These technologies may yet justify the sky-high expectations. But when investors are more focused on future potential than business fundamentals, returns can become increasingly dependent on a narrow group of winners. September offered a timely reminder of this: the S&P 500 fell just 0.5%, yet almost 80% of its constituents declined. Nearly half remain in negative territory year-to-date, with a small cohort of AI-related names doing much of the heavy lifting.

Nor is this simply a mega-cap phenomenon, with concentration within the Russell 2000 reaching its highest level since the dotcom era. According to JPMorgan, 17 of the 25 largest contributors to Russell 2000 returns in the two years to June 2026 were linked to AI, with quantum computing and space exploration accounting for much of the remainder. The companies may differ, but the market is still rewarding a narrow set of technology-driven narratives.

Investors don't need to bet against today's themes, but neither do they need to crowd into the same handful of fashionable narratives to find compelling opportunities.

Beyond the hype

The US mega-caps may have delivered impressive AI-fuelled earnings growth, but they’re not the only show in town. The Russell 2000 is forecast to deliver earnings growth of 55% and 30% in 2027 and 2028 respectively, compared with 17% for the S&P 500 in both years, according to research house Yardeni. With revenue growth expected to be more modest, these forecasts rely heavily on margin expansion but highlight the potential for earnings growth beyond the market's largest names.

Growth, however, is only half the story. The more pressing question is what investors are being asked to pay for it. The Russell 2000 is currently trading on around 22 times forward earnings, broadly in line with the Magnificent Seven. Yet this headline valuation masks a sharp divide, with growth stocks trading at around 38 times earnings compared with 16 times for value.

In recent years, investors have tended to fall into two camps, gravitating either towards companies offering explosive growth (often regardless of profitability) or towards cheaper value stocks, leaving quality-growth businesses occupying an awkward middle ground. These businesses are, in simple terms, companies that can be expected to get on with delivering steady growth without the fanfare of ‘big stories’. With investors focusing their attention elsewhere, their share prices may not fully reflect the strength of the underlying businesses, offering an attractive potential entry point.

Identifying these opportunities, however, requires careful stock selection. Regulatory changes have made it easier for unprofitable companies to list, while some larger, more established businesses are choosing to remain private for longer. JPMorgan US Smaller Companies (JUSC) aims to capitalise on these valuation inefficiencies by investing in high-quality companies with durable business models and sustainable cash flow, whose growth prospects are not fully reflected in their share prices.

Managers Don San Jose, Dan Percella and Jon Brachle combine more than 70 years of experience, supported by JPMorgan’s extensive research resources and regular meetings with company management. The result is a portfolio of around 100 holdings across a broad range of sectors, with individual positions capped at 5%.

The managers have continued to adapt the portfolio to changing conditions, adding around 30 holdings this year. These include profitable companies well-positioned to benefit from the capital expenditure supercycle, alongside commercial-stage biotechnology businesses. The aim is to capture structural growth opportunities without compromising on quality.

JUSC has delivered a total return of almost 100% over the past 10 years, together with positive returns in seven of the last 10 calendar years. More recently, however, its quality-focused approach has faced headwinds as investors have favoured unprofitable companies exposed to themes such as AI, cryptocurrency and quantum computing. While quality stocks can lag during small-cap rallies, the scale of the recent underperformance of the benchmark has been unusually pronounced, which we see as a potential opportunity for investors willing to take a longer-term view.

Better together

JUSC is preparing for a new chapter, having announced a proposed combination with fellow US small-cap trust Brown Advisory US Smaller Companies (BASC), following a strategic review by the BASC board. BASC shareholders can choose to roll their investment into JUSC, take cash or combine the two options.

We think the transaction makes sense for both sets of shareholders. Both trusts have a market capitalisation of under £200 million, meaning that a combined vehicle should improve liquidity in the shares, as well as the potential to reduce trading and holding costs.

The enlarged trust would benefit from a reduced management fee of 0.65% on the first £200 million of net assets and 0.60% thereafter. The board estimates that this would reduce annual fees by approximately 20 basis points for BASC shareholders rolling into JUSC and 13 basis points for existing JUSC shareholders.

We believe the investment trust structure is particularly well suited to the small-cap sector, allowing managers to invest in less liquid businesses and take a longer-term view without being forced to sell holdings to meet investor redemptions. JUSC also intends to manage its discount through share buybacks, alongside a continuation vote and conditional tender offer every five years.

Stories will always move markets, and today's technological revolutions may yet produce some of tomorrow's winners. But as JUSC's approach illustrates, investors don't have to buy into the hype to benefit from growth. Sometimes, the most compelling investments are those where the fundamentals are stronger than the story.

^{Performance figures based on share price total returns. Unless specified otherwise, data sourced as at 20/10/2026.}

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Hence, there are a lot of people who are going on the record to suggest we are close to seeing an almighty stock market crash, as bad AS or even worse than that seen at the turn of the millennium when the Internet was in its infancy.

It’s hard for ordinary investors to know how to take the pulse of markets, so we thought we’d dig into some publicly available data to help out. As ever, even if we are in a bubble, it’s impossible for any metric to predict when it will end.

None of these data points should be construed as any kind of advice, merely some helpful pointers to form one’s own opinion. If you are worried about markets and your exposure to them, we’d suggest seeking some form of financial advice, or coaching.

Prices and earnings

We’ll start with arguably the best-known measure of valuations, the price-to-earnings (PE) ratio. The PE tells you how much investors are willing to pay for every pound or dollar of earnings, or profits, a company, or index, makes. To make this calculation, you simply divide a company’s share price by its earnings per share (EPS).

Investors generally look at two different PE ratios: the trailing PE ratio and the forward PE ratio. The former tells us how much investors are willing to pay for past (usually last year’s) earnings, while the latter tells us how much they are willing to pay for future (usually next year’s) earnings.

These two PE ratios are telling us two very different stories. The trailing 12-month PE ratio on the MSCI World Index on 30/09/2026 was c. 22.7x. That’s significantly higher than its 10-year and 20-year average PE ratios, which, according to the website World PE Ratio, are c. 19x and 16x respectively.

A high PE doesn’t necessarily mean a stock or index is overvalued, but it does mean you’ll need much higher growth rates to profit. On a PE ratio of 22.7x, it would take you almost 23 years for the company to earn the equivalent of the share price, assuming the company or index’s earnings remain the same during that time.

That said, the MSCI World’s forward PE on the same date was c. 18x, which is pretty much in line with historical averages. Forward PEs are usually an average of the forecasts of all the analysts who publish investment research on a company. Valuations look more reasonable on a forward PE basis because those analysts think that aggregate earnings are going to be high in the future. Only time will tell if this turns out to be the case, or whether the AI rollout ends up being more disappointing than expected.

Near, yet far

Not straying too far from prices and earnings, the CAPE ratio is another popular valuation metric. The CAPE ratio stands for cyclically adjusted price-to-earnings ratio. If you’ll remember, the PE is a simple calculation: share price divided by EPS. CAPE is slightly different in that it divides the share price by its long-term (usually 10-year) average inflation-adjusted EPS.

Introduced by economists Robert Shiller and John Campbell in 1988, the CAPE ratio is generally seen as a more rounded indicator of a company’s earnings, since it averages them over a whole economic cycle and adjusts for inflation.

At a c. 26-year high, the CAPE ratio makes the US market look much pricier than its PE or forward PE ratios suggest.

