Monday Club – 29/09/25: Your weekly Wealthwise digest

Investment round-up

Industry consolidation set to heat up

The number of wealth and asset managers will drop 20% over the next four years as M&A activity intensifies, predicts Oliver Wyman in its 2025 global wealth and asset management report with Morgan Stanley. The consulting firm expects more than 1,500 “significant” transactions involving asset and wealth managers over the next five years. Read more in ‘In focus’ below

Hepburn to join Vanguard

Gillian Hepburn is to join Vanguard as its head of adviser solutions in the UK. Hepburn, who previously worked for Schroders and Benchmark, will be responsible for driving the development of Vanguard’s model portfolio services, managing strategic relationships with platforms and overseeing the evolution of the broader adviser solutions offering.

Saba sets up Dublin-based ETF

Activist investment trust investor Saba Capital Management is to set up a Dublin-based ETF to target discounts in the space. The vehicle will act as a European cousin to its existing closed-ended fund ETF in the US.

MPS overwhelms multi-asset

Model portfolio solutions (MPS) have been likened by Defaqto to a “tidal wave” overwhelming multi-asset propositions. The group said MPS would overtake multi-asset after seeing “exponential” growth over the last five years.

FCA tackles high-risk schemes

The Financial Conduct Authority has said it is “concerned” over encouragement to invest in high-risk schemes offered by unregulated firms, highlighting unlisted loan notes or mini-bonds, which are often used to finance property developments.

BG’s Adair to retire

Spencer Adair, an investment manager at Baillie Gifford and co-manager of the Monks investment trust, will retire in March 2026. Existing Monks managers Malcolm MacColl and Helen Xiong will be joined by Michael Taylor from 1 April 2026.

European trusts agree tie-up

The shareholders of Henderson European Trust have voted for the winding-up and liquidation of the trust following a merger with Fidelity European Trust. The latter will now acquire around £462.7m of net assets from the latter in return for nearly 112 million new shares for Henderson shareholders.

In focus: Debt-wish

Another week, another member signed up to the steadily-growing club of politicians who fail to grasp economic reality, with would-be Labour leader Andy Burnham arguing the UK should stop being “in hock to the bond markets”. It is a familiar refrain from those who aspire to power – that there is money to be found in ‘them thar bond markets’ … if only the chancellor would lighten up a bit.

Three years on from Liz Truss’s and Kwasi Kwarteng’s ‘mini-budget’ detonation of the bond markets, this persists as a myth – and a potentially damaging one too – that investors should beware as populists again circle the incumbent government. The Truss episode cost the UK economy around £30bn, according to the Resolution Foundation – a sum that would likely have come in very handy in helping Rachel Reeves balance the books in the upcoming budget.

The uncomfortable reality, of course, is that any country with £2.7 trillion of debt is inevitably “in hock to the bond markets” – the maths is the maths. There are already signs of strain, with the most recent gilt market auction showing relatively weak demand. Last week, auctions of five and 30-year gilts issued by the Debt Management Office saw the lowest number of bids since at least 2022.

The message – as Reeves indeed countered to Burnham – is ‘There are limits to what governments can do’. Voters may be able to change the party of government in one election – changing bond market reality will take rather longer.

The UK is by no means alone here as plenty of developed-market countries have built up vast debt piles that leave them vulnerable to the caprices of debt markets. Earlier this month, this helped see off yet another government in France, where it is clear the electorate have no inclination to make the sacrifices necessary to being debt under control. Equally, in the US, the bond markets appear to be the only thing that puts the brakes on Donald Trump’s ambitions.

Governments are under pressure, agrees Andrew Chorlton, chief investment officer, fixed income, at M&G, who continues: “People are saying ‘no more taxes, but protect our services’. The challenge for every administration is that the electorate is not willing to pay the bill for what they expect governments to deliver – whether that is repaying the Covid bill to supporting industry.

“They expect the bond market to pay the price. Governments around the world are stuck in this narrative where they want to get re-elected – but they know, if they lose a handle on fiscal credibility, they will struggle to fund things going forward because the cost of funding will increase.”

