individual success stories. Indeed, says Game, “Aim has probably generated more ten-baggers than most other developed markets.” Recent examples include healthcare software company Craneware, which joined Aim almost 20 years ago and has since delivered total returns of around 1,500% – an annualised return of about 16%. Defence technology business Cohort has generated annualised returns of roughly 14% over the same period.

Mortgage Advice Bureau is another example. It moved to the main market earlier this year having listed on Aim in 2014. Over its 12 years on Aim, the business returned more than 400%, or roughly 15% a year.

None of which is to suggest Aim, as a market in general, is guaranteed to rebound from its current lows. And there is certainly plenty of scepticism. “The problem in the UK is that very few investors are interested in smaller companies – and even fewer are interested in the spicier end of small cap that Aim represents,” says Ben Yearsley, a director of Fairview Investing. “Some exciting IPOs in the small-cap space might help, but companies are staying private for longer; and while there have been Aim floats, managers who invest in the market say quality has often been lacking.”

The counter argument is that in an improving interest-rate environment and a market where IPO activity seems to be picking up, IHT reforms could clear the decks for a new conversation about the merits of Aim. “Tax relief was never enough on its own to sustain a healthy market,” argues Moyes. “If valuations start to recover, investors will be coming for the investment story first, with a bit of inheritance tax relief as the icing on the cake, rather than the other way round.”

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When picking emerging market stocks at Fidelity Emerging Markets, our approach is a flexible one. We have a variety of tools to exploit the best opportunities across the full breadth of the emerging market universe – taking both long and short positions, investing in companies ranging from the very largest to small caps and off-benchmark stocks, and using gearing to extend high-conviction long positions.

We select emerging market stocks based on fundamentals and quality. We look to go long on the stocks of companies that we believe can generate sustainably higher returns, with strong corporate governance and under-leveraged balance sheets. We short those that are the opposite: companies in structural or cyclical decline and that are flying red flags. This approach is made possible by Fidelity's analysts, who help us uncover opportunities across the breadth of emerging markets, including those lesser-known names off the beaten track. Here are three companies that we think bring this approach to life.

Emerging market stocks to watch

The rise in popularity of Korean beauty products, or “K-beauty”, has taken the global cosmetics world by storm, propelled by innovative products and fast-growing beauty trends. But behind many of the best-known brands sit more under-the-radar specialist manufacturers, such as Cosmecca Korea (Seoul: 241710), which develops and produces skincare products on these brands' behalf. As Korea's third-largest manufacturer of its kind, Cosmecca is well-positioned to ride the wave of strong demand for Korean cosmetics. Its scale gives it an advantage over smaller rivals, helping keep costs down while investing more in research and product development. That has helped Cosmecca build a competitive edge in areas such as sunscreen, allowing it to increasingly attract US brands in addition to its Korean clients.

Think of Sinotruk (Hong Kong: 3808) as China's equivalent of Volvo Trucks or Scania – a dominant producer of heavy-duty trucks with a leading position in the domestic market. However, what makes the investment story particularly interesting is that it is increasingly taking Chinese manufacturing capability overseas, selling trucks into more than 150 countries and benefiting from compelling demand trends across emerging markets. Africa is an especially important growth market, where structural growth in mining and infrastructure investment is supporting strong truck sales. Sinotruk also benefits from a competitive edge through its comprehensive service system, which has helped it defend market share from competitors.

Tin might seem an unlikely beneficiary of the artificial intelligence (AI) boom, but growing demand for the metal for use in AI servers and semiconductors, as well as for other technologies such as solar panels, is adding to demand in a market where supply is already tight. Stricter regulations and low inventories have constrained supply, leaving tin as an increasingly important bottleneck in the technology supply chain. We gain exposure to this theme through small-cap and off-benchmark tin producer Alphamin (Vancouver: AFM), based in the Democratic Republic of Congo. The company has a strong market position in tin production, operating two of the world's highest-grade tin mines and producing about 7% of mined tin globally. With high-quality assets and low production costs, it meets the quality criteria we look for and is trading at a very cheap multiple.

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A few years ago we might have assumed that the Revolut IPO would happen in London. It's a British company that built its business here, so why wouldn't it? London was one of the major global stock markets and a natural home for a fast-growing company. Sadly, that is no longer true.

Revolut confirmed last week that it was exploring a “dual listing” IPO, split between the Nasdaq stock exchange in New York and the London Stock Exchange. It is a measure of how far the City has fallen that it will come as a relief to those working in British finance that London is being considered at all.

Back in 2024, CEO Nikolay Storonsky dismissed a London listing as “not rational”, citing the lack of liquidity and the 0.5% stamp duty on every trade as reasons why only New York would make sense. He has now softened that view, suggesting a dual listing between the two cities, even if New York is the senior of the pair. It's better than nothing.

Revolut is a prize worth having. It is one of a handful of genuine successes the British economy has managed to create in the last decade. Its latest results reported $6 billion in revenues and more than $2 billion in profits. It has more than 75 million customers worldwide and has established itself as a leading brand in digital finance. It has a robust business model, at least for what is still basically a bank, with subscription and trading fees, instead of far-riskier loans, accounting for the bulk of its revenues. It is already valued at $115 billion and for an IPO it may well target significantly more than that. Indeed, if it is listed in London, Revolut is likely to be bigger than BP, GSK or Unilever, taking its place at the very top of the FTSE 100.

It could also start to change perceptions. London has turned into a global backwater. In 2024, it had fewer IPOs than Malaysia or Oman. Companies keep leaving the market and there is almost nothing coming through to replace them. In the first half of this year there were only seven new listings, raising less than £600 million between them. Meanwhile, the major companies that are still listed here are mostly a collection of banks, oil giants, and pharmaceutical conglomerates, which are hardly likely to set any pulses racing.

How the government can make the Revolut IPO a success

Revolut will be very different. It is a tech company, is expanding rapidly and has a well-known brand. If it is listed in London, global investors might be willing to take a look at the wider market again. But it will only make a difference if the float goes well. What can be done to make it a success? The chancellor has already suspended stamp duty for the Revolut IPO and for the first three years of trading as well, and that may well have helped sway Revolut's decision. That will give a huge boost to trading and liquidity. Without it anyone with any sense would simply buy the shares in New York, where they are tax free. But why not extend the period to ten years, perhaps as a prelude to abolishing the tax entirely?

At the same time, why not offer investors in the Revolut IPO an exemption from capital-gains tax? That would build a base of “buy and hold” investors that would give the company a great platform. And perhaps add an extra IPO allowance of £5,000 to existing ISAs to tempt small investors into the new-issue market. It would all make the London listing more attractive and persuade companies the City was as good as, if not even better than, New York. A Revolut IPO in the next year or so may well be the last chance to prove that the City still matters.

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One of London's most visible pieces of advertising has greeted railway passengers arriving at London Bridge station for the best part of 100 years. Emblazoned on a Grade II-listed building next to the track on Park Street is the slogan, “Take Courage”, the motto of the Courage Brewery.

This is considered one of the largest and most memorable so-called “ghost adverts” in London, although it's unclear when it was first painted. The Anchor Brewery originally built the property in 1820 and it remained a central location for brewing and operations until 1981, when it was acquired by the local authority. These ghost adverts can be seen all over London and remind us that advertising has been a core part of the UK economy for hundreds, if not thousands, of years.

A brief history of advertising

No ghost adverts in London are more than 300 years old (most of the city has since been rebuilt), but there are older examples elsewhere. Some of the earliest date from ancient Egypt and Mesopotamia, where traders and market vendors used clay tablets and papyrus posters. Archaeologists have also found examples of adverts chiselled out of stone dating back 3,000 years in ancient Babylon. Similar examples appear in ancient Greece, Rome, China and across the Middle East.

In ancient Rome, owners would commission a designer and manufacturer to produce a signboard that served as the business's primary street advertisement. This, it could be argued, was the beginning of what we now know as the advertising industry.

Advertising took another step forward in the 16th century with the advent of newspapers and magazines. The first weekly gazettes appeared in Venice in the early 16th century and in Britain the first weekly publications appeared in the 1620s. From the very beginning, newspapers, magazines and pamphlets carried advertising that helped foot the bill for printing and distribution. However, it wasn't until the mid-1800s that a confluence of factors accelerated the growth of the advertising industry into what we recognise today.

Early print advertisements were primarily in books, mainly due to each printer's desire to cross-sell. Quack medicines also commanded a lot of page space. That began to change in the 1850s and 1860s, when advances in mass production lowered manufacturing costs and an increasingly affluent middle class emerged around the world for the first time in modern history. This new wealthy class had discretionary income and sought out a variety of new produce.

Advances in technology, health and the growing demands of the affluent middle class produced a windfall for companies that could capitalise on these trends. Forward-thinking business owners accelerated growth with pioneering marketing campaigns. Thomas J. Barratt, the chairman of Pears Soap, was one of the first executives to build a brand around an advertising campaign. Barratt has been called one of the fathers of modern advertising in London thanks to the campaigns he created in the first few years of the 20th century. Barratt sought to position Pears as one of the country's highest-quality soap brands. To do so, he created an advertising campaign to drive consumer purchases. One of his most memorable slogans was, “Good morning. Have you used Pears' soap?” He also ran a series of adverts featuring well-groomed middle-class children, linking the product to domestic comfort, high-society aspirations and daily cleanliness. Barratt's approach focused on aspiration and a strong, exclusive brand image, backed by a robust supply chain to meet demand.

Companies were developing similar approaches across the pond. In the last decade of the 1800s, companies such as Procter & Gamble and Quaker Oats drove sales across the United States through national advertising campaigns. Tobacco producers were particularly prevalent in all markets.

Through the first few decades of the 1900s, the first global advertising agencies grew out of local offices. Advertisers began refining strategies across different media, such as print, radio and out-of-home billboards. In the 1920s, psychologists turned their attention to advertising, developing concepts of behaviourism and the consumer's basic emotions, such as love, hate, and fear, refining the strategies Barrett pioneered in London ten years earlier. Exploiting the insights of behavioural psychology became the calling card of one particular agency in Chicago: Lord and Thomas. Founded in 1873 and now known as FCB, it is the third-oldest advertising agency in the US still operating today. Albert Lasker bought the firm in 1912 and devised a copywriting technique that appealed directly to consumer psychology.

One of his most famous campaigns was for Lucky Strike cigarettes. The company wanted to encourage more women to smoke its cigarettes and so Lasker developed a series of ads encouraging women to smoke cigarettes rather than eating high-calorie snacks, using phrases such as “reach for a Lucky instead of a sweet”. The strategy helped Lucky Strike increase market share by more than 200% in its first year.

How the advertising industry became the money machine

Over the past 100 years, advertising spending has tracked global GDP growth. While spending is higher in some countries than others (the UK has the highest relative spend among major economies as a percentage of GDP), the global average has risen from roughly 0.3% of global GDP in the 2000s to around 0.8% today. According to WPP, that figure could hit 1% of global GDP by the end of the decade.

Despite this growth, the industry has often faced criticism for wasteful spending and poor returns on investment. One of the best-known criticisms of the industry is encapsulated in the quote: “I know that half the money I spend on advertising is wasted. My only problem is that I don't know which half” – a saying usually attributed to Henry Ford or the founder of Unilever and later the first Viscount Leverhulme. However, there's no evidence of either of these fathers of industry making such a comment. Ford was in fact highly committed to advertising, stating: “A man who stops advertising to save money is like a man who stops a clock to save time.”

The advertising industry has changed significantly since its early days, but the basic principles the early pioneers developed still apply. Advertising should be designed to capture attention and inform as directly as possible. Today, the industry can be divided into two parts. On the one hand, there are the businesses that sell space to advertisers. This market is dominated by the big four: Alphabet, owner of Google and YouTube; Meta, the owner of Facebook; ByteDance, the Chinese owner of TikTok; and Amazon. Together, these account for around 60% of global advertising revenue throughput, up from around 50% a few years ago. These are all digital-native or digital-dominant platforms that have leveraged their global exposure and creator content to build massive advertising operations. Outside these top four, the rest of the top 25 global advertising sellers include more traditional firms such as Fox, Walmart and JCDecaux.

The second part of the industry is made up of the agencies that design, plan and coordinate advertising across platforms. The biggest fish in this pond in the UK is WPP. Originally called Wire and Plastic Products, the company originally manufactured wire shopping baskets before it became an advertising holding company in the 1980s under the stewardship of Martin Sorrell. Today the group operates a sort of one-stop shop for companies and organisations that want to communicate their message to the outside world.

This process of coordinating campaigns and advertising spending is becoming increasingly challenging. We've long moved on from a world where advertisers only had to worry about painting signboards. Today, advertisers have a plethora of media to consider and the fastest-growing market is, unsurprisingly, generative search (AI). WPP Media's mid-year market forecast notes that advertising revenue on generative search platforms such as ChatGPT is expected to reach $5.1 billion globally in 2026, representing roughly 0.4% of total advertising revenue.

However, the media agency forecasts the market will grow at a compound annual growth rate of nearly 100% over the five years to 2031. This puts it on track to become the fastest advertising segment to reach $100 billion in annualised revenue in recent years. It took 22 years for traditional search (the adverts you might see when you search on Google) to reach this benchmark. It took 14 years for revenue on social media platforms such as Facebook to reach $100 billion, and spending on streaming TV platforms such as YouTube and Netflix has yet to exceed $60 billion annually, despite rapid consumption growth. The expansion of advertising on generative AI platforms is expected to drive much of the industry's growth in the coming years.

Billboards have not gone out of fashion

One medium seemingly benefiting from the growth of AI-based search is the so-called out-of-home advertising market. Out-of-home is one of the oldest forms of advertising. It generally refers to posters or signs located outside a user's property or premises, such as the ghost signs dotted across London. While spending on other forms of traditional media such as TV, print, and radio continues to decline, out-of-home spending is holding its own. According to WPP, that's because the medium is virtually guaranteed to deliver its message directly to humans, unlike digital platforms.

Indeed, earlier this year, we passed the point where more than half of the internet is now made up of machine-to-machine interactions (think AI agents filling in forms, or bots “liking” AI-generated videos), meaning there's an increasing chance human eyeballs will never see the ads that have been paid for. With out-of-home, advertisers can deliver their message to large numbers in physical environments simultaneously, the sort of scale and visibility that digital channels such as social-media platforms increasingly struggle to match.

One of the most prominent operators in this space in the UK is Global Media. The private company manages more than 253,000 outdoor advertising sites across the UK, as well as radio stations. It is one of the most important partners for the London Underground and operates billboards across some of the UK's most important transport hubs and across Europe. In the company's most recent fiscal year, out-of-home advertising revenue rose from £379.9 million to £425.9 million, and adjusted profits for the outdoor business rose 25% to roughly £155 million.

