Fund Return 2025 - 2026

Fund return to 31 January 2026

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

Global equities had a solid start to the year with the ACWI returning around 3% and S&P 500 up 1.5%. There was a notable rotation of performance favouring value and small cap, continuing the 4th quarter rotation away from Mag 7 dominance. Emerging market stocks outperformed US and Non-US developed stocks as the dollar declined. Long-dated rates increased slightly in the US, but high coupons kept fixed income returns mostly flat.

 The Fed held rates steady in January, as widely expected. Fed Chair Powell noted that the economy remained robust alongside improving labour market data, indicating that the current rates do not seem to be restrictive. The month ended with President Trump’s announcement that Kevin Warsh is his nomination for the next Fed chair. Warsh was on the Fed Board of Governors from 2006-2011. He was hawkish in tone while on the Fed Board but more recently his comments are more dovish particularly around the impact of AI on labour and inflation.

Economic data continued to indicate a strong economy. US GDP growth for Q3 was 4.4%, well above consensus expectations. US non-farm payrolls increased by 64k in November, a solid reading when accounting for lower levels of immigration. The unemployment rate dropped to 4.4% in December. Consumer sentiment, measured by the University of Michigan survey remains near record lows but increased slightly in January from December. Retail sales remained strong.

Headline inflation in the US remained at 2.7% year-over-year as of December, still slightly above target but in line with expectations. December’s headline inflation increased in the UK while it decreased in Eurozone and Japan.

January started with US troops capturing Venezuelan dictator Nicolas Maduro to face charges for narco- terrorism. Tensions rose in the Middle East from large scale protests and subsequent harsh crackdowns in Iran that killed thousands of protesters, with fears that regional conflict could arise. Elsewhere, tensions rose between European countries and the US after President Trump called for Greenland to be sold for the US, given America’s large military commitments needed to protect the strategically important territory from foreign aggressors. Towards the end of the month, several European countries and the US announced they had formed a framework for a future deal regarding Greenland even if details had not yet been disclosed.

Listed real assets, such as global REITs and listed infrastructure, outperformed global equities in January. Commodities had high single to double digit returns, outperforming global equities by a wide margin, as oil prices rose materially during the month amid instability in Venezuela and Iran. Natural resources also performed strongly in January. Gold was once again one of the best performing major asset class this month, driven by geopolitical tensions and hence persistent investor demand for safe haven assets, but suffered a dramatic decline on January 30th.

Outlook

Over 2026, we expect inflationary pressures to generally recede or stay close to targets, keeping most central banks on an easing path. Underlying inflationary pressures are key: core inflation, including services inflation, are expected to decelerate on the back of generally weak labour markets and tepid wage growth. However, underlying inflation in most economies is likely to remain sticky, preventing central banks from cutting policy rates to clearly stimulative levels.

In the US, following the government shutdowns, it is difficult to gauge inflationary pressures. Core inflation is expected to slow closer to the Fed’s target, although it will likely remain modestly above it. Core goods inflation is expected to slow on an annual basis, with the possibility of volatility, as well as underlying services inflation, which is expected to decline at a gradual pace. The job market remains weak, but a slowing labour force and resilient economic activity may keep underlying inflation persistent.

In the euro area, there is room for deflation. A strong euro combined with slowing wage growth could cause inflation to undershoot the ECB’s target. In the UK, inflation has peaked, and headline inflation is likely to fall sharply as administrative price increases drop off. Core inflation should also decelerate, but at a more moderate pace. Wage growth and inflation expectations are key in determining if inflation stays near the target.

Investment Update - January 2026

Notes

• Scheme Year to date performance is the period from 1 June 2025 to the most recent month shown.
• Performance shown is net of annual management charge.
• The investment choices offered by the Trustee will be regularly reviewed and may be varied from time to time.
• Before you choose a fund we recommend that you speak to a financial adviser. 
• If you require further information please contact the CIRT Team at [email protected]