Summary
- Annual returns shield against recent global knockbacks
- Tech supply chain splits fortunes in Asia
- Renewables make an oil crisis unlikely
- Bond yields rise as interest rates stabilise
- Octopus Money Direct investment funds perform well
A strong year dampened, not ruined, by recent volatility
Investors have enjoyed healthy returns over the last 12 months, despite the latest global tensions. War in Iran has dented global investment markets, but returns have been insulated by longer-term gains.
Returns from Global Markets
Source (Lipper): MSCI AC World TR GBP Index
When military action began in early March, both bond and share markets fell in response. Before that point, 2026 had started well for investors. Markets were buoyant, expecting further interest rate cuts from central banks in the months ahead.
The conflict now centres on the Strait of Hormuz. The transport route for 20% of the world’s oil and gas is out of action. As expected, oil and gas prices have risen and inflation could follow. Central banks will have to reconsider further interest rate cuts and could even increase them. We think that’s unlikely.
While UK shares fell 6.7% in March, Q1 of 2026 still delivered positive returns (+2.4%). For the 12 months to March 2026, returns sat at a healthy 21.5%.
Global shares fell 5.3% (in GBP) during March, but are up 18% over 12 months.
AI boom dividing fortunes in Asian share markets
20% of the world’s oil and gas may flow through the Strait of Hormuz, but 80% of it is destined for Asian markets. The impacts have been keenly felt in March, with an aggregate fall of almost 11%. Countries like Korea, Taiwan, and Japan all performed admirably in the prior months, leaving Asian equities up 28% for the 12-month period.
Asian Market Performance last 12 months
Sources (Lipper): MSCI Korea, MSCI Taiwan, MSCI China Indices
The largest companies in South Korea and Taiwan (popular with international investors like us) such as Samsung and Taiwan Semiconductor Manufacturing Company, grew an incredible 123% and 75%, respectively, over the 12-month period. Chinese shares lagged behind in comparison at 4% returns.
The disparity has an interesting source: supply and demand of semiconductors and processing chips. These are key components in AI computing, electric cars, and 5G telecoms. China is a global leader in these technologies, but the high-end chips they rely on are coming from elsewhere.
South Korea and Taiwan are leading production, whereas China is heavily reliant on imports. Prices have risen with demand. Exporters benefit, importers pay the price. In 2025, China imported a record $50 billion of semiconductors.
Investments in renewables cushion fears of an oil crisis
For all the talk of weak Chinese share markets, the country’s investments into renewable energy contributed an estimated one-third of GDP growth (approx. 5%) in 2025. China is the global leader in clean energy, having added as much solar power as the rest of the world combined in recent years. For context, the UK government aims to build nearly 50GW of clean energy capacity by 2035. In 2024 alone, China added almost 300GW.
A 1970s-style oil crisis is unlikely, thanks to decades of investments in renewable energy.
Even after wars in Ukraine and Iran, we don’t foresee energy shortages or national restrictions in the UK. Close to a third of the world’s electricity now comes from renewable sources. It’s now cheaper to build renewables than extract fossil fuels. China has carved the path.
The dance between interest rates and bonds
Shares weren’t the only asset class to be dented by the attacks on Iran. Bond markets fell, too. Globally, government and corporate bonds were down 1.8% in aggregate in March. From a 12-month view, they were up just over 3%.
Rising oil and gas prices will stoke higher inflation. In turn, central banks will struggle to justify further cuts to interest rates. The steady fall in rates had been driving bond markets upwards through 2025. The Bank of England cut rates four times last year to 3.75%, but held rates in March. Markets had priced in a cut that didn’t arrive. Where two to three further 0.25% cuts were expected through 2026, things now look much more uncertain.
When interest rates fall, bond values rise. Lower returns on cash savings encourage investment into bonds, which are considered a relatively safe asset. Bond yields eventually catch up with interest rates, as new bonds are issued with higher coupons to reflect the market.
All of this means that, although bond markets retreated a little in March, yields remain attractive. If interest rates hold through the remainder of 2026, we would expect positive returns from bonds.
Octopus Money Direct investment funds
Despite the stresses of March, all Octopus Money Direct investment funds enjoyed positive returns for the 12-months to date. These ranged from 4.0% for the Bond Fund up to 21.3% for the UK Tracker Fund.
Octopus Growth Funds 1, 2, and 3
Our three multi-asset growth funds (Octopus Growth Fund 1, Octopus Growth Fund 2 and Octopus Growth Fund 3) returned 7.5%, 12.3% and 14.9%, respectively. Risk has been rewarded in these 12 months, as shares outperformed bonds. It is a reminder that a longer-term approach often delivers positive returns, even though it can be hard to ignore the noise about markets week-to-week and month-to-month. Over the last five years, returns from our three growth funds have averaged 2.6%, 5.5%, and 7.3% per year, respectively.
Our lowest-risk, multi-asset fund – returned 5.9% for the 12-months to March 2026. For an intentionally low risk fund, we’re pleased with this performance. The fund prioritises investments that, when blended, reduce your exposure to volatility. Government bonds, split between the UK and globally, returned just over 2%. Corporate bonds roughly doubled that. The fund’s investment in shares (close to 20%) fuelled returns.
Our bond-only fund returned 4.0%, a decent outcome considering close to half is invested in medium term (5 to 15 year) UK Government bonds, which returned 3% over the period. Higher-yielding corporate bonds, up 6%, lifted the return.
Our best performing fund returned 21.3%. The UK stock market has a higher exposure to financial companies than most international markets, thanks to our leading finance and insurance companies. Making up over 20% of the index, the Financials sector delivered returns of 23.7% for the period.
Banking, specifically, was the real stand-out, with UK listed banks delivering returns of 41% over the 12-months. HSBC enjoyed strong earnings in its strategically important Asian markets and had two share buybacks during the period totalling close to £5bn. Buybacks reduce the number of shares and, typically, lift share prices.
The other notable success in the UK market was the aerospace & defence sectors, up 47% in aggregate for the year.
It wasn’t all positive, as the UK beverage sector fell by over 15%. Cost pressures hit Diageo’s operating profits by 3%, amidst decreasing investor appetite (‘thirst’?) for these companies.
Our internationally minded fund returned 15.0%. A little behind the UK fund, but a good result considering the hit to Asian shares in March. Asian equities make up about a quarter of the Fund’s investments, but most markets have been performing well. The iShares Japan ESG Enhanced ETF (making up 10% of the Global Share Fund) fell 13% in March, but was still up 24% for the 12-month period. US shares, which returned 13%, make up just over 55% of the fund. The US tech sector’s earlier gains cooled off in the first months of 2026.
Q1 2026 performance was in line with global equity markets, but a slower 2025 means it’s behind its benchmark for the 12-month period by about 9%. 12-month returns were 9.6%.
The Fund invests in 40+ hand-picked companies building environmental solutions and/or industry leaders in environmental practices. The Fund has low or no exposure to some of the strongest performers since March 2025: the US tech giants and mining, defence, and oil and gas.
Political narratives and geopolitics have boosted climate-focused funds over the last few years. We believe the need for capital investment in these areas will become more acute, but the long-term prospects for the Fund remain positive. If you’d like to read more about how the Climate Change Fund invests and recent performance, please click here.
Visit each fund’s webpage if you want to see their returns over the last five years.
Remember, past performance is not a reliable guide to future performance.
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