A strong April was followed by another impressive month for financial markets, as improving geopolitical sentiment and resilient corporate earnings propelled global equity indices to fresh highs.
Investor confidence remained firmly supported by continued enthusiasm surrounding artificial intelligence and evidence of robust earnings growth across key sectors and regions.
Against this backdrop, the OCM portfolio range delivered another positive month. While maintaining a tactical underweight to US equities, our overweight allocations to Asian and Emerging Market equities proved particularly beneficial as these regions outperformed on the back of strong earnings momentum and improving investor sentiment. This positioning contributed to a period of outperformance relative to benchmarks and helped further strengthen year-to-date returns.
The strong recovery across portfolios since the March sell-off reinforces our view that strategic asset allocation decisions and broad diversification remain crucial in delivering positive outcomes and navigating periods of short-term market turbulence.
While recent gains have been encouraging, we remain mindful that valuations in some areas are becoming increasingly demanding and that periods of volatility are likely as markets continue to digest geopolitical and economic developments. Nevertheless, our medium-term outlook remains constructive. Economic fundamentals continue to be supportive, corporate earnings remain resilient, and inflationary pressures, while expected to remain elevated in the near term, appear manageable.
Easing Tensions in the Middle East
As May drew to a close, signs emerged that negotiations between the US and Iran were gaining traction. While discussions remain ongoing, the prospect of a prolonged ceasefire increased, helping to drive oil prices lower and supporting a further rally in global equity markets.
The decline in energy prices also provided welcome relief for bond markets. After a challenging period for fixed income investors, government bond yields moved lower during the month as concerns around inflationary pressures began to moderate. In recent months, bond market performance has remained closely tied to developments in energy markets, making the recent easing in oil prices particularly encouraging.
While tensions remain elevated, the tentative ceasefire appears to be holding for now. Reports of broader diplomatic progress across the region have further improved investor sentiment and strengthened hopes that a more durable agreement can eventually be reached. Although volatility is likely to remain a feature of markets while negotiations continue, progress towards the reopening of the Strait of Hormuz would provide a meaningful boost to global trade flows and further ease pressure on energy markets.
A lasting resolution to the conflict will be important in ensuring inflationary pressures remain contained as we move into the second half of the year.
UK Interest Rate Outlook
Recent UK inflation data provided some welcome news, with the annual rate falling from 3.3% in March to 2.8% following the introduction of the latest energy price cap. Looking ahead, however, the picture remains more mixed.
Ofgem announced that the cap on household energy bills will rise by 13% from July, reaching its highest level since 2024. The increase is unusual for this time of year and has complicated the outlook for UK interest rates, with the Bank of England now expected to adopt a more cautious approach towards monetary policy.
With interest rates remaining firmly in restrictive territory, we believe the Bank of England is likely to remain in a wait-and-see mode while assessing the extent to which higher energy costs feed through to the wider economy. Encouragingly, the sharp decline in oil prices towards the end of May may provide policymakers with greater flexibility should inflationary pressures begin to ease.
Performance and Portfolio Positioning
Portfolio performance throughout May benefitted from a particularly strong period for global equity markets. US equities rose on the back of resilient corporate profitability and renewed momentum across the artificial intelligence sector, while optimism surrounding AI also supported Asian and Emerging Market shares, which outperformed their peers during the month.
These trends proved particularly beneficial for the Long Hold Growth and OBI Volatility Managed portfolios, which reached fresh year-to-date highs. Our overweight positioning towards Asian and Emerging Market equities continued to be a key contributor to performance.
Bond markets, however, remained volatile as investors reassessed the outlook for inflation and interest rates against a backdrop of fluctuating energy prices. This created a more challenging environment for income-focused strategies, causing the Long Hold Income portfolios to marginally lag their peers over the month.
Looking ahead, we remain constructive on the outlook for fixed income assets. With a significant degree of interest rate risk already reflected in bond valuations, we believe there is potential for meaningful capital appreciation should geopolitical risks continue to fade. At current yield levels, fixed income assets also continue to offer attractive income and diversification benefits within portfolios.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment. OCM Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (FCA Registration No: 418826) OCM Asset Management is a trading name of OCM Wealth Management Limited