The problem for most governments is exacerbated by bond markets not having to buy anybody’s debt. While the US has more flexibility than most, even it is vulnerable to international investors deciding they no longer consider it creditworthy. Playing with fiscal discipline is certainly not an option for the UK or France. But does this matter for bond investors? Certainly, it leaves government finances vulnerable.

“When there are the levels of debt that are seen in the economy at the moment, the natural cycle – where, as an economy slows, a government is able to support that with fiscal expansion – does not work,” explains Chorlton. “Governments leave themselves very little room for manoeuvre. If we do see the US tip into a slowdown, there is not a lot of room to pump money into the economy. It is a challenge for governments – even the US.”

All countries, then, are vulnerable to a Truss-style meltdown. If they are seen to lose fiscal discipline, bond yields potentially spike and prices fall. That is the bad news for bond investors and why buyers of government bonds need to pay attention to the prevailing political winds.

As Richard Carter, head of fixed interest research at Quilter Cheviot, says of the upcoming UK budget: “One potential catalyst to watch would be Rachel Reeves relaxing her fiscal rules, downgrading their importance by suggesting less fiscal prudence or being replaced by a more ‘left-wing’ chancellor. When speculation mounted Reeves might be leaving the role earlier this year, there was a swift drop in gilt markets, pushing yields higher.”

Nevertheless, M&G’s Chorlton still believes there is plenty of value in government bond markets – and more so than in credit. Highlighting the relative value between government bonds and credit, he adds: “To get a positive real yield on government debt is something we have not seen since the financial crisis. It is not a bad starting point when the rest of the world is so expensive.” With equity markets appearing to have quickly forgotten ‘Liberation Day’, Chorlton believes government bonds is one of the only markets that does not look complacent at present.

The case against government bonds, meanwhile, is that investors are often still achieving a superior yield in corporate credit – and indeed, in some cases, the financial metrics look better for high-quality companies than they do for some governments.

The key for the M&G team, then, is selectivity and they are looking at the bonds from Australia, New Zealand and Norway, as well as across emerging market government debt. These are only lightly represented in bond market indices, which tend to be heavily weighted to the world’s most indebted issuers, such as the US.

As things stand, however, most countries are keeping their noses clean – including the UK. Quilter Cheviot’s Carter believes the risk of a repeat of the gilt market meltdown that took place after the Truss ‘mini budget’ remains low. “The market reaction seen in 2022 was a result of unexpected and fairly radical policy announcements that caught many off-guard,” he says.

“It could easily be a more slow-motion effect in this instance, though – particularly if yields keep on rising in the medium term. Worries about a 1970s style IMF-crisis certainly seem overblown, however, with credit derivative markets showing little concern about a potential debt default. Rating agency Fitch recently reaffirmed the UK’s AA- credit rating. Sterling is showing little cause for concern in this regard, holding up fairly well in recent months.”

There are more concerns in the US, where policy is less predictable. France’s problems also look more intractable, but Guillermo Felices, global investment strategist at PGIM Fixed Income, believes contagion should be limited.

“The European Central Bank has the tools needed to limit contagion – notably the Transmission Protection Instrument,” he points out. “While risks do remain, France has found ways to muddle through political crisis in recent months and years. Spreads are also already pricing fiscal concerns and political turmoil.

“French spreads are consistent with a ratings downgrade and are wide relative to other European government bonds [EGBs] with similarly high public debt. Given this backdrop and risks, we remain attentive to tactical opportunities that may open up in France and other EGBs. For long-term investors who can tolerate volatility, valuations are interesting. Curves are very steep – twice as steep in France and Italy compared with the US – and hedged yields are attractive, especially for US investors.”

Governments should not – cannot – simply decide not to be ‘in hock’ to the bond markets – and there are real risks for bond investors, if they do. Most finance ministers recognise the problem, however, and are playing by the rules. Should they ever attain power, their populist opponents would soon collide with the same reality.

Read more on this from CityAM here and from Morningstar here