Alongside Global, JCDecaux (Paris: DEC) leads the world in this space. The Paris-based company accounts for around 12% of the global out-of-home advertising market, twice that of its closest competitor. Most of its assets are in Europe (30%), 8% in the US, 21% in the Asia-Pacific and 14% in the rest of the world. More than half of its revenue comes from out-of-home placements on the street, with 13% coming from billboard sales. In addition, 36% of sales come from adverts placed on public transport or around stations.

Analysts at Berenberg expect the company to grow 5.5% this year, faster than the wider market, thanks to growth in Asia and the US, which is underrepresented in the portfolio. While the company earns a healthy Ebitda margin of 21.4%, roughly 60% to 70% of group costs are fixed, meaning the capital structure has significant operational gearing. Still, the business is managed very conservatively, with near-zero debt and a 66% institutional shareholder in the form of the Decaux family. The shares trade at a forward p/e ratio of 15 with a free cash-flow yield of 7.3%.

The best advertising agencies to invest in

Then there are the advertising agencies. This market is really dominated by five major players: Publicis (Paris: PUB), WPP (LSE: WPP), Havas (Amsterdam: HAVAS), Omnicom (NYSE: OMC) and Dentsu (Tokyo: 4324).

Publicis is widely described as the best operator in the sector. Over the past five years, the company has won key contracts from competitors and poached top talent. It has focused on expanding its data and consumer-identity capabilities to gain an edge in the digital advertising market and capitalise on AI-driven market growth. Following a major restructuring and repositioning, growth is accelerating and is expected to rise from around 2.2% in 2026 to nearly 7% by 2028, according to Berenberg. The company is also generating strong cash flow. It is set to end 2026 with a net cash position of roughly €1.7 billion and the stock trades at a free cash-flow yield of 10.3% and a forward P/E of 11.

Once the leader of the group, WPP is now the laggard – and by a wide margin. Since the company lost its visionary CEO Martin Sorrell in 2018, it has really struggled to find its feet. Multiple rounds of job losses, re-organisations and rebranding have left the business gasping for air. Revenue this year is expected to come in at about £9.5 billion, down from £11.4 billion in 2024. However, following the arrival of new CEO Cindy Rose, green shoots have started to emerge. A year into her tenure and the former CEO of Microsoft UK has managed to stem the bleeding. According to numbers gathered by COMvergence, WPP Media has won around $3 billion in new business so far in 2026, versus $2.8 billion in losses last year. Account retention is now running at 43%, up from 16% in 2025. Still, the company has a lot of work to do to prove it is back in business. Analysts forecast revenue declines until 2028. In the meantime, the company is expected to cut jobs further to improve cash generation. It carries debt of around £2.5 billion, excluding leases, against Ebitda of £1.5 billion. A lot of bad news is baked into the valuation, with the shares trading at a forward p/e multiple of 4.9 and a dividend yield of 5.9%. The stock is trading at a free cash-flow yield of 5.2%.

Investing beyond the top tech players in advertising

The big tech players might dominate the ranks of the biggest advertising sellers, but they are no longer the pure-plays they once were. Alphabet, Meta and Amazon are funnelling hundreds of billions of dollars of advertising revenue back into the ground to expand their AI operations. This is turning businesses once touted for high returns on capital and asset-light models into capital-intensive infrastructure plays. Still, there's no denying they remain at the top of the pyramid for advertising spending. Alphabet, Meta and Amazon generated a combined $160.8 billion in advertising revenue in the second quarter of 2026, with Alphabet leading the way. Overall ad revenue rose 14.5% thanks primarily to the group's dominance in AI-powered search. Revenue from search rose 17%. YouTube advertising revenue rose 12.6% year on year as it continued to grab market share from TV budgets. The platform's annual advertising revenue has surpassed the combined spending of traditional legacy giants such as Disney, NBCUniversal, Paramount and Warner Bros. Discovery.

Beyond the top tech players, it may be worth a look at Pinterest (NYSE: PINS). This company has risen to become one of the top 25 advertising platforms in the world over the past decade thanks to its rich pool of ever-growing user content. Part social-media platform, part scrapbook, the platform is designed to help users find ideas, such as for home decor and fashion, and drive them to stores. More than half of the platform's users say they use it to shop. In a world where brands are focused on user-generated content to drive sales, this is a huge edge. The platform has logged 11 consecutive quarters of user growth (there are 640 million in total) and revenue expanded 18% in the second quarter. Pinterest has had a tough time as a public business, with the shares down 65% in the past five years. However, it's on track to generate around $1bn of free cash flow this year, against a market cap of $10.5 billion. It has net cash on the balance sheet and management has spent $2 billion buying back stock. It could be worth a look.

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Back in 2016, French insurance giant Axa (Paris: CS) was known for its complexity. The majority of the company's earnings came from its life insurance and long-term savings business, the health of which was tied directly to interest rates. That began to change under CEO Thomas Buberl, who took over the group in 2016. Buberl's vision for the company was simple. The new boss wanted to turn Axa into a leading global insurer in the “short-tail”, relatively capital-light business of property and casualty insurance (P&C).

One of the main issues with life insurance is its “long tail” business – once the insurer has written the life insurance or annuity policy, it's stuck with the contract for decades, even if it becomes unprofitable. As a result, regulators tend to demand that these firms hold high levels of capital reserves to meet upcoming liabilities and unforeseen developments.

How Axa freed up billions in capital

One of Buberl's first moves was to carve off its US life-insurance arm, Axa Equitable, which freed up billions of dollars in capital for the group to go shopping. Almost as soon as the company announced the transaction, it launched an offer for XL Group, a leading global P&C insurer. Axa paid $15.3 billion for its peer and was instantly catapulted into the ranks of the world's largest P&C insurers. As part of its Vision 2020 growth plan, management continued to exit non-core businesses, de-risking the group's exposure to highly volatile and loss-making segments of the global insurance and reinsurance market and cutting costs.

As a result, the group's revenue mix has changed markedly since 2026. In 2016, before the transformation began, the group reported total revenue of €100 billion, with 50% coming from life and health insurance, and net income of €5.8 billion. By 2022, revenue had fallen 34% to €66.6 billion. However, net income fell just 13% to €5 billion.

Around this time, the group also started to benefit from the dramatic upswing in global insurance and reinsurance prices. Starting around 2019, a combination of inflation and losses has pushed insurers to raise insurance prices globally to offset the added cost of claims.

At the same time, higher interest rates have boosted the returns insurers can earn on the investment portfolios they hold to back up underwriting. Thanks to this double tailwind, insurers have reaped the benefits. Axa's combined ratio, a measure of underwriting profit, fell to just 90.6% in its 2025 financial year, from 99.5% in 2020. Anything below 100% signifies an underwriting profit while anything above signifies a loss. Thanks to this tailwind, Axa's net income rose to €9.8 billion in 2025, on a total revenue of €75 billion. Of that total, €58 billion comprised revenue from P&C underwriting.

The company's next move was to sell its asset-management business. Axa sold this division, Axa Investment Managers (Axa IM), to BNP Paribas for €5.4 billion – 15 times earnings at the time of the deal. The combination of Axa IM and BNP Paribas created an asset manager with total assets under management of €1.5 trillion, giving it the scale to compete in the increasingly competitive asset-management market. Axa immediately gave the bulk of the proceeds from this deal back to shareholders via a share buyback.

Axa's new plan for growth

Axa has changed completely since 2016 and, on 15 September, the group published its new plan for 2027-2029. The new plan builds on the work management has done over the past decade to get the business to where it is today, and the focus is earnings growth. Management wants Axa to reach earnings growth of 7% to 9% on a compound annual basis over the next three years, above the top end of the 6% to 8% target in the previous plan.

To do this, analysts believe the company will have to broaden its base in Europe, notably in the small and medium-sized enterprise sector, while seeking up to €7million a year in cost savings. Overall, analysts at investment bank Berenberg believe cost savings (mostly from AI) will add 1% a year in earnings across the group, a significant figure.

Management is also forecasting higher cash generation from the group's subsidiaries. The plan is to generate €25 billion of cumulative cash over the three-year period, up from €21 billion in the 2024-2026 period. A good chunk of this will flow straight back to investors. Berenberg has the group returning €5.4 billion in 2027 and €5.8 billion in 2028, with the stock trading at a 5.8% dividend yield. Buybacks between 2024 and 2028 could shrink the share count by more than 10%. The total shareholder yield, including dividends and buybacks, is pencilled in at 7.8% for 2027 and 8.4% for 2028.

Based on the bank's estimate of future earnings growth, Axa shares are trading at a forward price-to-earnings (P/E) ratio of eight and a price-to-book ratio (P/B) of 1.59. That looks cheap compared with the group's earnings outlook and plans to return cash.

There is, of course, risk. A soft insurance market, where prices start to fall, could wipe out growth across the business, and a jump in losses could vaporise profit and force the group to postpone returning cash. All insurers face similar risks, which is why they generally carry a lower rating than the rest of the market.

In Axa's case, however, its rating seems too low. Indeed, because Axa's insurance policies are short-tail and reprice every year, the group could quickly adjust to a new environment. As one of the largest players in the global P&C and health-insurance market, Axa shares are worth a closer look at their current valuation.

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As the investing truism goes, time in the market is better than timing the market. The spirit of this adage is that it’s generally better to sit tight and hold onto your investments rather than frequently buying and selling.

It’s impossible to know, without the benefit of hindsight, whether you’re selling one of your top stocks or funds at its peak price, or if in doing so you’re potentially missing out on future gains – so the best thing to do is usually to sit tight and let the tendency of the stock market to rise over time do its thing.

“Knowing when to sell a share can be one of the most difficult decisions an investor can face,” said Richard Hunter, head of markets at investing platform Interactive Investor (ii).

After all, when you first bought the stock, you hopefully did thorough research on the company and its prospects, and had conviction that it was set for success in the long run.

“The position becomes less clear as human psychology kicks in,” said Hunter. “If the share price has declined, there is a natural reticence to hold on to the shares rather than sell and admit defeat, even if prospects have obviously deteriorated.

“On the other hand, if the shares have risen as had been hoped, there is a fear of missing out on further gains if the investor crystallises the profit.”

Selling a stock can sometimes be sensible when there are good reasons and you do it in an informed and considered way rather than impulse or in an attempt to time the market.

Profit-taking (selling a winner)

The first reason to sell might be that the stock has performed well and you want to bank some of the profits.

“One strategy which some investors use is known in the parlance as ‘top-slicing,’” said ii’s Hunter. “Imagine that an investment of £10,000 had fortunately come good and doubled to £20,000. By selling £10,000 worth of shares, the investor would be breaking even. The remaining £10,000 would then leave skin in the game as well as representing pure profit.”

How much profit you take is of course up to you – you don’t have to sell your entire allocation, or even half of it. Remember, though, that a profit (or loss) is only on paper until you sell.

Consider also the timing of selling a stock. If the shares are held outside an ISA, selling at a profit could make you liable for capital gains tax.

Loss-limiting (selling a loser)

On the other hand, a stock that is underperforming is a very tempting target to sell, especially if you’ve lost faith in the company’s ability to turn things around.

You’ll have noticed that this is the opposite of profit-taking, but despite appearing contradictory, both approaches “make perfect sense” according to Hunter.

“While it is ‘never wrong to take a profit’, traders will point to ‘running your winners and cutting your losers,’” he said.

Be sure to check whether your initial thesis for buying the stock is no longer intact before you sell, though. Some investors might view a share price decline in a stock they still believe in as evidence that the market has overlooked something; value investors might even consider the decline an opportunity to buy more of the stock on the cheap.

Portfolio rebalancing

It’s generally considered good practice to reset your portfolio at certain intervals – maybe quarterly or twice-yearly.

When you do so, assuming that you reallocate your investments so that each carries the same weight as it did when you last rebalanced, you will sell some of your top-performing stocks, as these will now constitute a larger percentage of your portfolio than they did before.

Risk profiling

Similarly, you might sell a stock because your own risk appetite has changed since you bought it.

Perhaps you bought a high-growth stock 10 years ago when your priority was portfolio growth. You’re now 10 years closer to retirement and wealth preservation is likely to be a higher priority for you than capital growth, so you may feel the right decision is to sell this stock and use the profits to invest in a more defensive alternative, or one that offers a higher dividend yield.

“Consider the reasons you bought the shares in the first place,” said Hunter. “Are they still intact? Does the holding still fit into your investment objectives?”

Ultimately, he added, there is no definitive answer to whether and when it’s right to sell a stock, and the decision will vary from person to person.

“As long as the investor is comfortable with the rationale, there is no right or wrong time to sell,” he said.

Alphabet, the parent company of tech giant Google, is one of the largest companies in the world.

It is a front-runner in artificial intelligence (AI) and part of the so-called ‘Magnificent 7’ stock group. But, if you go to buy Alphabet shares, you’ll notice you have a choice to make.

Alphabet has two stock listings: (NASDAQ:GOOGL) and (NASDAQ:GOOG). The two tickers refer to separate share classes for Alphabet.

GOOGL refers to Class A shares or common stock, which carry shareholder voting rights – each share you hold grants you one vote whenever a shareholder vote takes place.

GOOG refers to Class C shares. These confer the same amount of ownership over Alphabet’s equity, but they don’t give you any voting rights.

Because both share classes represent the same level of equity in Alphabet, their prices are similar. However, GOOG tends to trade at a slight discount compared to GOOGL because it doesn’t give you any voting power.

For example, on 18 September GOOGL closed at $349.54 while GOOG closed at $344.41.

While each share class trades separately, they still represent equity in a single company and as such Alphabet’s market capitalisation (market cap) is calculated as the sum of both share classes.

You may sometimes see the two share classes split – for example, a list of S&P 500 stocks or the holdings in a tracker fund will usually list each share class separately.

As of 18 September the iShares Core S&P 500 UCITS ETF (LON:CSP1) lists Alphabet Class A as its fifth-largest holding with 3.1% of the fund, while Alphabet Class C is the seventh-largest with 2.5% of the fund. In reality, though, Alphabet is the third-largest company in the S&P 500 and accounts for a combined 5.6% of the ETF.

Which class of Alphabet stock should you buy?

The answer depends on what you’re hoping to get out of buying Alphabet shares.

If you want to be able to exercise shareholder voting rights then Alphabet’s Class A stock (GOOGL) is the one to buy.

But if you aren’t too fussed about voting – and it’s worth noting that, as Alphabet has a market cap over $4 trillion, your vote is likely to be a miniscule fraction of the total – then GOOG is slightly cheaper, meaning you pay fractionally less for a very similar level of financial return (it has a dividend yield of 0.26% compared to GOOGL’s 0.25% as of 18 September).