Some will argue that the CAPE ratio is less relevant than it has historically been, since profit margins are higher than historically. It’s also another backward-looking metric that gives little credence to the fact that earnings are forecast to surge higher in the coming years.

A couple of other interesting observations are that European markets tended to track US markets pretty well historically but have lagged a lot ever since the financial crisis, potentially suggesting there’s some latent value hiding on the continent.

The UK, by contrast, has more often than not traded on a big CAPE discount to the US, except for times after a big crash, where its cheaper valuation provides more of a margin of safety. Again, today the discount looks historically large, potentially suggesting some value exists.

Playing with fire

In December 2001, legendary investor Warren Buffett said that the best single measure of where valuations stand at any given moment is the ratio of the total stock market capitalisation to gross national (or domestic) product (GNP or GDP). Ever since, the measure has been known as the Buffett Indicator.

Buffett once said: “If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% – as it did in 1999 and a part of 2000 – you are playing with fire.”

He also, of course, warned that the metrics, like all valuation measures, should never be used as an accurate gauge of valuation. Indeed, in the past six years, the metric has only been lower than where it was just before the dotcom bubble burst for a brief period in late 2022.

Still, it is very much higher than it has ever been and currently well above 200%; in fact, it’s not too far off 250%. Perhaps that’s unsurprising when there’s expected to be c. $10trn of investment into AI infrastructure between 2025 and 2032, an average of c. 3.6% of GDP per year, according to the Brookings Institution. That’s far larger relative to the economy than the major US canal, railroad, electrification, highway and telecommunications investment booms.

Relative valuations

So far, we’ve outlined valuations of stock markets outright, but there are, of course, other assets that investors can buy. Hence, relative valuations are also important.

Many investors compare the return they might get from investing in shares with safer investments where the return is pretty much guaranteed. In most cases, this investment is a bond issued by the US government, since it pays a return that is guaranteed as long as the US government doesn’t go bust and default, which is highly unlikely.

Here, we have a chart that compares stocks to bonds. It is known as the equity risk premium (ERP) and it shows the earnings yield on stocks minus the yield on government bonds. You can think of this as the extra amount that investors need to earn in order to compensate them for taking the extra risk of owning equities rather than bonds.

The earnings yield is somewhat analogous to the dividend yield in that it’s the return investors could get in the unlikely scenario where a company paid all of its earnings out to shareholders in the form of a dividend. Calculation wise, the earnings yield is, essentially, the inverse of the PE ratio: instead of dividing the share price by the EPS to get a ratio, you divide the EPS by the share price then multiply by 100 to get a percentage.

The chart below from Eco3min then subtracts the 10-year Treasury yield to get the ERP. As you can see, while it’s not quite on par with the dotcom bubble, where the 10-year yield was almost three percentage points above the earnings yield, it’s very much in negative territory. This would suggest that, all things being equal, bonds potentially look more attractive.

Too much skin in the game

This one is less a measure of valuation but more of sentiment towards stock markets. It shows the vicissitudes of investor keenness for investing in equities and can be a useful indicator for knowing when we’re hitting peak exuberance levels. Valuation alone is not a good judge of when things might tip over the edge.

To make the point, we’ll back up to New Year’s Eve 1990. At this point, equities accounted for just under 15% of all the financial assets held by American households and non-profit organisations – a historically low number. Over the next 10 years, the S&P 500 returned 431% in both US dollar and pound sterling terms.

Fast-forward to the turn of the millennium, New Year’s Eve 2000, and the percentage of household wealth tied to equities had risen to almost 40% as stocks had risen inexorably. In the next three years, the S&P 500 lost almost 50% of its value.

Something similar had happened through the 1970s and, undoubtedly, similar will happen again. Our data shows that households and non-profit organisations have never had so much of their financial assets tied to the stock market – almost 50%, as of 01/03/2026.

Having said that, investing is a hell of a lot more accessible – not to mention cheaper – than it has ever been, so the proportion of share ownership probably should be meaningfully higher than it has been in the past.

Conclusion

Overall, we’d suggest a mixed picture in terms of valuation. The CAPE ratio and Buffett Indicators would suggest we’re very much in overvalued territory, but they also show that we have been for quite some time and things have yet to move.

In addition, while more people than ever are invested in stocks, this rationally makes sense given the ever-lower barriers to investing these days. In addition, when we pivot towards forward-looking valuation metrics, things look more sanguine (assuming the earnings growth that is currently forecast comes through).

Again, we’re putting these metrics together so that readers can make their own judgements around valuations. That said, David Swensen, the late head of Yale’s hugely successful endowment fund, put the failure of individual investors during the dotcom bubble down to a lack of rebalancing.

If they’d sold overvalued stocks and recycled the cash they’d raised into underperforming bonds, they would have had a much better outcome when the crash came. Some food for thought, perhaps.

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The S&P 500 may have ended the month much where it began but dig beneath the surface and the picture was rather less rosy. Nearly 80% of constituents fell during September, highlighting just how reliant the index has become on a handful of winners. Intel, AMD and Meta all helped to prop up the index with 20%-plus gains, while Moderna rewarded biotech fans with a near-40% bump (more of which later).

September also brought UK equities back down to earth after a decent run. Higher oil prices, rising bond yields and renewed interest rate jitters left the FTSE 100 down 2% for the month. But there was at least some cheer with The Works and Chapel Down both hiking earnings guidance, offering the slightly surreal combo of washing down your 99p Peppa Pig boxset with a £50 bottle of 2018 Grand Reserve.

So, which shares and funds tempted UK investors to part with their hard-earned cash in September, and which hit the skids?

Top 10 most bought and sold shares in September

These were the most (and least) popular shares with UK retail investors on three of the largest investment platforms last month:

September’s buy lists were almost as notable for what wasn’t on them as what was. Only one of the Magnificent Seven made the cut, with UK investors taking sanctuary in blue-chip, dividend-paying names.

Rolls-Royce (RR) topped buy lists as investors pounced on a 10% or so dip from its record high in August. After such a stellar run, some profit-taking was inevitable, with investors questioning just how much of the turnaround and earnings growth is already baked into the share price. Others, however, clearly saw the dip as an opportunity rather than a warning sign.

Banking on it

L&G (LGEN) was second on the list, and it’s not hard to see the attraction, with the shares currently offering a hefty 7.6% dividend yield. It’s not purely an income play, either, with capital growth accounting for roughly two-thirds of its 33% total return over the past year.

Investors have had plenty to mull over, from job cuts and a management team shake-up to persistent rumours of a sale or break-up, but the business has been ploughing on with the day job. First-half profits were solid, with asset management the standout performer, although analyst price targets suggest valuations are starting to look extended.

Investors also jumped on the dip in Barclays (BARC) and Lloyds (LLOY), despite rumours of a possible windfall tax after Chancellor John Healey warned the country’s largest lenders of a “challenging fiscal picture”. Higher-for-longer interest rates have underpinned rising profitability, while buybacks have boosted earnings per share and helped bring down valuations. Both also tick the dividend box, although Lloyds currently offers the higher yield at 3.9%, while Barclays edges it on valuation.

Forecast earnings remain healthy, with Barclays’ investment banking arm benefiting from renewed trading activity and an uptick in M&A. Looking ahead, 12-month share price forecasts suggest more upside for Barclays out of the two, though time will tell on that one.

