Monthly Asset Allocation Update – October 2026

Hi, I'm Yoram Lustig and welcome to our August asset allocation update. August is often volatile, not only because of the heatwaves that keep hitting us, but also because trading volumes are typically thin. Many portfolio managers are on holiday, so even small pieces of news can move markets. In our August 2026 Asset Allocation Update, I'll cover the key themes shaping our outlook and how we're positioning portfolios.

First, the conflict with Iran.

This has been a recurring theme since late February. It's becoming hard to keep count of how many times President Trump has warned that the US would strike Iran with vengeance and fury, only to post days later that military action is off because Iran really wants a deal. The back-and-forth has kept investors guessing and has been a persistent source of market uncertainty.

Second, inflation and central bank policy.

The uncertainty around Iran has sent oil prices zig-zagging, making life harder for Kevin Warsh, the new Chair of the US Federal Reserve. At the same time, he's deliberately reduced the Fed's forward guidance, preferring to leave markets guessing so policy decisions have a greater impact on inflation expectations.

Forecasting inflation is never easy. It's even harder when President Trump keeps changing his plans, and Warsh has stopped sharing his. Together, these factors have pushed government bond yields to multi-year highs.

Third, the AI-related sell-off.

Geopolitics and monetary policy have driven much of the volatility, but markets have also seen a sharp correction in AI-related stocks. US technology giants have invested hundreds of billions of dollars in AI infrastructure, and investors have begun to ask when that spending will generate meaningful returns.

The impact extends well beyond the US. Several Asian markets have become closely tied to the semiconductor and AI infrastructure story, rallying strongly during the boom before falling sharply in the correction. South Korea is a good example. This year, the KOSPI gained more than 115% by mid-June, then fell by around 30% by the end of July*. That's quite a rollercoaster.

So, how are we positioned?

We remain cautiously constructive on risk assets and maintain our modest overweight in equities. We believe the AI-driven sell-off is temporary, perhaps reflecting some investors reducing risk ahead of the summer, though we're watching geopolitical developments and inflation risks closely.

We've reduced our underweight in government bonds. Yields could move higher in the near term, but today's higher yields also make government bonds more attractive from a valuation perspective.

Thank you for joining us. Enjoy the rest of the summer, and try to stay cool. We'll see you again next month.