In reality, the difference is very small, and capital gains are likely to be similar for both stock classes over the long term (GOOGL gained 148% in the five years to 18 September, compared to GOOG’s 143%), so don’t fret too much over deciding which to buy.

Depending on the investing platform you use, the decision may be made for you as some platforms only offer a single class of Alphabet stock.

Is there a third class of Alphabet stock?

There is a third class of Alphabet stock – Class B. Unlike Class A and Class C shares (GOOGL and GOOG) Class B shares are not traded publicly, meaning you won’t be able to buy them.

Alphabet’s Class B shares are held by company insiders, mostly its senior leadership. They convey ten votes per share – meaning that senior executives hold the majority of control over the decisions the company takes whilst still being able to raise capital in the stock market.

Recent falls in Indian stocks have created opportunities to invest in some long-term growth stories at attractive prices.

India has been one of the world's fastest-growing major economies in recent years and this rapid economic growth is changing how its 1.4 billion people spend and save. As household incomes rise and more people move into the middle class, demand is growing for everything from convenient ways to shop and eat to insurance and branded consumer goods.

These long-term shifts are creating opportunities for Indian stocks that can capture a growing share of consumer spending, particularly those with strong brands, wide customer reach and plenty of room to grow.

At JPMorgan India Growth & Income, we focus on finding high-quality companies with the potential to benefit over the long term. Here are three examples.

Three Indian stocks for your portfolio

Zomato (Mumbai: ETERNAL) is one of India's leading online food delivery and restaurant discovery platforms, connecting consumers with restaurants and delivery partners across the country. As more Indians move to towns and cities and become comfortable ordering online, the company has grown rapidly, building a large customer base, an extensive restaurant network and more than 400,000 delivery partners.

Zomato's size gives it an important advantage, and its Blinkit business is also tapping into another fast-growing habit, offering rapid delivery of groceries and everyday essentials. Rising incomes, growing smartphone use and increasingly busy urban lifestyles are all helping India's food-delivery market to expand. With an established technology and delivery network, we believe Zomato (which trades under its parent name Eternal) is well placed to capture more of this spending as consumers increasingly prioritise convenience.

SBI Life Insurance (Mumbai: SBILIFE) is one of India's leading life insurance companies, offering a broad range of insurance and savings products. Its close relationship with State Bank of India, one of the country's largest banks, gives it access to an extensive branch and customer network, helping it reach a large pool of potential customers across the country. Insurance remains relatively underused in India, leaving considerable room for the market to grow.

Many Indian households still favour traditional ways of saving, but rising incomes and growing financial awareness are gradually changing these habits. As India’s middle class expands, more consumers are looking to protect their families and plan for retirement. With its strong distribution network and record of growing faster than many of its peers, SBI Life is well placed to capture this rising demand.

Varun Beverages (Mumbai: VBL) is India's largest PepsiCo bottler, manufacturing and distributing brands including Pepsi, 7Up and Mountain Dew. It operates in one of India's fastest-growing consumer categories, yet soft-drink consumption in India remains relatively low compared with other markets, leaving significant room for growth as incomes and spending rise.

Varun Beverages has built an extensive manufacturing and distribution network, helping it reach consumers across India's many cities, towns and rural areas. As the business grows, this scale also helps it produce and distribute drinks more efficiently. Combined with a strong record of execution, we believe Varun Beverages is well placed to continue growing as more Indian consumers spend on branded drinks.

India's recent market weakness shouldn't overshadow its long-term growth potential. As incomes rise and consumer and financial habits evolve, well-positioned companies have an opportunity to grow alongside the country's consumers and turn its economic expansion into attractive returns for shareholders.

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As CEO of Likewise Group (Aim: LIKE), Tony Brewer is playing out the final act in a long-running commercial rivalry. Brewer built UK flooring distributor Headlam into the market leader. But it collapsed into administration on 1 September, and now he is running the company taking its place

Brewer entered the carpet trade in 1977 as a 17-year-old at Midlands Carpet Distributors (MCD). There he learned the ropes under founder Graham Waldron. In 1991, Brewer and Waldron took a 22% stake in the listed conglomerate Headlam. Waldron was CEO at the time. They stripped out its legacy footwear and textile divisions, turning the company into a focused flooring distributor designed to consolidate the UK wholesale floor-coverings market.

At the time, the trade was populated by hundreds of small, family-owned merchants. Most carried modest stock, ran inefficient local delivery routes and lacked buying power with continental mills. Brewer and Waldron saw an opportunity and began buying these operators, preserving local trading names and centralising supplier negotiations.

Between 1991 and the 2008 financial crisis, Headlam became one of the London market's best-performing stocks, generating operating margins near 8% and returns on capital employed comfortably above 20%. When the crisis halted UK housing transactions, the sharp drop in flooring installations sent scores of private distributors to the wall. Headlam absorbed the shock, took the displaced accounts and emerged controlling roughly 30% of the domestic wholesale market.

Brewer was highly regarded by investors and staff alike. Then, in 2016, the board intervened. Disagreements over operational strategy and succession led to a boardroom rupture and Brewer walked out of the business he had spent a quarter of a century creating.

Two years in exile convinced Brewer that Headlam was vulnerable. Under the succeeding management, the market leader had become bureaucratic and indebted, with a sprawling network of regional properties and central administrative overheads. In 2018, Brewer partnered with property investor Paul Bassi to establish Likewise Group, floating the business on Aim to secure development capital. The objective was simple: build a modern distributor that could replicate Headlam's original service model without inheriting its structural deadweight.

Wholesale flooring distribution depends on logistics and relationships. Independent flooring retailers, regional contractors and self-employed carpet fitters cannot afford the capital or warehouse space to hold large inventories. The distributor carries the stock, extends trade credit and provides the delivery infrastructure needed.

Relationships matter just as much. Independent retailers and trade fitters tend to buy from sales representatives they trust to resolve delivery problems and secure stock allocations, rather than from a corporate brand. A decent sales representative will typically handle between 120 and 140 commercial accounts. Brewer used his industry standing to recruit heavily from Headlam's commercial team. Over several years, dozens of sales representatives, regional managers and senior logistics directors moved to Likewise. When they moved, many of their local trade clients followed.

The result was a damaging loss of volume at Headlam. In wholesale distribution, where operating margins rarely exceed mid-single digits, high fixed costs in depot leases and central overheads mean falling volumes can rapidly erode profits and turn to painful losses. As sales slipped, Headlam's overheads overwhelmed operating cash flow, turning predictable earnings into trading losses and adding to the strain on its debt facility until liquidity ran out. Capturing the spoils of Headlam's collapse will not be a simple walkover. The UK wholesale trade is no longer populated by the inefficient merchants of the 1990s. The surviving independent distributors are disciplined, well-managed businesses with clean balance sheets and strong regional customer loyalty. They will contest every square yard of displaced volume.

Likewise Group has plenty of room to grow

Likewise Group has been taking share from Headlam for years. Its national network is smaller but newer, and its sales operation has been built around many of the people who know Headlam's customers. Headlam falling into administration therefore accelerates a process that was already under way.

The business also needs to spend money on warehouses, equipment and stock before it can handle much more trade. That explains why Likewise Group raised £32.5 million in fresh equity in July. Management is using the proceeds to fund freehold logistics facilities needed to handle the additional trade.

Likewise Group now has significant spare capacity. As stranded trade accounts and displaced contractor orders flow into its national network, the additional revenue should carry little extra distribution cost. Moving from current revenue run-rates towards its £300 million capacity ceiling could therefore lift operating margins from the current 2.5% towards 5%, or 6% if the UK housing cycle turns favourable.

At full capacity, that throughput generates between £15 million and £18 million in annual operating profit. Against an enterprise value of about £100 million, the shares trade on less than seven times mature operating profit. The Aim market holds scores of cheap small-cap shares that languish for want of a catalyst. Likewise has one. The irony is that the man who built Headlam is now in the best position to pick up what it has left behind.

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Who says Apple doesn't innovate any more? After the iPhone and iPad, we now have something entirely new: iFlation. When the technology giant launched its latest phone last week, most of the attention focused on the way it folded in half. But there was something else eye-catching about it as well. It costs almost $2,000. A top-of-the-range version will retail at more than $3,000.

That's a lot for a phone and a big increase on earlier versions. When the first iPhone was launched back in 2007, it cost $499. Adjusted for inflation that is about $800 in today's money. So even in real terms, a flashy new Apple device has almost doubled in price over the last two decades. The ability to keep pushing prices higher may help explain why Apple is one of the biggest and most profitable companies in the world.

It is far from alone as there is a broader trend at work here. Lots of high-status, luxury goods keep on getting more and more expensive. Take tickets for the Glastonbury Festival. We learned last week that next year's event would cost £408. That compares with £87 in 2000 or £170 in today's money. Likewise, Chanel's signature handbag has risen fivefold in price over the past two decades. A Rolex Submariner has more than doubled in price in real terms.

These are just samples of a select group of products that don't simply perform a function – such as telling the time or making a phone call – but also signal your status, make you feel good about yourself, and impress your friends and neighbours. There are plenty of cheaper phones on the market that perform perfectly well. Some of them even fold in half. But they don't have the cachet of an Apple. Likewise, you can pick up a perfectly reliable watch in any department store, or even just use your phone, and it will tell you the time. But it doesn't tell the world how successful you are in the same way as a Rolex. The trouble with such high-status goods is that they are getting more and more expensive.

Why? To start with, companies have to keep pushing up the prices of such goods to maintain their exclusivity. By definition, a status good only maintains its position by having some degree of exclusivity. If everyone has one, it is not so classy any more. Price rises are one way to make sure its status is preserved.

Next, although we might not especially notice it in low-growth Europe, the world is getting richer. The number of millionaires in the world has roughly doubled from about 30 million a decade ago to roughly 60 million now, according to the UBS Wealth Report. There are a lot more people with plenty of money to spend, but often only a fixed number of things for them to spend it on. The result is that prices keep going up to match a limited supply with a soaring level of demand. As Asia and South America carry on growing a lot faster than the rest of the developed world, that is only going to get worse. On current trends, the iPhone 20 will cost $5,000 or more by the end of the decade.

Apple will only have themselves to blame

The problem, however, is that the economy is already struggling, with most people finding their living standards squeezed. If high-status goods become less and less affordable, it makes that situation feel worse. Even people who, by any reasonable measure, are making enough money to count themselves part of the affluent middle class may suddenly find they can't afford an Apple phone or a high-class watch. For anyone on a lower income, it becomes impossible to get to Glastonbury.

The divide between a tiny minority that can still afford a few luxury goods and everyone else will just get wider and wider. The result? The latter will feel more and more alienated from a free-market economy that no longer seems to deliver.

For corporations, raising prices is great for the bottom line, if you can get away with it. But if it means you undermine support for free-market capitalism, perhaps that is not such a great trade. At a certain point, iFlation will create a backlash, with the calls for wealth taxes and caps on corporate profits becoming louder all the time. The likes of Apple will only have themselves to blame for pushing prices up too aggressively.

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“We really do earnestly believe AI could kill all humans!”, says Anthropic researcher Evan Hubinger on X. He thinks there is more than a 10% chance we could all be dead “within the next decade”. Talk of AI's apocalyptic potential is in the air. Senior figures at AI labs are said to be terrified by the capabilities of recent models, which could be used to create bioweapons or elude human control and go rogue. The panic hit a new level at the weekend when a group of AI CEOs, including Dario Amodei – Hubinger's boss at Anthropic – publicly backed calls for a slowdown in AI development.

Anthropic: the AI company at the centre of a media storm

Scary stuff. Perhaps Silicon Valley really has been seized by a collective spasm of conscience about the consequences of building AI. Or maybe this is a PR campaign so slick and devious that it would make Alastair Campbell weep. For one thing, the timing is highly suspicious. Anthropic, the AI startup at the centre of the current media storm, is preparing to launch the largest initial public offering (IPO) in history in a matter of weeks.

A basic tenet of critical thinking is to pay attention to vested interests. Dario Amodei is not a neutral commentator. He is trying to secure an IPO valuation of up to $2 trillion. Yet much of the tech media, keen for a dramatic story, uncritically treats the self-serving pronouncements of AI executives as objective statements of fact.

The more conspiratorially minded pointed out that the tweet by Jacob Coxon, the Anthropic researcher whose resignation triggered the latest news cycle, was viewed 140 million times despite the fact that his account had almost no prior activity. While Coxon's concerns are probably genuine, the way his message was picked up and boosted by multiple influential figures appears less than organic.

On the face of it, it's not obvious how dire warnings about existential risk would be beneficial to the AI industry. Big tobacco spent years suppressing information about the dangers of its products. So why are AI executives so keen to talk about how their technology could be used by terrorists or lead to the extinction of swathes of white-collar work?

Is Anthropic doom trolling?

The answer, as Cal Newport, a computer science professor at Georgetown University, argues, is the pervasive use of a marketing technique he calls “doom trolling” (a spin on phone addicts' “doom scrolling”). Fear sells. Outrageous claims about the dangers of large language models (LLMs – the currently favoured AI technology) go viral, generating vast amounts of free media coverage for the company that originated them. Talk of existential risk makes AI products appear hugely powerful and desirable.

This buzz helps to distract from the less exciting reality. Yes, LLMs can do impressive things in highly structured domains such as coding and translation, where clear failure conditions help limit their tendency to go off the rails. In other areas (including journalism), their catastrophic tendency to make up information greatly circumscribes their usefulness.

In short, the LLM is a new software category, but investors are not going to pay trillions of dollars for a newer version of Microsoft Excel. Instead, these tools must be imbued with a dark, apocalyptic glamour. Such doom-mongering is longstanding industry practice. As Parmy Olson notes on Bloomberg, in 2019 OpenAI said it would hold back its GPT-2 model from general release on the grounds that it was too dangerous – this for an LLM that struggled to answer primary-school-level reasoning tasks. Terrifying indeed.

This year the AI doom campaign has been turned up to max. Barely a week goes by without claims (all originating from within the AI companies themselves) that a bot has gone on a rogue hacking spree, CEOs, including Anthropic's Dario Amodei, have backed a slowdown in the development of AI or that a new model can't be released because it creates serious cybersecurity risks (it is then released shortly afterwards anyway). The effect has been to generate precisely the sort of frenzied atmosphere that one would want to surround a trio of high-stakes AI-linked IPOs: SpaceX in June, Anthropic scheduled for October, and OpenAI sometime next year.

Who benefits from AI doom trolling?