American pie

NVIDIA (NVDA) continues to be the big draw across the pond. Take your pick of its USPs from a near-monopoly position bankrolling 70%-plus gross margins to stellar earnings forecasts. Added to this, the company is generating cash at an eye-watering tilt, with forecasts pencilling in a potential net cash balance of $500 billion by January 2029.

Yes, the chip giant may now be valued at $5.7 trillion, but, size aside, its valuation of 25 times forward earnings really isn’t too bad when you consider that AMD and Intel are trading on 87 and 74 times respectively.

Factor growth into the equation and NVIDIA is trading around 0.3-0.4 times on a price-to-earnings-growth (PEG) basis, compared with 1x for the S&P 500 and 1.5x for the Magnificent Seven excluding NVIDIA and Tesla. For a company that once traded on a forward p/e ratio of more than 60 times, it’s arguably better value than it has been for a while.

A brief mention too for SpaceX (SPCX), which hovered just above its IPO price for much of September. It certainly isn’t resting on its laurels, with the latest plan reportedly involving a $40 billion purchase of NVIDIA chips to power SpaceX AI data centres - apparently launching rockets to Mars wasn’t ambitious enough.

Safe as houses

Investors hit the sell button on housebuilders Taylor Wimpey (TW), Persimmon (PSN) and Barratt Redrow (BTRW). It’s fair to say residential property has been a beleaguered sector, with a moribund housing market and stubborn inflation squeezing margins.

But some much-needed help may finally be on the way, with a new first-time buyer scheme rising like a phoenix from the ashes of Help to Buy. The finer details are due in the Autumn Budget, but investors weren’t hanging around to find out, using the 10%-plus bounce in the shares as an opportunity to take some money off the table.

Let’s get the non-news out of the way first. Yes, Scottish Mortgage (SMT) was once again the most-bought trust. But perhaps more interestingly, Temple Bar (TMPL) managed to knock it into second place on two of the platforms.

SMT’s headlines may have been dominated by SpaceX this year, but treating it as a one-horse play does the trust a disservice. For starters, Moderna is back in the top 10, which has proved a pretty savvy move. The share price nearly tripled after encouraging late-stage results for its personalised mRNA cancer treatment, in partnership with Merck, leaving the shares up more than 530% year-to-date. Nor is SMT’s AI exposure resting only on chips and software, with US power play names EQT and Vistra recently joining the portfolio.

Temple Bar, meanwhile, may say UK equity income on the tin, but it’s not simply a collection of dividend-paying British stalwarts. Up to 30% of the portfolio can be invested overseas, while the recent M&A frenzy sweeping through the UK market could provide another source of outperformance as listed companies continue to disappear from the index - though if the 30% non-UK cap is revised upwards, it may start to rather stretch the definition of a UK trust.

Temple Bar was also one of our Kepler Growth Rating winners for 2026, which might sound slightly odd for a value-leaning trust, but large positions in energy and financials have provided a useful reminder that you don't always need to own the market's hottest growth stocks to generate attractive returns.

There was a distinctly income-focused flavour to the best of the rest, with Aberdeen Equity Income (AEI) making its debut, while Henderson Far East Income (HFEL) made it three appearances on the trot.

HFEL offers a chunky 9% yield but balances higher-yielding stocks with more growth-oriented holdings. Its value-tilted portfolio also provides a useful contrast to the technology-heavy exposure found elsewhere in investors' portfolios, which could offer a bit of ballast should market froth start to unwind.

AEI, meanwhile, takes a more traditional UK equity income approach, combining a 5% dividend yield with meaningful exposure to small and mid-caps for capital upside, which could prove a good call if leadership broadens out beyond the FTSE 100.

The month ahead

With the S&P 500 hitting yet another record high, investors seem remarkably unfazed by fears of an AI bubble or US Treasury yields climbing to a 20-year high. There’s also the small matter of the US midterm elections, which could have implications for everything from AI regulation to fiscal policy.

Closer to home, John Healey will deliver his first Budget on 28 October. The new government has ambitious spending plans, but with income tax and VAT apparently off the table, investors will be watching closely for changes to capital gains tax and pension tax relief.

The good news is that you don’t need to wait for the Budget to put this year’s tax-free allowances in the bag. To help with this, we’ve produced guides on our pick of the best ISA platforms and best SIPP providers.

All data as at 07/10/2026 unless stated otherwise, returns based on share price total returns.

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Kepler View

Whilst returns in absolute terms may not compete with some of the blockbuster numbers of previous financial years, we believe yet another year of outperformance should provide encouragement to Ashoka India Equity's (AIE) shareholders. The outperformance is particularly notable given the management team’s focus on small and mid-sized companies amidst the backdrop of falling markets which is typically less supportive of the asset class. As such, these results again demonstrate the managers’ strong track record in generating alpha through their impressive stock selection research.

The period is also a reminder that, despite the numerous positive factors in favour of the Indian growth story, that markets don’t go up in a straight line. However, with a NAV total return that is more than double that of the index since inception, the managers have demonstrated an ability to produce strong relative performance in a variety of environments, making the trust a very strong contender as a long-term holding in our view.

Whilst the investing environment has been more challenging, the managers highlight several key factors that could indicate the country is on the cusp of a recovery. Corporate earnings are showing early signs of a pickup, with double-digit growth, with smaller companies nearing 20%. Meanwhile, the pullback has led to a softening of valuations, with the Indian market now trading at a discount to its 10-year average on a forward price-to-earnings basis. Meanwhile, the wider economy has shown good resilience, weathering the headwinds to deliver an expected GDP growth of over 6.5% next year, a figure double what most developed economies would be delighted with.

Further adding to the investment case for AIE at this juncture is the discount. Strong performance has led to a premium rating for much of AIE’s existence; however the wider challenges have led to this relenting, with the trust now trading at its most persistent discount in its lifetime. As such, it may provide an attractive entry point for investors wanting to capture the long-term structural growth potential of India, as well as the success of the AIE strategy in capitalising on this.

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Kepler View

A 41.2% NAV return for Schroder Japan (SJG), well ahead of the TOPIX's 29.3% and the strongest year in the trust's ten-year record, is a result worth celebrating. The market certainly helped. Value and smaller companies were in favour, as rising bond yields supported financials and governance reform spread beyond the largest names. But most of the near 12 percentage-point margin over the index came from stock selection and we think that is what will matter most from here. After a year like this, investors could be forgiven for asking whether the easy money in Japan has been made. In our view, the better question is where the next leg of returns will come from, and the answer lies less in the market and more in picking the right companies within it.

That view is shared by the board, which believes the current environment is particularly well suited to active stock pickers. Both the board and Masaki also acknowledge that headline valuations are no longer the bargain they were, and that near-term gains are likely to rely more on earnings growth than on a market-wide re-rating. Masaki's record suggests he is well equipped for that shift, having outperformed the TOPIX by 47.7% over seven years, through weaker years as well as strong ones. We think several factors help his approach stand out.

The first is that the market's re-rating has been far from even. Aggregate valuations now sit towards the upper end of their historical range, but that average masks wide dispersion. The highest premiums are concentrated in the large-cap AI leaders, whilst many small and mid-sized businesses still trade at significant discounts despite the broader rally. Masaki has shown he can profit from AI without paying those premiums, through less obvious beneficiaries such as Ibiden and JX Advanced Metals. Around 70% of the portfolio sits in what he calls market misperception and market oversight ideas: companies whose improvement, or quality, the market has yet to price in.

