A passive investment portfolio designed by financial publication MoneyWeek has delivered a strikingly strong return of 25% over the past year, significantly outpacing its own long-term expectations. The result highlights a year of dramatic divergence in global markets, with traditional safe havens and commodity-driven sectors soaring while bonds languished.
The performance was driven by explosive gains in several key holdings. Leading the charge was the portfolio’s allocation to physical gold, which surged by 50% in sterling terms, even after retreating from recent record highs. The energy sector also delivered exceptional returns, climbing 58%, while the emerging markets and Japan segments rose 42% and 38% respectively, bolstered for much of the period by investors seeking diversification away from US-centric investments.
Annual Rebalance Addresses Significant Drift
The simple, diversified portfolio of exchange-traded funds (ETFs), which has run in various iterations since 2013, is rebalanced annually, typically at the start of the UK tax year. This timing allows investors to use new individual savings account (ISA) or pension allowances to adjust their holdings efficiently. The ISA allowance for the 2026/27 tax year remains at £20,000, though notable changes are on the horizon: from April 2027, the Cash ISA limit will fall to £12,000 for those under 65.
Such a pronounced difference in returns across assets has caused the portfolio’s weightings to drift substantially from their target 10% allocations. In the tracked model, gold and emerging markets are each around two percentage points overweight, while most other holdings are roughly one percentage point underweight. Although the portfolio’s rule is typically to avoid minor rebalancing to curb trading costs, the scale of this year’s imbalance necessitates a full reset back to the target weights for all ten positions.
Strategic Shift: Swapping Bonds for Inflation Protection
The most notable change in this year’s reset is a strategic pivot within the fixed-income portion of the portfolio. The team is replacing its holding in the iShares $ Treasury Bond 3-7 Years GBP Hedged ETF with the iShares $ TIPS 0-5 GBP Hedged ETF. This switch from conventional short-to-medium dated US government bonds to US Treasury Inflation-Protected Securities (TIPS) reflects a shifting assessment of the economic landscape.
The original thesis for holding shorter-dated bonds was predicated on expectations of significant interest rate cuts. However, that prospect is now seen to be receding, with the Bank of England and other major central banks expected to take a more cautious approach to monetary policy. Concurrently, the risk of resurgent inflation is judged to be rising. While the UK’s Consumer Prices Index is forecast by the Bank of England and the Office for Budget Responsibility to trend down towards 2% by the end of 2026, other forecasts paint a more concerning picture.
The Organisation for Economic Co-operation and Development warned in March 2026 that it expects UK inflation to average 4% for the year, a sharp upgrade from a prior 2.5% forecast. KPMG UK has projected headline inflation could peak at 3.6% in September 2026, driven in part by higher wholesale energy prices linked to Middle East supply disruptions. In this environment, a nominal bond yield of around 4% looks less compelling than the 0.9% real yield offered by short-dated TIPS, which adjust their principal in line with US inflation.
The proceeds from the sold bond ETF will be held temporarily as uninvested cash. The decision to delay immediate redeployment into another growth asset is attributed to a desire to monitor the fragile geopolitical situation, following reports of a tentative US-Iran ceasefire announced in early April 2026 and ongoing regional volatility.
The updated portfolio maintains its ten equally weighted holdings. Alongside the new TIPS position and the cash portion, these are: Invesco US Treas. 0-1 Yrs GBP Hdgd; iShares Physical Gold; Xtrackers S&P 500 Equal Weight; Vanguard FTSE Dev. Europe; Vanguard FTSE Japan; iShares Core MSCI Emerging Markets; Xtrackers FTSE Dev. Europe Real Estate; and the SPDR MSCI World Energy ETF.