The AI industry's calls for regulation carry the whiff of “regulatory capture”. Government red tape is more burdensome for upstarts than it is for big established players. New safety regulations could help AI leaders throttle the competition. There is persistent suspicion that Anthropic's Amodei would like to see regulations that effectively excludes his main competitor – cheaper, open-source, often Chinese AI – from major Western countries. If you can't beat them, ban them.

It is also possible that calls for a slowdown represent an attempt to put a brave face on the fact that the AI arms race is becoming too expensive. OpenAI is on course to spend $45 billion this year alone on training and inference (the cost of running AI), but the performance of new models is running into diminishing returns. That isn't an ideal backdrop in which to successfully list a growth company. Instead of breaking the bad news to investors and tanking the valuation, why not piously tell the media you are choosing to slow down development because of your abundant love for humankind?

Don't fall for the hype

What does all this mean for ordinary investors? For starters, don't fall for the tech hype machine. Steer clear of this year's big flashy IPOs, a crowded trade if ever there were one. Secondly, diversify widely. Continue to look for the sort of underexplored investment themes that we cover in depth. And finally, keep your head. There is no knowing how long the current AI fever will last, nor exactly how wide the damage will be when it breaks, but you can at least regain some tranquillity by tuning out the endless talk of doom. Perhaps AI really will kill us all in some hypothetical future. But for now, it is the AI-marketing hype that represents a clear and present danger to our collective mental health.

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The F&C Investment Trust aims to deliver long-term growth in capital and income for shareholders. It is a FTSE 100 constituent and is the oldest and one of the largest investment firm in the UK, with assets that exceed £7 billion. It invests in listed equities and private equity and has delivered 55 consecutive years of rising dividends. The trust is globally diversified and conservatively managed.

I have managed the firm since mid-2014, working with specialist stock-pickers from Columbia Threadneedle Investments and elsewhere in the market. This gives the trust exposure to different geographies, investment styles and sectors, including firms benefiting from long-term changes in what we spend money on, how we pay and use technology. The following holdings illustrate these themes.

Diverse stocks for long-term growth

Mastercard (NYSE: MA) is at the heart of the long-term move from cash towards card and digital payments. It earns fees on transaction volumes and values without taking credit risk, enabling an asset-light business model and exceptional capital returns. Its scale provides a significant competitive advantage. Consumers want cards that are widely accepted, while retailers want to accept the cards their customers already use, making Mastercard's network difficult for new competitors to replicate. Beyond the ongoing shift away from cash transactions in developed markets, there are opportunities for growth in emerging markets too. Mastercard is also expanding its value-added services, including cybersecurity, data analytics and open-banking services, providing further opportunities for growth.

Infineon Technologies (Frankfurt: IFX) is a leading supplier of the technology underpinning three significant long-term trends: electrification, energy efficiency and AI infrastructure. It has a strong competitive position built over many decades. Sophisticated power management is at the heart of many of the transitions currently underway, including the shift to electric vehicles, renewable energy and modernising the grid, and Infineon is the global leader in power semiconductors, which are essential in this area.

The rapid growth of AI is creating another significant source of demand. The data centres needed to train and run increasingly sophisticated AI models require huge amounts of computing power and electricity, making efficient power management increasingly important. This represents a significant new growth market for Infineon that barely existed a few years ago. While its shares have been volatile, we believe the current valuation does not fully reflect the potential.

Live Nation Entertainment (NYSE: LYV) is the world's largest live entertainment company and has grown revenues by 15% per year on average since the pandemic. The company is benefiting from a structural shift in consumer spending towards experiences over goods, with demand for live experiences, such as concerts, increasing as a result. The combination of ticketing through Ticketmaster, concert promotion through Live Nation and venue ownership and management gives the business a strong position across the live entertainment industry. Consumers can buy their tickets, see their favourite artist and attend a venue all within the same platform. This vertically integrated model creates a powerful competitive advantage, allowing Live Nation to benefit at several different points as demand for live entertainment grows.

The three businesses above operate in very different industries, but each has built a robust competitive position in an area benefiting from a long-term shift in demand. For investors, identifying companies capable of turning these structural changes into sustainable long-term growth can provide opportunities that extend well beyond the short-term market cycle.

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Shares in housebuilder Vistry (LSE: VTY) jumped 18% on 25 August when it was announced that the Kent-based company would receive £350 million as part of the government's £39 billion social and affordable homes programme.

The funding package was significantly higher than the award under the previous programme (£278 million). It was also the largest possible award in the first round of funding allocations (£9.5 billion). Vistry said it will deploy the funds immediately to more than 3,000 affordable homes. Per-home funding is £116,000, up from £79,000.

Vistry delivers around 15% of the UK's social/affordable homes and is one of the best ways for investors to benefit from Labour's drive to get the country building again, but the firm has consistently disappointed investors. After the recent funding package, there could be some light on the horizon. At the current valuation, investors don't seem to be pricing in any growth.

How Vistry became the UK's most shorted company

It's fair to say that Vistry has a chequered history as a public company. Greg Fitzgerald, the former CEO and executive chair, built the firm, which was formerly known as Bovis Homes, through a series of deals, rebranding the group as Vistry in 2020 following its £1.1 billion acquisition of Galliford Try's housing businesses. Fitzgerald aimed to create a builder focused on partnerships with local housing providers and local authorities, rather than sales to private markets, which seemed the right course as politicians began to re-prioritise public-sector housebuilding. To that end, the group bought Countryside Partnerships for £1.3 billion in 2022.

Fitzgerald had the vision, but struggled to realise it. Vistry's vocal shareholders, US hedge funds Abrams Capital and Browning West (more than 20% ownership), haven't helped. The funds came on board with the Countryside merger and have since increased their stakes. In March 2023, it emerged that they wanted to offer Fitzgerald a bonus of up to £60 million if the shares hit £18 within three years. The proposal mimicked the agreement with Persimmon's former boss Jeff Fairburn, who was forced to resign following public outcry over his £75 million long-term bonus package. Vistry's remuneration committee voted it down, but the damage was done.

Since then, the firm has issued six profit warnings. In October, November and on Christmas Eve in 2024, it issued three consecutive warnings that higher-than-expected costs would hit the bottom line. This trend continued in 2026. In March, the shares plunged more than 20% in one day when Vistry announced Fitzgerald would retire and the firm lowered its outlook for the year. Then, in May, Vistry said material cost inflation would hit pre-tax profit by around 10% for the year. In July, these forecasts were scrapped altogether. The firm told investors it would report a pre-tax loss of about £30 million for the first half of 2026 on top of the £40 million reported for the first half of 2025.

This stream of bad news has crushed the shares. Although they have risen 20% since their multi-decade low in June, they're off 80% after peaking in August 2024. Vistry is now the most shorted company listed on the London market.

Is there any silver lining for Vistry shareholders?

Unfortunately for long-suffering shareholders, there could be more bad news to come. Reports suggest Fitzgerald pushed Vistry's land buyers to purchase any land they could get their hands on, some of which can't be used. It's believed that the new CEO, Adam Daniels, is working to undo these errors. Ultimately, sales will help him improve the balance sheet, but there could also be write-downs. Buyers know the company is in a rush to sell and they will push a hard bargain.

So where's the good news in all of this? Well, Vistry is operating in a structurally sound market with increasingly supportive stakeholders across the value chain. The government's £350 million cash pot has removed immediate speculation about a deeply discounted rights issue and private bank funding for social housing is starting to be crowded in. Lloyds and Santander have both announced boosts to funding for the sector this year.

As a new CEO, Daniels has a chance to get to grips with all past problems (the group is also replacing the CFO) and reset expectations. Vistry needs to take control of costs and move forward rather than stumbling over its own mistakes.

Vistry is a deep value play

While the company faces an uphill struggle, brokers are optimistic. Panmure Liberum thinks the company is taking the right steps to reduce leverage (with a year-end target of £100 million of net cash and average daily debt of £650 million in the second half compared with last year's £771 million) and has pencilled in housing completions of 16,330 for fiscal 2026, up from 15,658 as stalled developments from last year reach completion. The broker believes completions will rise further to 17,170 in 2027 and to 20,157 by 2030. Panmure has pre-tax reported profit falling from £196 million to £29 million in fiscal 2026, before rebounding to £173 million in 2027 and then £452 million by 2030.

Peel Hunt has a similar outlook, with a pre-tax profit of around £300 million pencilled in by the end of the decade. If Vistry comes close to these figures, the shares look cheap at current levels. Vistry is trading at an average forward price-to-earnings (P/E) ratio of 5.5 for 2027 based on Peel Hunt's and Panmure's figures. What's more, its tangible book value per share – mostly land and property yet to be sold – is 625p, a full 120% above the current price. With the shares priced at around half the sector average and more than 50% below book value, if Vistry can prove to the market it's back on track, the shares could double.

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The on/off Middle East crisis is on again this week, sending up oil prices in response. Dated Brent – a key benchmark based on North Sea oil – is above $100 for the first time since July at the time of writing.

Every time oil moves in a significant way, it raises the question of how best to play higher prices. One answer to that depends on what kind of move you expect.

Dated Brent – which is the benchmark that you tend to hear most – reflects what is happening to demand for physical oil right now. It is an example of a spot price, meaning the price to complete a commodity transaction immediately. In the case of Dated Brent, the buyer is buying a cargo of oil that will be loaded on a predefined date in the next few days or weeks.

However, traders also pay close attention to futures prices – the price of a contract to buy or sell oil at some point in the future. That date may be in one month, three months, six months or further ahead. There is a long chain of contracts which can stretch out for years, but most activity is in the ones closest to expiry.

As an individual investor, you can't trade physical oil directly. You could trade oil futures, but using an exchange-traded fund (ETF) such as WisdomTree Brent Crude Oil ETF (LSE: BRNT) is simpler. Yet this distinction between spot and futures prices is still important when using an ETF.

How oil ETFs work

While ETFs for gold or other metals often hold physical metal and reflect the spot price, oil ETFs have traditionally worked by buying futures contracts for near-term months. As each contract gets close to expiry, the ETF sells its existing position in that contract and rolls over into another contract a month or two further out.

So the ETF will reflect the trends in near-term oil futures. It will also gain or lose from a less obvious source of return called roll yield. If futures prices for the nearest months are higher than those for more distant months, the ETF will be selling higher and buying lower each time, and will earn a profit from doing so. Conversely, if prices for nearer months are lower than more distant months, the ETF will be selling lower and buying higher, and the roll yield will be negative.

If – as is often the case in a crisis – spot prices spike by much more than futures, a typical oil ETF will not rise by as much as the spot price does. However, the new-ish Onyx Spot Return Crude Oil ETF (LSE: OIL) takes a different approach. It holds very short-term daily Dated Brent futures, which it continuously rolls over. As a result, it is a closer proxy for the spot price. This product launched in June and has beaten traditional ETFs since then (see chart). Whether it keeps doing so depends on whether spot prices remain much higher than futures and on whether the futures roll yield is positive or negative. Regardless, it's interesting to see a new way to trade immediate shocks to physical oil prices that relies less on shifts in futures.

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Airlines have been one of the hardest-hit industries as a result of the war in Iran, and the industry is struggling to recover from a succession of punishing shocks.

The Covid pandemic was a challenging start to the decade for the airline industry, as it all but shut down global travel. Two years later, Russia’s invasion of Ukraine sent oil prices sky-high, pushing up input costs for airlines.

The story has been similar in 2026, with the US/Israeli conflict with Iran prompting the closure of the Strait of Hormuz, through which around a fifth of global oil supplies previously moved, adding further upward pressure onto the cost of jet fuel while pushing global inflation higher.

“High oil prices are turning the coming winter into a stress test for airlines,” said Lale Akoner, global market strategist at investing platform eToro. “Fuel and labour costs are rising, while geopolitical disruption and pressure on household budgets make it difficult to pass them on through higher fares.”

The International Air Transport Association warned in June that global airline profits would halve in 2026 due to higher fuel costs.

Airline stocks have been punished. The NYSE Arca Airline Index, an index of US-listed airlines, fell 11.9% in 2026 through to 10 September, while the STOXX Europe Total Market Airlines Index, which comprises European-listed airlines, fell 12.8% over the same period.

But while it is undoubtedly a challenging period for the sector as a whole, are there opportunities amid the disruption?

What does EasyJet’s acquisition mean for airline stocks?

One of the biggest consequences of the rout in airline stocks appears to be the acquisition of EasyJet (LON:EZJ) by US-based private equity firm Apollo.

EasyJet rejected a sequence of bids from private equity firm Castlelake, calling the bids “opportunistic” given they followed a sharp nosedive in the airline’s share price. EasyJet’s share price had declined by over 30% in the 12 months to the end of May, before Castlelake’s first bid.

Eventually, though, Castlelake’s rival Apollo made a bid that EasyJet’s board felt compelled to accept, and it now looks as though the airline will be acquired.

“EasyJet is now a different kind of investment, with Apollo agreeing to buy the airline for 715p a share,” said Akoner. “The deal, which appears likely to be completed, has largely insulated the shares from the latest fuel shock.

“However investors should be wary as most of the takeover gain has already been captured, leaving limited additional upside before the expected completion in early 2027.”

EasyJet’s takeover highlights the extent to which airlines are under pressure, and that this creates an opportunity that institutional investors are already exploiting.

“We think this difficult backdrop could still produce winners,” said Akoner. “Airlines are already cutting unprofitable routes, and weaker operators may have to go further. Fewer available seats should support ticket prices and allow the most efficient airlines to increase market share.

“For investors, the sector increasingly looks like a contest between companies with genuine cost and balance-sheet advantages and those relying mainly on passenger growth.”

Which airlines could be resilient?

Andrew Hollingworth, founder and portfolio manager at Holland Advisors, is of the view that the worse things get for most airlines, the better they are for Ryanair (DUBLIN:RYA) as it has permanent pricing power.

“Ryanair is the lowest cost producer,” said Hollingworth. “If they put their prices up by three euros, [no other airline] is remotely near them, so everyone’s got to pay. “

Most other airlines, though, only have pricing power when the winds are blowing in their favour.

“If the oil price is moderate or rising, but the economy is good, and demand on their routes is good, and they haven’t got new competitors, they can put their prices up and pass on cost inflation,” said Hollingworth. “But if the economy isn’t so good, but the fuel price is still rising, hard luck. There isn’t enough demand to pass on the cost inflation.”

Like Ryanair, Jet2 (LON:JET2) is also a low cost provider, but it offers more to customers through its scale economy than low prices alone.

“It’s not actually an airline, it’s a package holiday company,” said Hollingworth. “Jet2 gives you good value for money on a package holiday, but it also gives you customer service.”

That gives the company excellent customer loyalty, but Hollingworth doesn’t believe this is fully priced.