Second, corporate governance reform remains the backbone of the case, but it is now separating companies rather than lifting them all. The revised Corporate Governance Code introduced in July pushes companies beyond box-ticking towards better use of capital. The focus is shifting from headline buybacks to unwinding cross-shareholdings, consolidating listed subsidiaries and selling non-core assets. Not every company will deliver but Masaki is finding a number that do among smaller and mid-sized names, as chipmaker Rohm's recovery showed.

The domestic backdrop also helps, though not evenly. Wage growth and persistent labour shortages are squeezing companies that cannot pass on higher costs, whilst those with scarce capacity or genuine pricing power are raising prices and gaining share. General contractor Infroneer is a good example in the portfolio, using tight construction supply to push through better pricing on a strong order book.

AI, meanwhile, is creating winners but also threatening established software businesses. Recent portfolio activity shows Masaki responding to these dynamics, including the sale of software provider WingArc1st on concerns that its software could be replaced. He added video games developer Capcom after a disappointing launch stripped out its usual valuation premium, a classic example of a short-term overreaction, in his view, and also Asahi Kasei, which the market still prices as a generic chemicals company despite its higher-quality mix of healthcare and specialty materials.

Another new holding, plant engineering business Raiznext, combines several attractions: better price pass-through in an inflationary environment, a pipeline of refinery upgrading work and an attractive yield. Toyota Industries shows the other side of active management. Masaki and his team engaged on the take-private bid alongside other investors, and the offer price was subsequently raised. He then sold with the shares trading above the proposed takeover price.

There are risks worth considering too. Investors should note that his valuation discipline means SJG may lag during narrow, momentum-driven rallies, as it did at points this year. Moreover, fiscal credibility is under scrutiny, and this year's sharp rise in long-term yields showed how quickly confidence in Japanese bonds and the yen can wobble. Reliance on imported energy leaves Japan exposed to disruption in the Middle East, US tariffs remain a headwind for exporters, and the AI investment cycle could yet disappoint. In our view, these market risks argue for selectivity rather than avoiding the market, and volatility tends to create the very mispricings Masaki looks for.

Overall, we think SJG offers a differentiated, high-conviction route into a market where structural change is real and the gap between winners and losers is widening. For investors who believe Japan's next leg will be driven by stock selection rather than the index, SJG looks potentially well placed.

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Kepler View

These results complete a milestone for Schroder British Opportunities (SBO), with managers Tim Creed and Peraveenan Sriharan having completed the transition to a fully private portfolio shortly after year-end. Furthermore, they contain several positive indicators from the underlying portfolio, with both sales and earnings having delivered strong growth on average, and several holdings having been written up as a result. This includes top performers CFC Underwriting, a specialist insurance firm, Arrive (owner of the RingGo parking platform) and specialist software firm Acturis, each contributing close to 2% NAV upside due to strong operational performance. Weakness in public markets has resulted in valuation compression elsewhere, which has offset these gains. However, the managers note this is not representative of what they see in their holdings, and that the impact of AI is potentially overdone. We believe it is notable that all portfolio holdings are EBITDA positive, demonstrating the growing maturity of the portfolio and therefore providing differentiation from some of the more speculative areas of private equity.

The trust continues to trade at a wide discount of over 37%, towards the wider end of its five-year range. Whilst discounts have narrowed across the wider investment trust industry, SBO’s rating has failed to respond and could prove a good relative value opportunity, in our view. The current discount is also particularly notable when considering the elevated cash levels, as this makes the effective discount on the invested assets even wider. Furthermore, we believe this level has the potential to be tested as we close in on the winding-up resolution deadline in early 2027.

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By contrast, Chinese President Xi received the full three-day red-carpet treatment and, to cap it all off, a giant bald eagle to find “a nice place, a wonderful place, in Beijing”. I suspect Donald was hoping for a jumbo jet in return rather than the furry delights of Ping Ping and Fu Shuang, but his loss was at least Atlanta Zoo’s gain.

Still, it’s not all doom and gloom for our Andy. Against all the odds, the FTSE 100’s 80%-plus return has more or less kept pace with the mighty S&P 500 over the last five years. China, meanwhile, has been consigned to the naughty step, with the MSCI China returning just 20%, despite boasting household giants such as Tencent, Alibaba and PDD (better known to online shoppers as Temu).

But market leaders can be fickle friends, and today’s pariahs can become tomorrow’s darlings. Aside from the omnipresent strains of Frozen pumping out of Hamleys into the Kepler office, one of the best things about my job is picking fund managers’ brains about what’s been catching their eye. Last week’s guests were Josh Golomb of Biotech Growth (BIOG) and Omar Negyal of JPMorgan Emerging Markets Dividend Income (JEMI) and, despite very different remits, both are finding opportunities in Chinese equities.

First, a quick recap on China’s fall from grace. As the pandemic turbocharged the shift towards digital infrastructure and e-commerce, the Chinese tech behemoths propelled stock markets to record highs, with Tencent briefly flirting with a $1 trillion valuation. Then came the perfect storm: a regulatory crackdown on technology firms, a property crisis, brutal zero-Covid lockdowns and fractious relations with the US. Within two years, the gains had evaporated and investors retreated to friendlier climes.

But writing off the world's second-largest economy as uninvestable does seem a little premature. The crackdown on technology companies has eased, with policymakers shifting their focus towards a pro-growth and innovation mandate. China’s stereotype as the world's factory floor is also looking distinctly dated: it now tops the global patent league tables and produced more than four times the number of STEM graduates as the US last year, creating a vast pool of technical talent.

And on that topic, DeepSeek's arrival brought a timely reminder that technological leadership isn't always confined to Silicon Valley. It may be the Aldi to Claude's Harrods, but lower-cost, open-source models can be remarkably disruptive, with the Chinese start-up’s debut wiping more than $1 trillion off US equities.

Nor is China’s prowess confined to software. It’s number one in solar energy, installing more capacity in 2024 alone than the US has installed in its entire history. It also leads the world in electric car manufacturing, accounting for more than two-thirds of global production. Indeed, the Jaecoo 7 dupe reportedly outsold Range Rovers by four-to-one in the UK last year and I’ll wager they’ll be spending a lot less time in the garage, too. The list goes on and on.

There have been plenty of speed bumps along the way, from US tariffs to restrictions on NVIDIA’s most advanced chip exports, but China has shown surprising resilience. Given the geopolitical backdrop, it’s little surprise that the latest Five-Year Plan makes technological self-reliance a strategic priority, from artificial intelligence and quantum computing to robotics and semiconductors.

Three takes on China

In fairness, the bears don’t lack ammunition. The property market remains moribund, the population is shrinking and tensions with the US are a constant. Arguably, though, China doesn’t need to solve every single problem to drive equity returns, and undemanding valuations are attracting the attention of active managers once again.

Of course, plenty of things are cheap for good reason, but the biotech sector also serves up the powerful demographic tailwind of an older, richer and (unfortunately) sicker population. Over the last decade, China has evolved from a manufacturing hub into an innovation powerhouse and is rapidly closing in on the US by share of global clinical trials. Faster and cheaper trials are a big draw for western peers, with Chinese biotech firms landing $115 billion of licensing deals last year as big pharma look to plug looming patent cliffs.

