Resilient earnings, restless markets: August Trust Update

Market and Trust review

Despite a resumption of hostilities in the Middle East, global equities were supported in August by resilient economic data and encouraging corporate earnings. Uncertainty on the path of the US-Iran conflict, higher bond yields and the upcoming statements at the Jackson Hole Economic Policy Symposium contributed to market volatility towards the end of the month.

The Trust’s benchmark, the MSCI All Country World Financials Net Total Return Index, rose 0.7% in August while the Trust’s net asset value (NAV) rose 1.4%. The Trust’s relative outperformance was supported by bank holdings in Europe, Japan and South Korea along with a strong performance by US asset managers, in particular WisdomTree Investments. This was partially offset by weakness in trading platforms, Asian life insurers and US company Globe Life following second-quarter earnings.

Iran-US tensions

Hostilities between Iran and the US intensified through August, with strikes extending beyond the Strait of Hormuz to targets in Kuwait, Jordan, Bahrain and the UAE as the conflict passed its six-month mark. The Brent crude oil price climbed back towards $97 per barrel by the month end, close to its highest level since the early weeks of the war, as investors weighed the risk of a prolonged disruption to Gulf energy flows.

Shipping data offered a more nuanced picture, with transits through the Strait rising over 30% to 114 in the week to 24 August, according to Lloyd’s List Intelligence. Volumes remain well below pre-war levels and more than 80% of oil and gas tanker traffic continued to move via dark or otherwise unclassified routes.

Notwithstanding this pick-up in traffic, the logistics model for Gulf energy exports is being reshaped on a more structural basis, with shippers and insurers building in a permanently higher risk premium. Equity volatility ticked higher through the month but remained below the peaks seen earlier in the conflict and credit spreads (the difference in yield between corporate and government bonds) held broadly stable. Central banks on both sides of the Atlantic continued to look through the energy shock, focusing instead on underlying growth and inflation trends, which has kept the rate backdrop constructive for financials.

Payment networks

Following a de-rating earlier in the year driven by uncertainty around the role of agentic AI, where an AI system autonomously makes decisions and takes actions, and stablecoins – digital tokens pegged to a currency – in shopping, we see Visa and Mastercard as well placed to benefit from the structural changes to financial architecture that AI and digital assets are bringing about. Both networks retain the scale, trust and security required to underwrite the authentication and tokenisation of AI agents transacting on a customer’s behalf, a capability we expect to support a growing volume of micro-transactions over time.

On stablecoins, we expect the networks to remain the principal on/off ramps linking digital and traditional fiat payments, including through stablecoin-linked cards, with settlement a further near-term use case. Tokenisation (replacing the 16-digit card number with a unique token) also reinforces the networks’ pricing power: by embedding themselves more deeply into the security and authentication layer of every transaction, Visa and Mastercard become harder to disintermediate even as new payment rails emerge. This supports durable take rates (the transaction value retained by Visa) alongside continued top-line growth from inflation and new payment flows.

Diversification towards value added services is driving growth (accounting for 47% of Visa's net revenue growth in the first half of 2026), deepening client dependency and enriching proprietary data. Following a period of relative share price weakness as market narratives shifted on the implications of innovation on payment infrastructure, we have added to both positions and now hold more in payment network stocks than the benchmark index.

European banks

European bank fundamentals continued to improve through August. Corporate loan growth reached 4% year-on-year in the euro area (10% in Greece and 9% in the UK and Netherlands) with the capital expenditure (capex) cycle expected to broaden out beyond AI and infrastructure into manufacturing. Positive July/August Purchasing Managers’ Index (PMI) readings, which typically lead loan originations by six to 12 months, support the view that this pickup has further to run, with historical comparisons suggesting capex cycles of this nature can last four to six years.

Capex by the largest US cloud providers is forecast to grow a further 58% in 2027 and European data centre investment is expected to grow at around 65% year-on-year. Both continue to support demand for corporate lending.

European banks have seen a strong multi-year period of outperformance but a large proportion of this has been driven by earnings upgrades rather than re-rating. Trading at a 30% discount to the broader market, the sector is only back to its long-run average while we view the operating outlook as favourable with tailwinds from a supportive interest rate backdrop, excess capital, an acceleration in loan growth and reduced regulatory uncertainty. We added to our overweight in European banks, relative to the Trust’s benchmark, during the month through additions to a number of holdings and a new position in TBC Bank Group.

Outlook

While market sentiment is being driven by geopolitical developments and contributing to volatility, we are encouraged by resilient operating trends highlighted in the recent earnings season and remain positive on the outlook for the sector. The acceleration in innovation linked to artificial intelligence and digital assets is challenging assumptions on business moats and reshaping capital markets. These developments, along with often excessive market movements on valuations, are offering attractive opportunities for investment with the payment networks being the most recent example.