“The stock market's got it on a very low P/E ratio because it says ‘it's just another average tour operator like Tui,’ but that's not how the customer sees it,” he said. “The customer sees that they give them value for money, they give them good quality service.”

How to invest in airline stocks

If you think it’s time to buy rather than sell airline stocks, you have a few options (besides buying the shares of companies outright).

There are a number of thematic exchange-traded funds (ETFs) tracking the travel sector that offer exposure, such as the iShares STOXX Europe 600 Travel & Leisure UCITS ETF (DE:EXV9) which is a tracker fund following its namesake index, and the US Global Investors Travel UCITS ETF (LON:TRIP) which is an actively-managed ETF offering exposure to travel and tourism stocks. While both of these are diversified travel and leisure funds, airline stocks like Ryanair feature prominently in both portfolios.

Another option is the VT Holland Advisors Equity Fund, which is managed by Hollingworth. It holds Jet2 as its largest holding (with 8.1% of the portfolio) and Ryanair as the sixth-largest (with 4.4%) as of 28 August. Note this isn’t an airlines-focused fund, but one which aims to invest in compelling business models trading at favourable valuations across a range of sectors.

SpaceX’s initial public offering (IPO) was a landmark moment for many investors, opening up a new galaxy of opportunities.

Its historic June debut saw the space exploration company valued at $1.77 trillion at its IPO and its share price surging by 50% in the first three days of trading. .

SpaceX’s (NASDAQ:SPCX) share price has fallen back since, but the appetite for space investing is only ramping up, with investors having more ways to access the sector than ever before.

Opportunities to invest in space are being fuelled by the ongoing artificial intelligence (AI) boom.

“Old space put humans on the Moon. New space is building the commercial infrastructure of the global economy,” said Mark Boggett, CEO of space tech investment firm Seraphim Space. “The convergence of AI and space tech, together with rising demand for connectivity, defence and sovereign capability, is creating one of the most compelling investment opportunities of the coming decade.”

How SpaceX and Nvidia are joining space and AI

It’s tempting to think of artificial intelligence (AI) and space as two separate themes, but they are increasingly closely linked.

SpaceX, for example, is largely an AI company since it merged with xAI, Elon Musk’s AI company and maker of the Grok LLM suite, earlier this year. SpaceX identified a $28.5 trillion total addressable market in its IPO prospectus, of which $26.5 trillion was attributed to AI – compared to $1.6 trillion for satellite connectivity and $370 billion for space launch services, which have historically been the pillars of SpaceX’s business.

One of the most visible crossovers between the space and AI themes is the concept of the orbital data centre – essentially, a data centre in space. These don’t exist yet, but they may not be far away: Starcloud, a start-up dedicated to making orbital data centres a reality, raised $250 million at a $2.3 billion valuation in August.

Among the list of investors in Starcloud’s latest investment round are tech hardware giants Nvidia and Cisco.

“Orbital data centres have gone from science fair to a funded race in a matter of months, with Nvidia neatly hedging both sides by backing Starcloud and SpaceX's rival Starmind,” said James Lockyer, research analyst at investment bank Peel Hunt said.

Nvidia especially is increasingly central to the space industry’s designs. Colette Kress, the company’s chief financial officer, confirmed at Nvidia’s Q2 earnings call that SpaceX is among a number of leading partners that the firm’s latest generation of chip, Vera CPU, is being shipped to.

Nvidia also holds a stake in SpaceX via an earlier investment into xAI.

“The chip cycle and the space cycle are fusing,” said Lockyer. “Nvidia funding, supplying, and holding equity in SpaceX ties the single most valuable name in AI to the most valuable name in space, and for investors it makes SpaceX a compute story as much as a launch one.”

How to invest in the new space economy

As the space industry develops, investors have greater access than ever before. While SpaceX is the largest company in the space sector and is readily available to buy since its IPO, other stocks such as Rocket Lab (NASDAQ:RKLB) and AST SpaceMobile (NASDAQ:ASTS) offer space exposure too.

Companies like these can be accessed through thematic exchange-traded funds (ETF), such as the WisdomTree Space Economy UCITS ETF (LON:WSPG) or the Seraphim New Space UCITS ETF (LON:SERA), which launched on 2 September.

Seraphim New Space UCITS ETF is based on the Seraphim New Space Index, which identifies and weights companies across various components of the space investment ecosystem. Its representative holdings include SpaceX, as well as companies like space infrastructure company Intuitive Machines (NASDAQ:LUNR) or BlackSky (NYSE:BKSY) which offers “space-based intelligence” by using AI and machine learning to instantly analyse imagery captured from satellites.

The ETF also holds a position in Seraphim Space Investment Trust (LON:SSIT), which gained 56% in 2026 through to 28 August. Unlike the ETF, which will mostly hold publicly-listed companies, Seraphim’s investment trust mostly holds private companies related to the space economy.

Targa Resources owns and operates natural gas pipelines, gas plants, liquefied petroleum gas (LPG) export facilities and crude oil terminals across the US. In mid-August, its shares rose 10% after it announced a 20-year midstream deal with ExxonMobil to build and operate a portfolio of energy infrastructure assets for the oil and gas giant.

Targa's deal is the latest in a series of multibillion-dollar projects recently commissioned by oil giants and governments to help move oil and gas around the world.

Targa Resources (NYSE:TRGP) is a midstream energy group, playing a vital role in the energy sector. These businesses link upstream companies, which drill and extract the raw product, and downstream businesses, which refine and sell it to consumers.

Most oil and gas majors manage this part of the process themselves, but in markets such as the US, where thousands of smaller producers in oil fields need to connect to major refining and storage hubs, midstream firms are a vital part of the chain.

Growth in the pipeline market

The $65 billion Targa is just one such company in the industry. The firm was founded in 2003 and has grown steadily through organic growth and acquisitions. In 2004, it purchased midstream natural-gas operations from oil major ConocoPhillips and in 2005, it acquired an asset from energy supply business Dynegy. In 2007, the company listed as Targa Resources Partners LP, using the money from the initial public offering (IPO) to seal more deals.

Over the following two decades, Targa secured 20 further agreements, encompassing joint ventures, partnerships, asset sales and stake sales in key infrastructure assets.

Today, the group owns and operates assets across New Mexico, Oklahoma, Texas and Louisiana. It is active in the key oil-production regions of the Permian, the Bakken Three Forks Shale, Eagle Ford Shale and Fort Worth Basin.

The Permian has become one of the most important oil-producing regions in ExxonMobil's portfolio. When the group sealed the $60 billion deal to buy Pioneer Natural Resources in May 2024, it doubled its footprint in the region and laid out plans to drive production to two million oil-equivalent barrels per day (boepd) by 2030, up from the 612,000 barrels Exxon produced from the region in 2023.

Production hit a record boepd in the second quarter and is now close to 1.8 million as the group continues to grow at a breathtaking pace.

Exxon's total Permian production consists of between 70% and 75% liquid hydrocarbons (crude oil and natural gas liquids) and 25%-30% natural gas. This needs somewhere to go, and that's where the deal with Targa comes into play.

Exxon has agreed to so-called natural gas liquids (NGL) dedications with Targa, whereby it is legally committed to using the company's midstream assets for transport, processing, or fractionation (a physical and chemical separation process) of NGL production from its key fields in the Permian region.

Following these commitments, Targa has announced three new natural-gas processing plants in the Permian Delaware: Wrangler, Ranger, and Ranger II, with a combined capacity of approximately 825 million cubic feet per day.

The plants are expected to be operational in the first half of 2028, with scope for up to five additional processing plants. It also announced plans to build a new, approximately 70-mile, natural-gas pipeline called Bull Run II, supported by take-or-pay commitments (whereby producers buy a fixed amount of capacity and pay whether they use it or not).

To meet these commitments, Targa has upgraded its expected capital spending for the year from $4.5 billion to $5 billion. The business spent $2.1 billion on growth and maintenance capital in the first half of 2026, up 23% from the same period in 2025.

A new gold rush

Despite substantial efforts by policymakers over the past two decades to wean the world off its addiction to hydrocarbons, there has been no let-up in the relentless march of the oil and gas industry.

Pipelines and midstream assets are an often overlooked part of this market, but the conflict in the Middle East has highlighted their importance to the global economy.

With the Strait of Hormuz closed to shipping, pipelines across the Middle East have become critically important for the region's oil and gas producers.

In the past two months, the United Arab Emirates has announced plans to open a new pipeline alongside its existing Habshan-Fujairah pipeline, doubling its capacity.

Meanwhile, America, Iraq and Qatar have also announced plans to upgrade a pipeline from Iraq to Syria, and Chevron is in talks to build a series of them from Iraq to Syria and Turkey.

According to The Economist, citing information from Global Energy Monitor, an oil data and research firm, 12,300 kilometres of pipelines are currently under construction worldwide, with an additional 20,100 kilometres proposed.

Taken together, these additions represent nearly a 10% increase over the 350,000 kilometres of pipelines currently in operation worldwide.

The most cost-effective way to get oil and gas from production fields (usually located inland or in deep water) to refineries and key export markets is by tanker.

Transporting each barrel of oil on the world's largest seagoing tankers can cost as little as a few dollars a barrel. But when it is impossible to use tankers to transport them, producers have no choice but to turn to other methods such as rail, road or pipelines.

A large-diameter pipeline that can carry around one millions barrels of oil per day costs, on average, about $5 million per kilometre, or $5 billion for a 1,000 kilometre pipeline.

That's assuming the pipeline is laid over relatively flat terrain. If mountains, rivers and lakes get in the way, costs can rise significantly.

The significant upfront capital cost is why midstream companies and pipeline owners turn to take-or-pay agreements.

Under these agreements, customers purchase a minimum amount of transport capacity on the pipeline and pay a fee for this capacity, often indexed to the price of oil over an extended period (frequently a decade or more).

The company has to pay to use this capacity whether or not it has oil to transport. This dramatically reduces the risk inherent in the project for the pipeline-operating company and its lenders.

Pipelines require a lot of capital to start, but the long-term economics are hard to argue with.

Data compiled by The Economist shows that the cost of transporting oil via a pipeline is, on average, around $5 per barrel. The cost rises to $18 per barrel when oil is transported via road or rail.

At the height of the US-Iran conflict earlier this year, some reports emerged of companies in central Africa paying as much as $200 a barrel, with $50 of that covering transport costs alone.

No wonder, then, that there is heavy investment in expanding pipeline networks to cut costs and improve reliability. In East Africa, for example, a 1,500 kilometre pipeline is under construction to transport oil from Uganda to the Tanzanian coast.

Argentina is building a 440 kilometre pipeline to connect its key oil fields in the centre of the country to the Atlantic.

There is a growing opportunity for investors. Because returns from pipelines are relatively stable and predictable, thanks to pre-agreed take-or-pay contracts, private infrastructure funds have flooded into the market.

According to McKenzie, a consultancy, assets under management across private infrastructure funds have rocketed to $1.6 trillion in recent years.

This year, global investment group KKR finished raising money for its largest-ever infrastructure fund with a total value of $19 billion. It's almost certain a large chunk of this will go to pipeline projects. Blackstone and Brookfield are also getting in on the action. KKR, Blackstone and Brookfield have signed a $16 billion deal with Kuwait's oil company for a stake in the country's pipeline network.

Don't be tempted by partnerships

The midstream sector is particularly strong in the United States thanks to a quirk of US tax law.

Midstream firms can be structured as master limited partnerships (MLPs), which are pass-through entities much like real-estate investment trusts (REITs).

MLPs pay no taxes, so they can distribute much more of their cash flow to investors. Investors then pay tax on these distributions. Over the past decade, many former MLPs have transitioned to C-corporations (a standard limited company) following a change introduced by the 2017 Tax Cuts and Jobs Act.

The changes have opened these companies to a wider range of investors, but yields have fallen because dividends are now paid out after corporate tax; in the partnership model the tax liability falls on the investor.

As a rough guide, the Alerian MLP ETF currently yields 7.4% on a trailing 12-month basis, while the Alerian Midstream Energy Dividend UCITS ETF, which has strict limits on MLP exposure, yields just 3.6%.

The Alerian Midstream Energy Dividend UCITS ETF has enforced limits on exposure to MLPs owing to K-1 tax constraints – the reason why these MLPs are unsuitable for all but the most sophisticated investors. A Schedule K-1 Federal Tax Form is issued by US partnerships to report a partner's share of its income, losses, capital gains and dividends.

In short, they are a nightmare for non-US investors. Even smaller domestic US investors generally avoid partnerships to avoid the added administration these tax requirements create. Very sophisticated investors who want exposure to these businesses may use total return swaps or other synthetic instruments instead, rather than becoming entangled in the web of compliance. Don't be tempted by a high yield on a US midstream MLP.

Fortunately, plenty of other options exist for investors to play this theme. Kinder Morgan (NYSE: KMI), the largest natural gas-pipeline operator in the United States (and a former division of Enron) consolidated its various MLPs into a single traditional C-corporation in 2014 in order to lower its cost of capital and appeal to a broader range of local and international investors. Many of the company's peers have since followed suit.

A tailwind from AI

Kinder Morgan reported record net income of $867 million in the second quarter, up 21% from the same period last year.

Around $660 million of new projects coming on stream helped boost the company's top and bottom lines, including Tennessee Gas Pipeline's (TGP) Cumberland Project, designed to serve a new gas-fired power plant in Tennessee.

The company said it had a construction backlog of $9.7 billion at the end of the quarter, with an additional $400 million of projects not included in the official backlog, but sanctioned to proceed.

Natural-gas projects made up 92% of the backlog, and 60% of those projects are designed to support local power generation and distribution. The company believes it will outperform expectations by 5% for the year, with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $9 billion and a 12% rise in adjusted earnings per share.

Kinder Morgan, like other US midstream companies, is benefiting from increasing demand for power across the US driven by the AI boom. According to Goldman Sachs Research, domestic power demand from data centres is projected to more than double from 31 gigawatts (GW) to 66 GW by 2027, consuming over 8.5% of total US peak summer electricity.

To keep up, companies are commissioning new natural-gas power plants, which can be brought online in a few years and located next to data centres; pipelines are needed to connect these facilities to production zones.

Kinder Morgan may be the largest natural-gas pipeline operator in the sector, but peer Enbridge (Toronto: ENB) is worth nearly twice as much.

It plans to spend between C$10 billion (£5.3 billion) and C$11 billion this year, with half of that already spent in the first six months. It is constructing the $4 billion Sunrise expansion of its British Columbia pipeline (adding 140 kilometres of new pipeline in addition to upgrading the capacity of the existing pipeline) and spending $1 billion relocating a pipeline in Wisconsin.