BIOG invests in growth-stage biotech companies with first-mover advantages across the public and unlisted universe. The trust has a near-4% allocation to China, supported by OrbiMed’s on-the-ground resources in Shanghai and Hong Kong. Its tilt to smaller companies weighed on returns as the biotech recovery hit the buffers, but the trust has bounced back strongly with a 60% return in the last year.

Changing tack again, think of traditional income markets and China probably isn’t top of the list (or even on it), but JEMI has increased its China allocation to almost a quarter of the portfolio. Manager Omar Negyal sees potential in improving capital allocation, with the economic slowdown forcing companies to think about striking a better balance between dividends and reinvestment. Its income mandate also sets JEMI apart from typical growth-focused emerging market strategies, with its focus on high-quality, dividend-paying companies helping to provide downside protection in falling markets.

On the pure-play front, a final mention for Baillie Gifford China Growth Trust (BGCG), which offers a high-conviction portfolio anchored around domestically-focused growth companies, aligning with China’s push for self-sufficiency in semiconductors, healthcare and the energy transition. It also offers exposure to some of China’s leading lights in the unlisted sector, such as TikTok developer ByteDance and Rednote (China’s answer to Instagram).

China isn’t without its challenges, but corporate reform, innovation and undemanding valuations could yet prove a powerful driver of returns for patient, long-term investors. And on a final, unrelated note, we’re not fussed about the bald eagle but please could you send us a giant panda too?

Index returns in local currency (as at 29/09/2026), portfolio allocations sourced from factsheets as at 31/08/2026.

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Kepler View

BH Macro’s (BHMG) NAV returns have been in line with the expected range, but remain relatively muted, especially in the context of a surging equity market. This does nothing to alter the fact that BHMG may potentially act as a low-volatility compounder to form the core of a long-term investment portfolio. However, perhaps of increasing relevance to today’s investors, it may also act as a diversifier within equity and bond portfolios, given that the returns of Brevan Howard Master Fund Limited can potentially be very different, and hopefully complementary, to equity and bond returns.

Every cycle, one is told that ‘this time it’s different’. Brevan Howard’s commentary (which we summarise above, but is well worth reading in full in the interim statement – see link below), is rather disquieting in this context. Yet, aside from 2022, total returns from equity markets in all of the calendar years since COVID have been well ahead of historical long-run equity returns. Certainly, AI brings opportunities, but the macroeconomic threats seem rarely to have been higher, whilst at the same time, stock market valuations remain elevated. There is clearly plenty of potential for an upset. BHMG has historically provided significant diversification from, and lack of correlation to, bond and equity markets, and as such offers the potential of being one of the truly rare places that offers investors a port in a storm.

The BH Macro Board and manager have made strong progress in addressing the discount, set against a background of moderate NAV performance. With a significantly larger buyback facility this year, and the manager’s new private fund that has the ability to invest in BH Macro shares when they stand at a discount, investors can be reasonably optimistic that the share price will more closely follow that of the NAV. As a result, shares in BH Macro offer a compelling way for ordinary investors to access the flagship strategy of one of the world’s best macro hedge funds. If markets become more volatile, and complacency is replaced by fear, there is clear potential for BHMG to perform strongly in NAV terms. Additionally, if history is anything to go by, there is clear potential for the discount to narrow from the current level of c.6% if NAV performance picks up. As such, the current discount may represent an attractive entry point both from a total return perspective, but also to add diversification to equity and bond portfolios.

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Possibly the most famous example is the Three Sisters method, comprising beans, sweetcorn and squash. The sweetcorn plants provide shade and act as a vertical pole up which the beans can climb, while the squash can be used as ground cover to ensure space is used efficiently.

The managers of JPMorgan UK Small Cap Growth & Income (JUGI) take a similar trifecta-like approach to portfolio construction. Rather than constructing a portfolio that outperforms when only one singular investment style is in favour, Georgina Brittain and Katen Patel aim to build a portfolio capable of generating repeatable alpha across a variety of market conditions.

To do this, they consider three factors – quality, value and momentum – using a process that has been refined over three decades. This helps them to create a portfolio of companies that are financially strong, growing, resilient, and attractively valued.

As one can see below, using return on invested capital (ROIC) as a proxy for quality, free cash flow yield as a proxy for value and earnings revisions as a proxy for momentum, the average company within JUGI’s portfolio has higher returns and better capital discipline and is generating more cash than the average company in the trust’s benchmark, the Deutsche Numis Smaller Companies plus AIM ex Investment Companies Index, and is seeing positive earnings upgrades compared to the market, which is seeing downgrades.

Not only do they consider these three factors when making investments, they regularly review their existing holdings to make sure they still meet these three characteristics, given share prices have been particularly reactive to new information in the past couple of years.

Crucially, management’s unashamedly bottom-up, long-term approach has paid off over longer-term timeframes. JUGI has the third-best annualised 10-year net asset value total return, at c. 10.3%, and the second-best annualised 10-year share price total return at c. 11.5%.

Of course, just as the Three Sisters planting method can be blown off course if the weather is inclement, past performance doesn’t guarantee future success and there are bound to be times when even JUGI’s portfolio will underperform. Indeed, the five-year numbers are currently below the benchmark. Still, we think the depth and experience of the management team provides reassurance that the strategy can continue to deliver for shareholders.

Its portfolio is anchored in domestically oriented growth companies aligned with long-term trends and policy priorities like self-sufficiency—companies likely to benefit from ongoing stimulus, even as global uncertainty lingers.

A sensible proposal

JUGI’s board recently joined forces with that of Aberdeen UK Smaller Companies Growth (AUSC) to propose a combination that would create the second-largest UK smaller companies trust, providing much-needed scale and improved liquidity and a continuation of what we see as welcome consolidation within the sector. If approved, it would be JUGI’s second major deal, following on from its 2024 merger with former stablemate JPMorgan UK Mid Cap.

We think the deal makes complete sense for both sets of shareholders, as well as for the UK mid- and small-cap space as a whole. The new, enlarged entity could be c. £645m in market capitalisation and would come with a reduction in the ongoing charges ratio.

The new management fee structure would be 0.6% chargeable on assets up to £200m, and 0.55% chargeable on assets in excess of £200m. Following completion of the proposal, the estimated OCR would be 0.7%, representing a reduction of 11 basis points (bps) and three bps compared with AUSC’s and JUGI’s current OCRs respectively.

Meanwhile, the UK SMID segment would have another vehicle of sufficient scale, good performance and reach, giving it the potential to attract greater attention from wealth managers and stronger appeal to retail investors, perhaps helping to revive interest in what has been a shrinking part of the domestic market.

JUGI is one of the oldest trusts in the smaller companies sector and Georgina and Katen are highly experienced, having worked at JPMAM for 31 and 13 years respectively. Georgina was appointed as manager of JUGI in 1998 – the second-longest tenure in the sector. Katen joined her in July 2013.

The portfolio managers are members of a dedicated UK mid- and small-cap specialist investment team that benefits from the broader resources of JPMAM’s 90-strong international equity group of investment professionals with expertise in both quantitative and qualitative analysis. As mentioned previously, this has translated into impressive total returns through the cycle versus its benchmark.

We remain of the view that there remains latent value throughout the small-cap part of the UK market, for reasons we’ve outlined consistently. In short, UK economic data is nowhere near as apocalyptic as some would let us believe. In fact, both the UK economy and its headline stock market index, the FTSE 100, are currently outperforming developed market peers.

