It has been a heavily momentum-driven year, with positive performance being driven by relatively few mega-cap stocks and these stocks predominantly being clustered around the Technology and Banking sectors. Banks (& other Financials) make up 18% of the Esk Fund and, amongst these holdings, Standard Chartered, the UK-listed bank with its roots in Asian and African lending, was the Fund’s top performing stock over 2025. We also benefitted from similarly impressive growth at US-listed Morgan Stanley and Japanese lender Sumitomo Mitsui. As our CIO and fixed interest manager Jeremy Wharton points out in his commentary, the long end of bond markets continue to see rates increase and, from the perspective of banks (lenders), this is only good news.

Our top holdings remain consistent with recent periods, reflecting our long-term investment horizon and the fact that these businesses continue to deliver impressive results that merit their place as core positions within Esk. Alphabet, Microsoft and Amazon have all made remarkable progress in scaling their AI offerings and between them look set to play a key role in  the next phase of technological progress. We are sceptical of anyone who preaches what the future will look like as AI increasingly becomes part of our everyday lives, but we can say that these three businesses have the scale, resources and brainpower to be a meaningful part of this new world, whilst, crucially, remaining profitable and cash generative in the present. Not having exposure to the remarkable success of semiconductor giants, such as Nvidia and Taiwan Semiconductor, has cost us but we are not minded to chase stock at these levels, particularly given how cyclical and capital intensive the sector is.

Notable mention should go to Pharmaceutical majors Johnson & Johnson and Roche, who have each shaken off post-COVID ennui to return to growth. While these companies might not deliver the excitement and heady growth of some of their peer group, these companies are AAA and AA rated respectively from a credit perspective, reflecting their remarkable financial strength and ability to keep generating high returns through market cycles. This is why we have held J&J since 2014 and Roche since 2010 – they have proven reliable friends, particularly in tough times.

We took the opportunity of a brief and modest period of weakness in the Defence sector to add to our new position in TransDigm, the supplier of niche aerospace parts to military and civil customers. Recent developments in Venezuela drew a line under share price declines in the sector and TransDigm, along with all Defence names, moved higher reflecting ongoing geopolitical tensions.

Over the summer we rebalanced our exposure in insurance markets, trimming our Swiss Re after a strong run-up in shares and reinvesting the proceeds into Everest Group, another global reinsurance business but with relatively less EU exposure and more US. To date, this has proven prudent as Swiss Re shares subsequently retreated but we would qualify this patting ourselves on the back by stating that the outlook for insurance rates is negative as a whole and we would be surprised to see either company shooting the lights out in the near-term. As long-term investors, we are happy to maintain our exposure nonetheless while we continue to see underwriting discipline and balance sheet strength, as we do.
 

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.