Williams Companies (NYSE: WMB), the second-largest pipeline group after Enbridge in market value, has raised its spending guidance for the acquisition of Momentum Midstream. It is now projecting spending between $7.3 billion and $7.9 billion in 2026.

Enterprise Product Partners is spending around half as much, with capital spending earmarked at between $2.9 billion and $3.4 billion, net of asset sale proceeds.

Key projects include two new gas-processing plants in the Permian Basin, illustrating the growing importance of natural-gas processing and transportation.

Enterprise Product Partners is the fastest-growing of the large midstream companies, but it is also still structured as a partnership. It reported a 19% increase in adjusted cash flow from operations in the first half to $2.5 billion, as well as a 28% increase in net income, thanks primarily international demand for US natural-gas liquids and crude oil.

Energy Transfer also set several all-time record volumes, notably in natural-gas liquids transportation volumes, which increased 13%, and exports, which increased 25%. Distributable cash flow rose 32% to $2.6 billion. Enbridge, Williams and Kingdom Morgan are all trading at roughly the same valuation, with a price/ earnings ratio (p/e) in the low 20s and a yield between 3% and 5.5%.

The Alerian Midstream Energy Dividend UCITS ETF (LSE: MMLP) offers exposure to all three companies, plus 16 others, with Kinder Morgan, Williams, Enbridge and Targa comprising around 40% of the fund. Investors also get synthetic exposure to the Alerian MLP index.

The picks-and-shovels plays

Infrastructure provides a steady, predictable return. But if you want something offering a bit more excitement, consider the companies providing the picks and shovels to help build future pipelines. Companies worthy of research include Caterpillar (NYSE: CAT), Tenaris (NYSE: TS), MasTec (NYSE: MTZ) and Primoris Services Corporation (NYSE: PRIM). Caterpillar is a broad-based play on the health of the US economy. The company reported record revenue of $20.5 billion in the second quarter, up 24% year on year – the first time Caterpillar has reported more than $20 billion of revenue in a single quarter.

Meanwhile, the company's order backlog hit a record of $72.1 billion, that's not just related to its diggers. While Caterpillar is widely associated with earth-moving and construction equipment, it also operates the SPM oil and gas brand and manufactures equipment for gas power plants. This energy and transportation division increased sales by 17% year on year. While the stock has dipped recently, it is still trading at 25 times projected 2027 earnings.

Tenaris is one of the more interesting companies in the area. It supplies tubular steel used to make pipelines worldwide. Sales fell 4% in the second quarter, mainly because shipments to customers in the Middle East were postponed owing to the conflict.

Lower deliveries to Kuwait and Iraq were, however, offset by higher sales to Venezuela and Argentina, along with the start of delivery of offshore line pipes to the Sakarya Black Sea development in Europe.

The company reported a $3.6 billion net cash position at the end of June, compared with a $19bn market capitalisation. The stock is on a forward p/e of 13.9.

MasTec and Primoris are two of the largest engineering construction contractors in North America. The latter is more focused on utilities, while the former has a big pipeline and energy business. Still, both recently reported record second-quarter sales and record order backlogs.

MasTec reported a record 18-month backlog of $21.4 billion; of this total, $1.8 billion was allocated to its pipeline segment, while Primoris achieved a record total backlog of $13.9 billion (comprising $7.7 billion in the utilities segment and $6.2 billion in energy).

MasTec recently acquired The Superior Group to expand its services into datacentre infrastructure and trades at the higher valuation of the two (21 times 2027 earnings versus 14 for Primoris). That's because Primoris reported a loss for the second quarter, despite record sales. The losses stemmed from cost overruns on six renewable-energy projects. All of these will be complete by the end of the year, which should draw a line under the situation.

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CVS Group (LSE:CVSG) is an example of how temporary uncertainty can create attractive investment opportunities.

For the past three years, the UK's largest listed veterinary services group has traded under the shadow of the Competition and Markets Authority's (CMA) investigation into the sector.

Investors feared the regulator would impose remedies severe enough to undermine the industry's profitability, pushing the shares down to 13 times earnings – a ten-year low.

Yet during that period, the business continued to compound earnings at an attractive rate. Revenue and profits kept growing, the firm expanded internationally and management kept investing in the business.

With the CMA's process now largely complete, investors have a chance to judge CVS Group on its operating performance rather than regulatory uncertainty.

Since listing in 2007, CVS Group has delivered uninterrupted revenue and Ebitda growth, a record few UK-listed companies can match, and one that helps explain why the shares historically commanded a premium valuation.

Few industries offer the resilience of veterinary care. People may postpone replacing a car or renovating the kitchen when finances come under pressure, but pet owners are unlikely to delay treatment for a sick pet. Demand therefore tends to remain resilient through economic downturns.

The industry's long-term outlook also remains favourable. Advances in veterinary medicine mean treatments once confined to specialist centres – including MRI scans, orthopaedic surgery and oncology – are becoming increasingly commonplace.

Add the millions of puppies and kittens acquired during Covid now reaching the age where healthcare spending accelerates, average spending per pet looks set to continue rising.

CVS Group has spent more than two decades building a business designed to benefit from those trends.

What started as a consolidator of independent veterinary practices has evolved into an integrated healthcare network spanning 500 sites, including general veterinary practices, specialist referral hospitals, diagnostic laboratories and an online pharmacy.

That integrated model creates meaningful competitive advantages. A routine consultation can lead to specialist diagnostics, orthopaedic surgery or oncology treatment without the patient leaving the CVS Group network.

Rather than referring work elsewhere, the company retains a greater share of each pet's lifetime healthcare spending while improving utilisation of its specialist facilities. It also makes the network more attractive to both clients and clinicians, reinforcing the advantages that scale already provides.

How CVS Group is cementing loyalty

Roughly 500,000 owners pay monthly subscriptions via The Healthy Pet Club, covering vaccinations, parasite treatments and routine health checks.

The subscriptions provide recurring revenue, and encourage owners to visit their vet more regularly – increasing customer loyalty while creating opportunities for higher-value diagnostics and treatment.

CVS Group has also invested heavily in recruitment, training and retaining veterinary professionals.

While labour shortages affect much of the sector, the firm's scale enables it to offer clearer career progression and more opportunities for clinical specialisation than independent practices can provide.

That should help support future growth and reinforce its competitive position.

The story does not end in the UK. Australia today resembles the UK veterinary market of 15 years ago – fragmented, independently owned and offering considerable scope for consolidation.

In three years, CVS Group has acquired 57 practices generating £80 million of annual sales, with the same disciplined acquisition strategy that proved successful in the UK.

Since the CMA announced its investigation, the company's valuation has steadily fallen even as the underlying business has continued to grow.

Australia has emerged as a meaningful contributor to earnings, the group has strengthened its market position and sales have continued to rise.

Management used the period to strengthen the business and diversify future sources of growth. CVS appears stronger today than when the regulatory review began, yet the share price continues to reflect much of the uncertainty.

That valuation gap is difficult to justify. Businesses capable of generating resilient cash flows, delivering consistent double-digit earnings growth and reinvesting capital over long periods rarely trade on just 13 times earnings. For much of the past decade, investors were prepared to value CVS Group at more than 20 times.

That premium was not simply a reflection of optimism. CVS Group combined resilient end-market demand with dependable double-digit growth, strong cash generation and repeated opportunities to reinvest capital at attractive returns.

Those characteristics remain largely intact today. If anything, the Australian expansion has broadened the opportunity to deploy capital at attractive returns.

Wage inflation remains a challenge across the veterinary profession and continued investment in clinicians may weigh on margins in the near term. Australia must still demonstrate that it can replicate the success of the UK business over a longer period. A rerating may therefore take time.

However, those risks appear broadly reflected in the current valuation. The CMA investigation depressed CVS's valuation for much of the past three years. It did not stop the business from growing.

If the market begins to focus on the latter rather than the former, today's valuation may prove an attractive entry point.

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During Covid, Halfords (LSE:HFD), briefly benefited from the expectation that everyone would become a cyclist. Many people were making changes to their lives, such as adopting a pet, buying an exercise machine, or taking up a new hobby.

Shares in the firms that served these sectors surged, but once the lockdowns ended, many of these interests dwindled, causing the shares to fall back.

Even today, Halfords’ share price is still down 50% from its record peak in May 2021. But recently it has started to take off again and this time the increase could prove sustainable.

Halfords makes its money from selling accessories and providing repair services for bicycles and cars; it accounts for about half of all bicycles sold in the UK. It operates 370 stores, 496 garages, 21 mobile hubs and 92 commercial depots in the UK and Ireland.

Although overall sales have grown at a solid rate, increasing by around 40% since 2021, this conceals the fact that profitability has been far less consistent, due to higher costs and the overstocking of bicycles.

Normalised earnings per share are now less than half the level reached in 2021.

Halfords brings in a new broom

The good news is that Halfords' problems led to the appointment of new CEO Henry Birch last year. Birch has come up with a turnaround strategy based on three ideas.

In the short term, Halfords has worked hard to boost margins by keeping costs under control. It has also taken steps to improve its digital platform, making it easier for its customers to book services and sign up for regular plans.

However, the most interesting part of the new strategy is that Birch has been trying to shift Halfords' business more towards cars, which now comprise around 80% of sales.

He wants Halfords to focus on car repair and maintenance. One reason for this is that this part of the company has more growth potential than the stores owing to the greater opportunities for upselling (offering customers more and pricier products and services).

Another big advantage is that it is much harder for drivers to delay essential repairs than the purchase of accessories, making the division more resilient to the economic cycle.

Already this strategy seems to be paying off, with last year's pre-tax loss becoming a comfortable profit in the year to April 2026. Like-for-like sales (those from existing business units) are also growing at a healthy rate, while gross margins have improved too; Halfords recently upgraded its profit guidance for the next year.

Despite all this, the stock's valuation remains cheap at 12 times 2028 earnings and barely the value of the company's net assets.

The shares also offer a very solid dividend yield of 4.4%. Furthermore, they have soared 75% since 1 May, and they trade above both their 50-day and 200-day moving averages.

Go long at the current price of 232p at £15 per 1p. Put the stop-loss at 167p, which gives you a stop loss of £975.

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“What should I do if there's a AI crash?” a friend asked me recently. It is a very sensible question – we don't know there will be an AI crash, but having a clear plan to follow when you start to worry is better than waiting and panicking.

However, it's also a very difficult question, because the AI theme is such a huge part of the market: tech is over 35% of the MSCI World index (once you allow for firms such as Amazon and Alphabet assigned to non-tech sectors), while the trillions of AI capital expenditure is also buoying other sectors.

My first suggestion is to look at what wealth preservation trusts such as Capital Gearing (LSE: CGT), Personal Assets Trusts (LSE:PNL)and Ruffer Investment Company (LSE: RICA) hold.

These have diversified portfolios intended to cushion a market downturn, while still achieving growth. You could put some of your portfolio directly into these trusts, or you could look at how they allocate to cash, bonds, gold and other assets such as infrastructure as a template.

Even if you are a growth investor who is comfortable with high volatility to earn higher long-term returns, portfolios like these give you ideas for temporarily reducing risk that may be better than holding cash.

If you prefer open-ended funds, Orbis Global Balanced stands out for an active approach with more of a bottom-up value philosophy than most multi-asset funds.

Hedge against an AI crash with value stocks

If you want to stay entirely in stocks yet still dial down risk, you need to consider what kind of stocks are not caught up in the AI boom and may sell off less or rebound more quickly.

Think about this top down – by region (eg, UK and Europe) or sector (eg, pharmaceuticals and financials). Or you could look for value-focused stockpickers who favour other sectors.

That said, keep in mind that a European industrial that makes power equipment held in a value portfolio may still be a play on data-centre construction.

So it is difficult to anticipate how widely any pain from an AI crash may spread.

The most value-focused global trust is AVI Global (LSE:AGT), while most UK trusts have a value bias.

Among open-ended funds, Ranmore Global Equity has consistent returns from a portfolio that is very different to a typical global fund.

Some niche funds to consider

A third option is to look at very niche strategies whose medium-term returns should hopefully be unrelated to the AI-heavy global index.

Majedie Investments (LSE:MAJE) is now centred around such investments. It's an interesting holding in its own right, while looking at its strategy may help shape your own.

There are many specialist investment trusts and funds such as BH Macro (LSE:BHMG), BioPharma Credit (LSE:BPCR), BlackRock Frontiers (LSE:BRFI), Nippon Active Value Fund (LSE:NAVF) and Rockwood Strategic (LSE:RKW) or Polar Capital Global Insurance.

However, picking such funds is an approach for experienced investors who clearly understand what they are buying.

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Small cap stocks are often overlooked but, for that reason, they can reward patient investors over the long term.

“Small caps offer a rare combination of attractive valuations, growth, and diversification,” said Abby Glennie, co-manager, Aberdeen UK Smaller Companies Growth Trust. “We’ve also gone through market periods globally where the dominant tech themes have driven handfuls of mega caps to lead markets, but perhaps now is the time for market strength to broaden out. Or at least for investor allocations to broaden out from mega caps for risk diversification, as they become increasingly nervous on the artificial intelligence (AI) trade.”

Glennie highlighted that small cap stocks have held up surprisingly well this year in the face of the conflict in the Middle East – which, on paper, could have looked like a major headwind for smaller businesses.

The MSCI World Small Cap Index returned 13.8% in 2026 through to 31 July, outperforming the core MSCI World Index which gained 10.3% in the same period.

“We aren’t seeing risk-off market performance in the way many would expect,” said Glennie. “Part of this driver is that smaller companies are trading at significant discounts to their historical valuation levels.”

What are small cap stocks?

Investment bank Saxo Group defines a small cap stock as one with a market capitalisation (market cap) ranging between $250 million and $2 billion.

Not everyone categorises small caps in this way. The major index provider, MSCI, groups stocks into size categories according to the percentage of the investable market they cover in each individual country, rather than using an absolute figure as a threshold.

“When constructing the MSCI World Small Cap Index, MSCI looks separately at each developed market, such as the US, Japan, UK and Australia,” said Lynn Hutchinson, head of ETF and index solutions at Raymond James. “The large and mid-cap companies might make up around the first 85% of each country's investable stock market.” Small caps then become the rest, and MSCI then combines the small cap stocks from each country into a single, market cap-weighted index.

Generally, though, the $250 million to $2 billion range is a good rule of thumb for thinking about small caps.

With exceptions, their smaller size means small caps are less globalised than larger stocks – they may, for example, be more tapped-in to the domestic economy of their home country than larger cap stocks.

Why invest in small caps?

Small caps can offer diversification, especially in the current environment where momentum investing has concentrated lots of portfolios into the world’s largest stocks.

“Small caps provide exposure to a much broader range of businesses, sectors, and growth drivers,” said Glennie. “Small cap benchmarks and portfolios tend to be very diverse in that way, not dominated by handfuls of stocks or one overarching theme.”