A real value opportunity

The key, to us, however, is the sheer scale of M&A activity we’re seeing in the small-cap market: clearly overseas and trade buyers are seeing value at a time where public market investors seem to be willingly ignoring it.

JUGI has seen several holdings taken over, suggesting Georgina and Katen’s strategy is identifying the right opportunities. These takeovers have not only supported returns due to the high premia of the bids, but have also provided liquidity for the managers to rotate into the plethora of opportunities they’ve identified elsewhere.

In another interesting development, the yield on the small-cap asset class as a whole has now crept above 3% - an historically high level.

Over and above all this, JUGI uses the bells and whistles of the investment trust vehicle to full effect in an attempt to capitalise on the valuation opportunity within the small-cap space. This includes running gearing at around the 10% level, making JUGI one of the most-geared trusts in the AIC UK Smaller Companies peer group and adding to the trust’s upside potential.

JUGI’s enhanced dividend policy is also a key selling point, in our view. It is designed to pay a relatively high income while still offering exposure to the growth potential of the UK smaller companies asset class, ensuring the trust appeals to the broadest possible set of investors.

The rate paid is equal to 4% of the year-end NAV figure and is paid in four equal amounts on a quarterly basis. The announced dividends for the first quarter of the upcoming year will be c. 3.73p per share, equating to c. 14.92p per share for the full year, representing a potential forward yield of 4.3% at the share price as of 24/09/2026. That’s a meaningful premium over the small-cap index and a c. 75% premium to AUSC’s yield.

As this writer hopes his new garden will benefit from companion planting such as the Three Sisters method, so do we believe that shareholders would benefit from and should look favourably upon the combination of JUGI and AUSC.

The depth and quality of the management team and its impressive performance sets JUGI apart, while its improved size and liquidity as well as its enhanced dividend policy ensure it will be on the radar of a much wider pool of investors.

Added to everything we’ve discussed above, there’s also the benefit of a double-discount: not only is the c. 15.5x price-to-earnings (PE) ratio on the MSCI UK Small Cap Index a c. 40% discount to the c. 25x PE on the MSCI World Small Cap Index, as of 31/08/2026, so too is JUGI trading on a discount of c. 7.6%, offering the scope for a real re-rating.

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One could argue that over the past decade or more, the UK stock market has been akin to the Rebel Alliance: forgotten about and trading on depressed valuations amid political uncertainty, a lack of technological innovation and unprecedented levels of selling by domestic investors.

The ensuing structural undervaluation of British companies has led to an almost inevitable wave of inward M&A as overseas buyers have been snapping up UK plc. To try and combat this, UK firms responded by ramping up share buybacks, with London becoming the share buyback capital of the world.

However, we see two key trends taking place within UK markets that point to a more conducive backdrop: the return of outward M&A and the strength Britain brings as a diversifier to US-heavy portfolios – even more so when you consider the fact that the UK’s FTSE 100 and the US’s S&P 500 have been closely matched in terms of returns over the past five years, in pound sterling terms.

UK plc on the offensive

The first thing we’ll highlight here is the new narrative emerging of UK firms striking back. It looks to us as though the pace of share buybacks may have reached a peak, as companies start to look to the future.

Organic growth is often seen as a panacea, but, done well, inorganic growth (acquisitions and the like) can help, too. Certainly, when we’re seeing doom-and-gloom headlines about inward M&A, there’s a seemingly untold and unappreciated story of UK firms turning the tables and looking to do deals themselves.

Pharmaceuticals giant GSK completed its share buyback programme in June and shortly after announced that it would be buying Nuvalent, a Boston-based creator of oncology therapies, for c. $10.6bn (£8bn). This was the largest transaction undertaken by the firm in over a decade.

Elsewhere, HSBC completed its $13.6bn buyout of Hang Seng Bank in January, Shell splashed out $16.4bn on Canadian natural gas producer ARC Resources in July, while also this year student housing specialist Unite bought Empiric, Standard Life agreed to buy the UK arm of pensions and life insurer Aegon, and Santander completed the purchase of TSB Bank from Sabadell.

Others are focusing on increasing their global growth opportunities. Hollywood Bowl has been expanding into Canada since 2022, when it bought Teaquinn Holdings, which owned five bowling centres in the country. It now runs 16 centres in the country under the Splitsville brand and plans to get to 35 by 2032.

American brewer Molson Coors took a c. 8.5% equity stake in Fever-Tree at the start of 2025, a partnership that has benefitted the tonic water maker by giving it a vastly improved distribution network from which to expand into the US. With UK sales starting to plateau, the US market remains vast and using a similar playbook to how it cracked the UK seems prudent.

So, while some commentators are raising concerns over the health and future of the UK market amid continued inward M&A, a steady drip of companies crossing the Atlantic and low IPO activity, we’d beg to differ. It could be that as a result of this outward M&A that UK plc becomes much stronger and increases its global competitiveness, potentially supporting a further re-rating in many of these companies.

May the force (of diversification) be with you

Of course, the UK has plenty of attractions to recommend it in and of itself. The defensive sectoral make-up of FTSE 100, thanks to its overweight to more traditional industries, means it can bring diversification benefits to an overall portfolio alongside more tech-heavy indices.

We saw an example of this when the VanEck Semiconductor UCITS ETF, a good proxy for the chipmakers that are powering the AI revolution, crashed into bear market territory in the space of 37 days through June and July. During that time, the Vanguard FTSE 100 UCITS ETF rose c. 5%.

As we’ve mentioned previously, pound sterling total returns from UK and US large caps aren’t as far apart as one might expect. In fact, the MSCI United Kingdom Index, which differs slightly from the FTSE 100, has returned 86.4% in pound sterling terms, higher than the 84.8% return of the MSCI USA Index, which, again, slightly differs from the S&P 500. Despite that, UK blue-chips trade at a c. 40% discount on both a trailing and forward price-to-earnings (PE) basis.

This is evidence of what we’ve long been arguing: that the UK has the potential to play the role of a safe harbour in the eye of any AI storm that comes our way, while retaining a good slug of companies able to benefit from AI as and when the turbulence calms.

Broadening your universe

We think that Schroder Income Growth (SCF) stands out as a good way to get exposure to these trends described above.

GSK, Shell and HSBC all feature in SCF’s top 10 holdings, showing the benefits of manager Sue Noffke’s investment process. Sue looks for companies with strong balance sheets – a prerequisite for doing M&A – sustainable profitability and consistent cash generation, targeting mispriced opportunities across the whole of the UK market.

In addition, Sue benefits from the huge size and scale of Schroders’ UK equities team, enabling them to have ongoing dialogue with some of the largest listed companies in the UK. This ensures that Sue has all the information needed to assess all potential acquisitions to ensure they are value-accretive and done at the right price.

Given the international outlook the majority of FTSE 100 firms have, SCF’s portfolio is well diversified globally, from a revenue perspective. Overweights to financials and healthcare ought to provide diversifying exposure for shareholders away from the market’s current myopic focus on AI. As an aside, plenty of sectors in the UK, while not direct AI plays, will be beneficiaries of the technology, through productivity and efficiency gains.

The trust has already earned its stripes having benefitted from the ramp up in share buyback activity, while it was also able to secure its 31st consecutive dividend increase, giving it one of the longest track records in the investment trust universe.

This dividend hero status is, to us, the trust’s most compelling characteristic and given the board takes into account all distributable returns (both revenue and capital) when deciding on the dividend, we have confidence its income profile remains on solid footing.

At the end of The Empire Strikes Back, Luke Skywalker returns to finish off his training with Jedi master Yoda in anticipation of what will be a climactic battle in the final film of the original trilogy, Return of the Jedi.

One could argue that the UK stock market is undergoing a similar journey. It may be down in terms of perception and weightings in both global and domestic investors’ portfolios, but it’s by no means out when it comes to returns. The unloved UK market looks to us ready to emerge from the shadows if the AI and tech narrative falters and disappoints those investors that have retreated from our domestic shores.

We think SCF is well placed to take advantage of these factors and provide a compelling re-entry point to returning investors, given its long track record of both outperformance and dividend growth and the attractive c. 8% discount and 4% yield on which the trust trades.

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Kepler View

While Vietnam Enterprise Investments' (VEIL) results for 2026 so far have been disappointing, they follow a very strong 2025 in which the trust was by a long way the best-performing Vietnam specialist trust and the only one to post positive returns. This has been a difficult period for the Vietnamese market, with few stocks outperforming and the market being overwhelmingly driven by Vingroup. In both the rising market of 2025 and in 2026 so far, the key factor behind VEIL underperforming the local index was the significant underweight to this company and its subsidiary Vinhomes. Few active managers would be willing to let one stock rise to 19% of their portfolio, or 26% including Vinhomes, even before considering the low free float and the high valuation – the managers assess it trades at a premium to their reappraised asset value. Vingroup is a major beneficiary of the government’s investment plans, but it has risen more than 3.5x in 12 months and more than 13x since the start of 2025. Additionally, retail investors have used large amounts of leverage to take positions. As such, there are clearly downside risks and investors may not be happy to have so much of their Vietnam exposure in one stock, especially considering the potential in the rest of the market.

That potential is based in a truly exciting fundamental backdrop. Vietnam delivered its highest GDP growth for years in H1, with investment, consumption and industrial output all strong. Retail and service sectors performed well, and inflation remained below the 4.5%-5% target ceiling, and peaked in May. The success is rooted in domestic factors, most importantly a massive public investment programme and ambitious series of reforms all aimed at boosting the private sector as the engine of Vietnam’s economic growth. VEIL’s portfolio is 80% invested in domestic credit and consumption and the domestic investment cycle, with the positioning having become more bullish towards the end of the reporting period. VEIL’s managers expect Vietnam’s top 100 listed companies to deliver outstanding EPS growth of 20.9% in 2026. Yet the market is trading at trough multiples excluding Vingroup. The manager’s forward P/E for their portfolio is just 10.2x, while excluding Vingroup it falls to 9.2x, on even higher EPS growth of 28%.

Vietnam was upgraded by FTSE Russell from Frontier Market to Secondary Emerging Market status on 21/09/2026, and this is expected to bring passive inflows of $1.5–2.0bn from index-tracking mandates, and FTSE Russell estimates a further $5-6bn of potential investment from actively managed funds. This suggests liquidity could improve over the coming months. Foreign outflows have been substantial in recent years, with the market rising despite a net $11.8bn withdrawal since the start of 2024. As such, we think any resumption of foreign inflows could be the catalyst needed to correct the market and portfolio’s low valuations. In our view, the value at the portfolio level and in the discount make VEIL a particularly attractive way to get broad exposure to a market with an exceptional growth outlook.

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Here in the UK, that’s certainly true. Indeed, the FTSE All-Share is less than 2% lower than the all-time high it hit in July, spurred on by impressive recent gains for the large-cap FTSE 100 index.

Despite this, consumer confidence remains sluggish. Indeed, sentiment towards the labour market is at its lowest level in three and a half years, while credit accessibility is more difficult than at any time since December 2023, according to S&P Global.

The answer, of course, is that artificial intelligence advances continue to push share price valuations higher around the world (and don’t forget that c. 70% of FTSE 100 revenues comes from overseas), while high gas and oil prices, tax rises and government debt levels are making life trickier for households.

It’s no surprise, then, that hedge funds are increasingly putting their chips on falling share prices for companies that are linked in any way, shape or form to the UK economy. As we round up below, the housing and construction market looks particularly ripe for the picking.

What is short-selling?

Before we dig into the data, a quick reminder that shorting a stock is, essentially, the act of betting that an individual company’s share price will fall, rather than rise (the opposite of what most investors will do).

As we commented last time, we absolutely do not think that ordinary investors can successfully run a book of short positions – and that’s especially true in choppy waters such as now.

However, we do think that it’s a good idea for investors to know which of the stocks in which they invest are being bet against. Exploring the bear case for all of one’s individual long positions can be a good way to play devil’s advocate and ensure you’re happy with your position, or if you think your initial investment thesis has run its course.

There’s been a change in the disclosure regulations around short-selling since the last time we reported the numbers. The Financial Conduct Authority (FCA) no longer provides individual details of which hedge fund is shorting which company, instead publishing only the aggregated short position for each company. It has also lowered the threshold for reporting short positions from 0.5% to 0.2%.

The UK’s most-shorted stocks

Housing pains

There’s one key theme that runs through the data and that is a loss of confidence in the UK housing and property market. Indeed, almost half (seven out of 15) of the companies on our list were in some way related to the housing or construction industry.

Building costs have been rising pretty much ever since the coronavirus pandemic and have surged further since the onset of the Iran war. In addition, rising long-term bond yields have translated into higher mortgage costs, leading to a slowdown in the housing market.

Margins within the housebuilding and construction sectors are under pressure, with eight profit warnings from such companies being posted in the first half of 2026, according to EY.

Two of those companies were Vistry (VTY) and Crest Nicholson (CRST), both of which are in the top 10 most-shorted UK stocks. For Vistry, its most recent profit warning was one in a string going back several years. The share price has fallen by more than 80% since mid-2024 and short interest in the company has exploded in recent months.

Vistry’s change in business model from building homes to sell on the open market to building affordable houses in partnership with housing associations and local authorities doesn’t seem to have worked. The firm has been flogging discounted houses to shift inventory and is struggling under c. £144m of debt.

Supply chain woes

It’s not only the housebuilders themselves that are struggling, though; many of the firms further down the supply chain are also being shorted.

Both Ibstock (IBST) and Breedon (BREE) are in a similar area. Ibstock is the world’s biggest maker of clay bricks. Breedon also makes clay bricks and both firms make concrete building products, too. Breedon also makes roof tiles as well as paving materials used for roads and pavements. Both firms have been hit by demand for their products in the UK being in long-term decline. In fact, Breedon said ready-mixed concrete volumes last year fell to their lowest level since 1963.

Ibstock warned on profits twice in 2025. It said in August that it had swung to a loss of £27m in the six months to the end of June 2026, versus a profit of £8m in the same period in 2025, as revenue fell 15%. Shares are down almost 50% so far in 2026 and 65% over the past five years.

Breedon’s shares have held up better, though the share price chart still looks rather ugly, down c. 6.4% over five years and 3% in the year to date. The firm remains profitable and revenue is growing, albeit slowly and margins remain soft. It has also been hit by an unscheduled cement mill shutdown in Ireland.

Teething problems

While building-related firms dominated the list, they aren’t the only companies being bet against. A trio of retailers – Kingfisher (KGF), WH Smith (SMWH) and Greggs (GRG) – were hanging around, albeit improvements at Greggs has seen it fall from second most-shorted to 15th.