They also offer the potential for higher returns, though this comes with the caveat that you might need to be prepared to ride out periods of volatility.

“In my view, small caps shouldn’t be treated with fear but with healthy curiosity,” said Angeline Ong, senior investment analyst at trading platform IG.

Small caps also offer good value to investors at the moment. The MSCI World Small Cap Index has an average trailing price/earnings (P/E) ratio of 18.4, as of July 2026 – compared to 23.1 for the MSCI World Index, according to data from investment research firm Morningstar.

Are UK small caps good value?

The UK’s small cap sector in particular offers good value. It trades even lower – at just 15.6 times trailing earnings, according to Morningstar.

“We see opportunities across global small caps, but the UK remains especially compelling on valuations,” said Glennie. “UK smaller companies have experienced a prolonged period of investor neglect, and the asset class has been unloved.

“This has left valuations substantially below both their own history and many international peers,” Glennie continued. “At the same time, many UK listed small caps generate revenues overseas, giving investors access to international growth opportunities but at a discounted price awarded for its headline UK listing tag.”

UK stocks are widely undervalued, across the market cap spectrum. But its small caps are weathering the economic storms that 2026 has thrown. The FTSE 250 index (which is made up of mid-cap stocks) gained 10.6% in 2026 through to 25 August, while the FTSE AIM All Share Index (comprising the country’s smallest stocks) gained 6.4%.

“While macroeconomic uncertainty remains, this isn’t holding back the asset class in the way many market participants might fear,” said Glennie. “Many high quality UK small caps continue to deliver strong earnings growth, maintain strong balance sheets, and generate strong cashflows, as well as support shares through ongoing share buybacks.”

The risks of investing in small caps

MSCI highlights the fact that small caps can be more volatile than larger stocks. Additionally, they might be less liquid, which can make trading them more costly.

“If you’ve not done your homework, your due diligence… you could be caught offside and end up nursing quite large losses,” said Ong.

The lack of liquidity, Ong said, could mean you can’t sell a position you want to exit quickly enough just because there aren’t enough buyers on the other side.

“The risk with small caps is you might not have the flexibility if you want to get in and out quickly,” she said.

How to invest in small caps

It’s tempting to try to pick the small cap stocks you want to invest in, particularly as many of these might be businesses you’re familiar with yourself.

But this approach can exacerbate the risks of small cap investing. “We’d suggest [small cap investing] is best approached through a portfolio holding, rather than direct individual equities,” said Glennie. “This is because of the benefit of risk adjusted returns that you get through a managed portfolio, whereas at individual stock levels the risk level is much higher- so that strategy is perhaps only suitable for a certain type of investor.”

Tracker funds replicating some of the major small cap indices include the iShares MSCI World Small Cap UCITS ETF (LON:WLDS) or the Vanguard FTSE Global Small-Cap UCITS ETF (LON:VSML).

Active funds tracking global small caps include the Janus Henderson Horizon Global Smaller Companies Fund or the Invesco Global Smaller Companies Fund.

Investment trusts that focus on small caps include The Global Smaller Companies Trust (LON:GSCT) and Edinburgh Worldwide (LON:EWI).

For a focus on UK smaller companies, you could select Aberdeen UK Smaller Companies Growth (LON:AUSC). Top holdings as of 31 July include investment platform AJ Bell (LON:AJB) and construction firms Morgan Sindall (LON:MGNS) and Galliford Try (LON:GFRD).

If you do want to pick your own small cap stocks, Ong stresses the importance of sticking to companies, or at least sectors, that you understand very well.

“It’s not like buying Microsoft,” she said. “You really need to know what you’re buying.”

Nvidia reported record adjusted quarterly earnings per share (EPS) of $2.22 for the second quarter (Q2) of its 2027 financial year following market close on 26 August – 5.7% above analysts forecasts of $2.1, and 120% higher compared to the same period last year.

Quarterly revenue was $96.2 billion, 4.4% above the $92.2 billion analysts polled by London Stock Exchange Group (LSEG) had forecast and representing a 106% year-on-year increase.

“Nvidia’s (NASDAQ:NVDA) results show that the artificial intelligence (AI) boom is not running out of demand,” said Lale Akoner, global market strategist at investment platform eToro. “The constraint is increasingly the industry’s ability to supply and finance the infrastructure required.”

The results sent Nvidia’s share price surging in after-hours trading. As of 9.45am BST on 27 August the shares had risen around 7.5% from the previous day’s close.

“AI has reached its inflection point,” said Jensen Huang, founder and CEO of Nvidia. “It’s doing useful work. Its tokens are productive and profitable.”

Nvidia’s results in detail

There were more positives for investors throughout Nvidia’s results.

Revenue for the Data Center division – the largest and most closely-watched of Nvidia’s business arms as it contains all of the AI hardware elements – beat expectations at $89 billion, up 117% year-on-year.

Nvidia’s gross margin increased from 72.5% a year ago to 75.0% in the latest quarter.

“Nvidia remains the main toll collector on big tech’s enormous AI budgets, capturing a large share of each new round of infrastructure spending,” said eToro’s Akoner.

Nvidia also issued Q3 revenue guidance of $108 billion (plus or minus 2%) – higher than the $105.1 billion that LSEG’s poll had projected.

“Blackwell Ultra drove the quarter, while Vera Rubin is already entering production,” said Akoner. “This smooth handover suggests the AI hardware upgrade cycle is accelerating without the pause some investors feared.”

How did other stocks respond to Nvidia’s results?

While growing demand for Nvidia’s products is a positive for the AI boom in general, it could be seen as a headwind for the companies that are reliant on buying them.

Alphabet fell 0.4% overnight, while Meta Platforms and Amazon both fell around 0.2%.

These are not large shifts, and could be due to other factors besides Nvidia’s results. But many are starting to question whether the so-called hyperscalers will ever recoup the hundreds of billions of dollars they are pouring into AI infrastructure.

“Once the initial excitement settles, questions are likely to resurface about the durability of this boom in revenues,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club. “It’s becoming less about whether Nvidia can keep climbing the AI mountain, and more about how long it can sustain this extraordinary pace of ascent and whether the vast sums being poured into AI infrastructure will ultimately deliver the returns needed to justify the colossal investment.’’

Higher costs for memory chips could also become a headwind for Nvidia in due course, according to Akoner.

“Rising memory costs are expected to push gross margins down from 75% to 71%-72%,” she said. “Nvidia’s ability to raise prices should help margins recover, showing considerable pricing power, but it cannot escape supply pressures entirely.”

UK fintech PensionBee (LSE: PBEE) has carved out a successful niche for itself, to become the UK's most recognised pension consolidator with the UK pensions sector undergoing a major transformation over the last ten years.

Following the introduction of the Auto Enrolment scheme in 2012, assets in defined-contribution (DC) schemes have exploded, and the pensions industry has rapidly had to adapt to this new norm. The DC pension market has two main segments: workplace schemes and personal or individual wrappers. The latter is dominated by the self-invested personal pension (SIPP) market and the consolidation of legacy workplace schemes. This market is worth around £600 billion and is growing.

The larger workplace-scheme segment is far bigger and more complex. The government is pushing through regulations to consolidate this market, with a goal of consolidating pots into £25 billion-plus mega funds. Although the market has consolidated significantly over the past ten years, hundreds of schemes remain, some with as few as 100 members, which can add cost and complexity.

Where PensionBee comes into the picture

Auto-enrolment is widely recognised as one of the most successful pension reforms worldwide. Under the current rules, an employer must enrol an employee in a pension scheme if they are a UK resident, work in the UK, are aged over 22 and earn more than £10,000. The minimum contribution is 8% of salary, 5% from employees and 3% from the employer.

Employers can pick one of two approaches: either a contract-based approach, or a trust-based scheme. Under a contract-based scheme, individual contracts are agreed between the scheme member (the company) and the pension provider, usually an insurance company or investment platform. With a trust scheme, the company agrees a relationship with a large pension master trust, such as Nest or the People's Pension.

Auto-enrolment has greatly reduced the burden on employers of setting up pensions for employees. It also helps employees save for the future, as they are, as the name suggests, auto-enrolled in the scheme and contributions scale up with wage growth. But people do switch jobs regularly throughout their career and due to the fragmented nature of the industry, there's no guarantee your next employer will be able to offer access to the same scheme as you had previously.

How PensionBee consolidates retirement pots

PensionBee markets itself primarily as a pension-consolidation platform, but it also provides private-pension schemes, such as those for the self-employed. It does not manage the underlying investments itself, but takes a platform fee and partners with institutional giants such as BlackRock, State Street and HSBC to provide a range of low-cost funds.

PensionBee's real edge is its technology platform. Pension transfers and consolidation can be costly and time-consuming. PensionBee aims to complete electronic transfers within two weeks, although more complex transactions can take longer. The company's focus on technology, marketing and simplicity has really resonated with consumers. It estimates it generates around £100 of net asset inflows for every £1 it spends on marketing. It has a 57% brand-awareness score among consumers, one of the highest among pension brands, and customer retention of 95%.

The last time I covered the company in early 2022, it had just reported £5.8 billion in assets under management. According to its latest half-year results, that figure has grown to £8.6 billion of assets under administration across 327,000 invested customers.

With exposure in both the UK and US, the firm operates across markets representing more than $30 trillion in retirement assets. Currently, the US market is still tiny, with less than $5 million of assets under management. However, the company is in talks with more than 100 intermediaries and has an estimated $1 billion in potential recurring annual inflows over the medium term from this business line. This growth should be relatively inexpensive as it has already spent heavily on the technology it needs. As a result, most of its day-to-day spending is now on marketing, plus select technological improvements. PensionBee should be able to scale quickly and efficiently.

Profitability is in sight for PensionBee

In the first half of its 2026 financial year, the firm reported group adjusted Ebitda of -£1.1 million. The UK market alone generated adjusted Ebitda at £1.5m million in the first half or £7.5 million over the last 12 months.

According to estimates compiled by analysts at Peel Hunt, the company is expected to report adjusted Ebitda of £0.5 million for the full year across all markets. Analysts believe PensionBee will achieve sustainable profitability from 2027 onwards and reach management's 20% adjusted Ebitda margin by 2029.

PensionBee is still a small-scale business in a large market with much bigger and deeper-pocketed competitors. However, the opportunity should not be understated. Peel Hunt believes the firm will report £1.5 million of adjusted Ebitda by 2027 and then £8.08 million by 2028, as the group finally reaches an inflexion point in its growth. Sales are expected to rise from £43 million for 2025 to £83 million by 2028, according to Berenberg, as assets under management rise to near £13 billion. Canaccord Genuity has similar figures.

If the company hits these targets, it could achieve a return on invested capital of 34.5% by 2028. If there's one number that illustrates just how profitable PensionBee could be at scale, it's this. The next few years could transform its fortunes.

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Fidelity China Special Situations is an actively managed investment vehicle providing broad access to China's growth opportunities – from established technology leaders to entrepreneurial businesses that have yet to float on the stock market. In the year to date, Chinese and Hong Kong stocks have experienced greater volatility as geopolitical tensions, higher energy prices and concern over inflation weighed on sentiment, although China's diversified economy provides some resilience against these external headwinds.

It's not all about AI either. Semiconductor, power equipment and other AI infrastructure-related companies have seen stronger earnings momentum, while internet platforms have been market laggards. Domestically, consumers' confidence remains subdued amid ongoing property-market weakness. But there are signs that the economy is stabilising, supported by state policy that remains supportive, but targeted. Against this backdrop, many companies are trading at significant discounts to their global peers and there are attractive opportunities across a range of sectors spanning advanced manufacturing, property and domestic consumption, where strong long-term fundamentals are not reflected in valuations.

Three Hong Kong stocks for your portfolio

Contemporary Amperex Technology (Hong Kong: 3750) is the world's largest battery manufacturer and a global leader in the electrification value chain, supported by its leadership, manufacturing scale and continued investment in innovation.

Batteries for electric vehicles remain an important growth driver, but the firm is becoming increasingly diversified. Energy storage systems (ESS) are emerging as another major source of growth, supported by rising generation of renewable energy, electricity security needs and rapidly expanding demand for power from AI data centres. Commercial vehicles and accelerating EV penetration outside China provide further opportunities, with electrification in many markets still at an early stage. With its scale and technology leadership, this firm is well positioned to capture these multiple sources of long-term demand across transport and power systems.

Anta Sports (Hong Kong: 2020) is one of China's leading sportswear groups, with a multi-brand portfolio spanning mass-market sportswear, premium sports fashion and specialist outdoor categories. Its strong brand management, disciplined execution and proven direct-to-consumer model have supported consistent market-share gains in China's growing sportswear market. Importantly, Anta has demonstrated a strong record of acquiring, repositioning and scaling brands, providing additional avenues for growth beyond its core franchise. Newer additions, such as Jack Wolfskin and Puma, further broaden the portfolio. Anta is well positioned to continue gaining market share across China's evolving sportswear industry.

China Resources Land (Hong Kong: 1109) is one of China's leading property companies, with a high-quality investment portfolio, including shopping centres alongside its residential business. Despite the prolonged downturn in the market, the company has continued to gain market share as weaker developers have exited the industry, while its investment properties have delivered steady growth and resilient recurring income. The market is not fully appreciating the quality and value of its investment-property portfolio.

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There is a pervasive belief that the “Magnificent 7” tech stocks are the drivers behind the relentless rise of the US stock market. The Magnificent 7, sometimes called the Mag 7, are Nvidia, Amazon, Alphabet, Microsoft, Apple, Meta and Tesla – seven of the largest companies in the US and therefore the world.

But the Magnificent 7 no longer ride together and their performances this year are very different. The S&P 500 has returned 13.4% year to date. Amazon has returned 21%, but Tesla -25%. In between are Nvidia (19%), Apple (16%), Alphabet (12%), Microsoft (6%) and Meta (0.4%). As a result, Meta and Tesla have been pushed down the list of the world's largest companies by TSMC, Broadcom, SpaceX and Saudi Aramco, now in sixth, seventh, eighth, and ninth place, respectively.

Fifteen companies in the S&P 500 have more than doubled in value this year, led by Sandisk (+413%), Dell (+255%) and Micron (+207%). None of the Magnificent 7 come in the top 150; Tesla is near the bottom. As strategist Ed Yardeni notes, the Magnificent 7 are up just 4.8% this year against 16% for the remaining “impressive 493”. Information technology is still the S&P's second-best-performing sector (up 23.6% against +28.4% for energy), but the Magnificent 7 no longer lead it.

The Magnificent 7 have invested heavily in AI

The dull performance may be accounted for by investors' concern about the gigantic amounts of money these companies are investing in AI. This may seem like collective insanity, but these companies are led by and employ many of the smartest people in the world. How likely is it that they are wrong and the itinerant pundits, with limited knowledge and experience, are right? In any case, any fall-off in investment and thereby an increase in cash flow could lead to renewed outperformance.

Yardeni notes that the forward multiple of earnings of the S&P 500 Growth index has fallen to 20.2 against 18.3 for the Value index. In 2000, he says, Growth traded on a multiple above 40. Growth's forward earnings have been boosted by mark-to-market capital gains, so the multiple of sustainable forward earnings is higher but, he points out, “bull markets do not die of old age or of accumulated gains. They usually die when earnings roll over.”

The driving force of the bull market is then “FEMO” – fabulous earnings momentum, rather than “FOMO”, or fear of missing out, as in the late 1990s. “In the current bull market, the S&P 500 is up 117% since it began on October 2022. That ranks fifth of the eight bull markets since 1969.” Taking a longer-term perspective, the index is up 277% since 2015, but between 1985 and the millennium, it was 625%. “If the analogy continues to hold and the market keeps climbing, the interesting years are ahead rather than behind.”

How other markets are faring

Yardeni also monitors sentiment, which suggests that institutional investors are bullish (a contrary indicator), but “retail investors not so much”. Markets do not go up in a straight line, so a setback or period of sideways trading would be likely to dampen sentiment, paving the way for a further advance. The chances of a serious setback to earnings growth are small; if the Gulf war and its effect on oil prices could not achieve that, what could?

Elsewhere, the outlook is at least as good. The reliably pessimistic and risk-averse British have led to a serious undervaluation of the UK market and a takeover bonanza for private equity and overseas bidders, which shows no sign of slowing. The yen, at last, is showing signs of stabilising if not reversing its 15-year bear market. This would mean that the strong underlying performance of the Japanese market would look even better for overseas investors.

The outlook for the European economy is improving while its companies have successfully globalised. Technology companies in emerging markets are doing even better than in the US with year-to-date performance of 32%, so South Korea (+71%) and Taiwan (+62%) lead the country performance table even after the recent setbacks. Earnings growth in the MSCI All Countries World index ex US has been pedestrian in the last three years, but is about to accelerate sharply, with 34% growth expected in the next 12 months.

Further evidence of a broadening market comes from the improved performance of smaller companies, with the Russell 2000 index for the US hitting record highs and outperforming the S&P 500 over the last year. Small caps in the UK, Europe and Japan have continued to underperform, but performance has picked up and may be moving ahead.

This is not the end for the bull market

The outperformance of the Magnificent 7 in recent years looks like having been a passing phase. Its end does not signal the end of the bull market, much less an imminent collapse, but a healthy return to the traditional pattern whereby mega-caps lag a broadly advancing market.

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The past few years have been very tough for UK housebuilders and their shareholders, says Jo Rands, a portfolio manager on the UK Equity Income, UK Managers' Focus and UK Rising Dividends strategies at ClearBridge Investment. The government has pledged to build 1.5 million homes in five years, but various headwinds, including cost increases and higher interest rates, have caused UK housebuilders' shares to plunge over the past two years. Yet with Andy Burnham entering No. 10 with talk of building more council houses, and even bringing back a form of Help to Buy, their shares have rallied recently. Will this continue?

Why are UK housebuilders struggling?

At the core of the British housing crisis is the fact that we're simply not building enough housing, either in the public or the private sphere. David Crosthwaite, chief economist of the Building Cost Information Service, notes that housebuilding peaked in 1970, with nearly 400,000 homes completed, of which just under half were council houses. Fast-forward half a century and only 200,000 homes were built last year, of which just 4,000 were council housing. Essentially, “you have a diminishing supply of housing, particularly social housing, at a time when the population is continuing to grow at a strong rate”.

Unsurprisingly, the gap between housebuilding and population increase has created a huge backlog. There are several ways of estimating this unmet demand, says Edward Clarke, an associate director at planning consultancy Lichfields UK. When you take into account what statisticians call “concealed households” – people who would like to start a household, but are currently “sofa surfing”, or living with their friends and parents – then “we really need to build two million more homes”. That might seem like a shockingly large number, but Clarke thinks it could even be an underestimate. Getting the homes-to-population ratio in line with continental Europe would require even more construction – around 2.4 million additional homes.

It isn't just young people, and those on the margins, who are suffering as a result. The shortfall in supply means that houses in the UK are less affordable, in terms of the ratio of prices to incomes, than they are in countries such as France and Germany, as Jeremy Matallah, co-founder of rent-to-own company Keyzy, notes. Just to meet the immediate needs of the market, “we should be building around 300,000 homes a year”, roughly a 50% increase from the 200,000 homes a year that we are building at the moment.

Hoarding land and restrictive planning rules

Most experts agree that the big factor behind the lack of supply is the planning system. In 2024, the Competition and Markets Authority, the competition regulator, was called in to investigate allegations that builders and developers were hoarding land excessively, says Paul Smith, managing director at The Strategic Land Group. It found that the market for land was not working properly and that the planning system was such a fundamental barrier to the delivery of new houses that it felt compelled to talk about it, even though this was outside its original remit.

The planning system acts as a block on development in two main ways, says Smiths. Firstly, there simply isn't enough land earmarked for development, with only a third of councils in England even bothering to have up-to-date local plans. Worse, the process for dealing with individual planning applications, which is supposed to act as a “safety valve” given the lack of local plans, is too subjective (and therefore unpredictable) as well as increasingly complex.

Even when decisions are made, the process is getting ever slower due to a shortage of town planners. Indeed, “applications for new homes take more than three times longer to be approved than they did a decade ago, with the median time around 349 days”, says Smith. This matters, as even putting in a planning application can be expensive for a developer, costing around £150,000-£200,000 per application, even if the application is not successful. “If the process was speeded up and the outcome was more predictable more developers would be willing to take the risk.”

The plethora of rules and regulations make the planning system dysfunctional. Section 106 agreements, for example, which oblige builders to help contribute to additional development-related infrastructure, have been around for decades, but their scope has been broadened to the extent that you now see local police forces asking developers to contribute money so they can buy more laptops, says Smith. The Future Homes Standard rules on carbon emissions also “typically add around £7,000 to £8,000 per home in extra building costs”.

The Building Safety Act, approved in 2022, which significantly increased the safety requirements for tower blocks, is particularly contentious. The intention, to avoid a repeat of the Grenfell Tower disaster, is of course understandable, but the legislation “feels like a bit of a sledgehammer to crack a nut, reducing the appetite that anybody has to actually build flats”, says Adam Murray, CEO of planning and development consultancy Urbana. Indeed, developers in Germany and the US are safely able to build high-quality tower blocks “without having to follow rules such as having to have two staircases”, says William Reeve, chief executive of property technology company Goodlord. Loosening these rules is key if we are not to end up depending solely on single-family homes.

A blizzard of other problems for UK housebuilders

Poor planning rules aren't the only constraint on housebuilding. Even when development is allowed, buying land can be difficult when a site is owned by multiple parties, says Matt Beckley, partnerships director at Keon Homes. Remediation of former industrial land to make it fit for housing can also prove expensive. The government provides some support in the form of grants, but “there needs to be a good, hard look at the amount of funding that's available and how that is financed”, says Beckley.

Housebuilders are also “contending with a notable skills shortage, which means builds are taking longer to complete and projects are stalling”, says James Anderson, a construction supply-chain expert at Catnic. The National Audit Office has estimated that as many as 755,000 workers are needed to help meet housebuilding targets, even before factoring in those leaving the sector. The industry, including Catnic, is providing training, but additional help will be required.

The demand side is a problem too, says David Smith, portfolio manager of Henderson High Income trust. Elevated mortgage rates and political uncertainty over tax issues have weighed on consumers' sentiment, leading to a “lacklustre number of transactions”. Higher inflation and borrowing costs are also having a negative impact, says Ronnie George of Volution. He believes some form of subsidies for those buying a home, along the lines of Help to Buy, could be useful.

Andy Burnham's challenge

New prime minister Andy Burnham clearly faces a significant challenge. But many are optimistic that he can really make a difference, given his record as mayor of Greater Manchester between 2017 and 2026. His achievements in that time in office were far from perfect, says Smith, and he didn't quite hit the ambitious housebuilding targets that he set himself – he ended up making some concessions to those who opposed greenbelt development. But he deserves credit for going out and creating his own plan for local development rather than just “kicking the can down the road”, as local leaders in other parts of the country did.

As mayor of Manchester, Burnham at least showed an “understanding of the problem and a willingness to try and address it”, says Matallah, who is impressed that Burnham has promised to go beyond the existing commitment to invest £39 billion over ten years in affordable housing by tackling the “structural undersupply of social housing for the past 40 years”. There are indications that Burnham may be willing to allow councils to keep more of the revenue that they make from the sale of council houses, to use public lands for development and even take on debt in order to build more houses.

Burnham's “Manchesterism" – the belief that growth can be boosted by “devolving power to give mayors and councils the power and resources to make decisions” – could work, says Terry Woodley, managing director of development finance at Shawbrook. “Of course, there needs to be some sort of national strategy put in place, with regular monitoring to make sure that the councils are using these powers to boost development,” but decentralisation, combined with Burnham's enthusiasm, represents “the best chance to boost housebuilding levels that we have seen in over a decade”.

And it's not as if Burnham is starting with a blank slate, says Clarke. Over the last two years, the Starmer government put a lot of effort into reforming the system in order to meet their targets of building 1.5 million homes in five years. This was expressed in their proposed reform of the National Planning Policy Framework (NPPF), a draft version of which was circulated last December (with further revisions in May). As well as trying to make the process more rules-based and hence predictable, the new NPPF encourages councils to free up more sites by pushing them to allow development in the “greybelt” – that is, lower-quality greenbelt sites. The NPPF has also raised overall targets for home building in various areas.

Signs of an uptick in the housebuilding sector

Already many in the sector are starting to become more upbeat about the prospects for an increase in the number of homes built. “You've always got to be optimistic in this game,” says Smith, and there are a number of “easy wins” the government can make to help remove “the grit from the system”. Smith is particularly happy that Matthew Pennycook, the minister of state for housing and planning, has been kept on and elevated to a Cabinet role.

“We have at last moved away from a situation where there wasn't a proper housing minister, and if there was, they were moved on every 12 months,” says Bleckley. It feels “like there is now a will to get more houses built than there has been for more than ten years”. This doesn't mean the government will hit its targets for housebuilding over the next five years (although Bleckley hopes he's wrong about this), but “I do think that there will definitely be an uptick”.

There are “many uncertainties”, says Clarke, but there has recently been an increase in the number of planning submissions made, which is a good leading indicator of future activity. We “should expect to see more homes being built if the market conditions allow for it”. Similarly, despite his concerns about the shortage of planners, Woodley is starting to see that “some of the developers that we work with are getting approvals” more rapidly.

The housebuilding market may be about to turn

The market may now have reached the point where it is too negative about the housebuilders, says Jack Fletcher-Price, an equity analyst for Morningstar, but things are unlikely to improve until something happens to shift investors' perceptions. If (or when) such a catalyst appears, things could change quickly. Shares in housebuilders shoot up, sometimes by as much as 5% in a day, every time there is a rumour that the government is going to bring back some kind of Help-to-Buy scheme, for example.

If there is an uptick in housebuilding, the big housebuilding firms will be best placed to profit “because they tend to have stronger balance sheets, established land banks and greater access to funding, allowing them to respond more quickly if market conditions improve”, says Guiseppe Scozzaro, a partner with chartered accountants and business advisers Goodman Jones. Any uptick would “also benefit a much broader range of firms, from planning consultants and specialist lenders, to building-materials suppliers and infrastructure providers”. We take a look at some of the most promising investment ideas below.

The most promising housebuilding investments to buy now

One of the most attractive housebuilders is Persimmon (LSE: PSN). Its relatively high exposure to the north of England, compared with London and the southeast, “was previously seen as a negative, but it is now viewed as a positive, as you're seeing much better house-price growth up there”, says Morningstar's Jack Fletcher-Price. David Smith of Henderson High Income also likes that the firm is “one of the most vertically integrated UK housebuilders, with in-house brick, tile and timber-frame manufacturing operations, helping to improve cost control, efficiency and security of supply”. Persimmon trades at 11 times 2027 earnings and on a yield of 5.8%.

If snapping up a bargain is your priority, then you might want to think about Barratt Redrow (LSE: BTRW). It is even cheaper relative to its fundamentals than Persimmon, says Fletcher-Price, although he thinks that Persimmon has the more attractive business. The stock is trading at just a touch more than half its book value (the value of its net assets). Barratt also appears cheap on other metrics, trading at 12 times 2027 earnings and offering an attractive yield of 3.97%.

If you're willing to take on a bit more risk, then Vistry (LSE: VTY) is even more of a bargain, trading at an even greater discount of more than 70% to its book value, and at only 6.4 times its 2027 earnings, following a series of scandals over understated costs, followed by poor results. The company has a unique model, says ClearBridge's Jo Rands. It partners with local authorities on projects and so “could possibly do well from a greater emphasis on affordable housing” (though Rands emphasises that she doesn’t have an overall view on the company).

As well as housebuilders, businesses exposed to drainage, piping, insulation, heating systems and other construction inputs could see stronger demand if housing output increases, says Smith. One promising play on that theme is Genuit (LSE: GEN), which provides water, climate and ventilation systems for buildings. The firm has enjoyed solid growth, with revenue climbing by a third between 2020 and 2025, and profits doubling during the same period. Despite this, the stock trades at less than ten times 2027 earnings and on a dividend yield of 4.9% Volution (LSE: FAN) also specialises in ventilation systems. It has had an even stronger record of growth than Genuit.

Aided by a series of acquisitions, the company has nearly doubled its revenues and tripled its profits over the five years to 2025. Chief executive Ronnie George thinks that greater awareness of the importance of good ventilation, especially following the Covid pandemic and several tragic cases where people have died from asthma triggered by mould, will drive further demand for its systems. The bulk of its business used to come from retrofitting old buildings, but new-builds account for around half of revenue. Volution trades at 15.8 times 2027 earnings and offers a dividend yield of 2.1%.

Another company that should do well from any uptick in UK housebuilding is Ibstock (LSE: IBST), which makes bricks and concrete for the UK construction industry. Revenue has been volatile since 2020, but the long-term trend is upwards, with both sales and profits expected to keep increasing over the next few years. Two new brick factories have been completed, which should help to keep revenue growing. Ibstock trades at 16.4 times expected 2027 earnings and offers a dividend yield of 2.8%.

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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 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.

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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.

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.

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.