An interesting new entrant was Yellow Cake (YCA), which buys and stores large quantities of physical uranium oxide concentrate, making it akin to a uranium exchange-traded fund. Shares have been volatile, as has the uranium price, suggesting the shorting could be somewhat tactical. The spot price of uranium has fallen c. 36% since its January 2024 peak, according to the miner Cameco.

YCA shares are up c. 68% over the past five years, with uranium in demand thanks to the proliferation of AI data centres, which will need all the power they can find to fulfil lofty promises.

In a world where defence spending is on the rise and companies with the potential to tap into this are seen as huge beneficiaries, it might be surprising to see a company with exposure to the defence and aerospace supply chain in this list.

Chemring (CHG) sells products and services like military explosives, cyber defence systems and biological warfare agent detection systems to both governments as well as blue-chip companies – an area that should be thriving.

However, while its half-year results struck an upbeat tone, profits were hit by an impairment charge for the retirement of its countermeasure operations in the US state of Tennessee as well as weakness in its sensors & information division.

Net debt also rose by c. 50% to £144.5m as it continues to invest in expanding its energetics production capacity, while the delayed publication of the UK’s Defence Investment Plan didn’t help, either.

How shorting works

Shorting is typically the domain of hedge funds. The process is that the shorter will borrow shares of a particular company from a stockbroker or an investment bank, then sell those shares at the current share price. If the share price falls as they expect, they can then buy the shares back at a lower price, return the shares they borrowed back to their original owner and pocket the difference.

As a worked example, let’s say you borrow 10,000 shares in a company whose share price is £1. You sell those for £10,000 and the share price then falls to 50p. You can buy shares in the open market for £5,000 and return them to whomever you borrowed them for and you have a £5,000 profit, minus the fee you paid to loan the shares and other trading costs.

The risk, of course, is that the share price actually rises. If the share price goes to £2, you’ll spend £20,000 buying them back, giving you a loss of £10,000.

Indeed, the biggest risk involved in short-selling is that your losses can be potentially unlimited: when going long, the most you can lose is 100% of your capital, but share prices can theoretically rise to infinity. Say the share price in our example went to £10, you’d then be facing a loss of £90,000. In percentage terms, that’s a 900% loss.

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Kepler View

From an Octopus Renewables Infrastructure (ORIT) specific perspective, this was a difficult first half, with a technical reassessment of the onshore wind portfolio leading to a significant reduction in NAV. However, what we can now say is that the valuation is rooted in actual technical data from the specific assets in question, with ORIT’s more mature solar assets and offshore wind assets already valued this way, and with just some of its more recently commissioned solar assets, which are performing in line with expectations, relying on pre-construction forecasts for their valuation. While no disposals were made in H1, the team reports that, while the listed renewables infrastructure trusts remain at wide discounts, in the wider world of renewables it sees an improvement in sentiment and there is demand for good-quality assets, albeit transactions are taking longer and are subject to rigorous scrutiny. The team has various sales processes underway and expects the next asset sales to complete in late 2026 or early 2027.

From a big-picture perspective, 2026 is unfolding as an important year for renewables. Whereas electricity demand in the UK and elsewhere has remained relatively constant for some time, all of the signs are that the electrification of the global economy is picking up pace, and there can be few investors who aren’t aware of the enormous challenge that the growth in datacentres will place on electricity grids. Yes, it’s true that investment is going into other forms of power generation, such as nuclear and even fusion, and these tend to attract headlines. But these remain enormously expensive, time-consuming to build or technically unproven, or combine all three characteristics. Renewables, combined with battery storage, by contrast, are proven technologies with large installed bases across many grids that are, even without subsidy, relatively cost-effective and quick to build. Yes, there are challenges, such as the need to upgrade power grids, the global demand for various common and uncommon metals and materials, and risks to supply chains, but those still need to be seen in the context of proven technology, where the engineering challenges are all well understood.

An understandable investor frustration with the listed sector is that 2026 also saw power price spikes caused by the unstable, difficult-to-predict crisis in the Persian Gulf, which continues to haunt energy markets. ORIT’s strategy of fixing the majority of its revenues (86% are fixed over the next two years to 30 June 2028) means it has limited exposure to short-term power-price spikes, but this is a function of one of its core propositions: a stable, growing dividend. It’s notable that although overall power generation was broadly on budget, revenue and EBITDA were slightly ahead as a result of incremental management actions. As a result, dividend cover has increased, and thus ORIT has delivered on one of its central objectives.

So, without downplaying that this has been a tough first half, ORIT now has a portfolio diversified across multiple European jurisdictions and operates a range of technologies that are all well understood from an operational and construction point of view, with relatively predictable economics. This is against a backdrop where electricity demand is starting to ramp up as the AI-datacentre build-out continues at pace. If that demand scenario plays out, then ORIT’s discount of 30% and yield of 10% could prove to be a very attractive entry point.

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Kepler view

This was a positive set of interims from Neuberger Private Equity Partners (NBPE), which in our view provides several points of evidence that the green shoots of a recovery are appearing. NBPE is unique when compared to listed peers, in that it invests 100% of its portfolio in co-investments. This means it has a direct view into companies’ operating performance, and allows the managers can both curate the portfolio as well as have a high degree of control over the pace of investments. The board and manager have been using the flexibility conferred by this approach to balance investment with capital returns. The current strategy is to refresh the portfolio with newer deals, which will be the main driver of returns in years to come. In this, as the interims highlight, the team has been active on this front and we understand that nearly one-third of the portfolio is now represented by investments made in 2024 or later.

At the same time, NBPE’s strategy sees the board continue to return capital to shareholders. NBPE’s discount remains wide at c. 30% to the 31/08/26 NAV, and so returning capital via buybacks is accretive. NBPE also pays a dividend from capital, which represents a yield at the current price of c. 4.8%. Taken together, according to our calculations NBPE has returned the largest amount of capital as a % of NAV in the listed private equity peer group over the last five years. As a result of buybacks and new investments, gearing has ticked up to 115% as at 30/08/26, in the middle of the board’s expected range of 110%-120%.

Encouraging signs of a recovery from previous years of below-average activity levels in the private equity industry can be seen in NBPE’s interims. These include not only the strong performance of the top ten holdings and the 2024/25 vintages (both of which have reported stronger-than-average revenue and earnings growth), but also a broader increase in valuations of more mature vintage investments, reflecting continued strong earnings growth. Against this, performance of the quoted holdings and negative foreign exchange adjustments detracted from returns marginally in the six months. As we report above, realisation levels also continue to recover, and whilst the average uplifts on exits remain below average, the ability of the manager to recycle proceeds into new deals is key to long-term NAV growth.

The shares continue to trade at a significant discount to NAV, which the Board believes is unjustified. Discounts across the sector have remained wide. NBPE has not been immune to this, and the Board recognises that the Company’s overall NAV and share price performance remain below long-term averages and investor expectations. They are focussed on delivering stronger NAV growth as the way to sustainably improving NBPE's rating and narrowing the discount.

With the managers reporting good visibility on further realisations, they are optimistic about the portfolio’s prospects for the second half of the year. Given NBPE’s differentiated proposition, should NAV returns continue to improve, it is possible that shareholder returns will be boosted by the discount narrowing yet further.

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