Markets have delivered another strong quarter, but beneath the headline returns there are important shifts taking place. The next instalment of FundCalibre’s quarterly market update, with Darius McDermott and Juliet Schooling Latter, explores the revival in UK smaller companies and commodities, stubborn inflation and the prospect of higher interest rates.
The FundCalibre team examine the extraordinary sums being spent on AI, rising debt among technology companies and whether investors are less diversified than they realise.
The conversation also turns to bonds, where shorter-duration opportunities are looking increasingly attractive, before assessing UK equity valuations and the areas offering potential away from AI. Finally, we reveal which markets and sectors could provide opportunities as we head towards 2027.
Why you should listen to the interview: Are your investments really as diversified as you think? This episode looks beneath recent market returns to explore AI concentration, rising technology debt, inflation and changing bond opportunities.
It also considers why UK smaller companies are finally performing and where investors might find opportunities away from the themes currently dominating global markets.
This interview was recorded on 30 September 2026. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
UK smaller companies finally have their moment
“The first half of the year saw tech as the top-performing sector, but over the past three months, tech was ousted from the top spot and replaced by commodities, which are up almost 8% in those three months. Although that was partly related to the AI trade, as demand for electrification and data centres increases.
“But the second-best performer over the past three months – drum roll, please – UK smaller companies, finally. So that definitely counts as my pleasant surprise, having championed UK smaller companies on this podcast for what feels like forever. Actually, UK All Companies and UK Equity Income made it into the top quartile too over the past three months.
“In preparation for another podcast, I was looking at the best and worst-performing funds within the VT Chelsea Managed range that we manage. One of the best-performing things is the WS Raynar UK Smaller Companies fund, which is Elite Rated by FundCalibre.
“So it’s nice when not only do you have the right asset class, but you have a good fund pick within it. That’s up 9.5% in the last quarter, so that’s very positive.”
“When I look more broadly at what’s worked and what’s not worked in our funds, energy has been a very strong contributor in the last quarter. Not touching on the negative, but the conflict in the Middle East still goes on.
“That’s kept the oil price high, and those energy securities have been very strong returners over that quarter, which I suppose you would naturally expect. The other fact about energy equities is they generally perform well in inflationary environments, whether it’s oil price inflation or just a general inflationary environment. So that is something which, hopefully, will have some legs to run on.”
When the AI spending boom starts relying on debt
“The CapEx being spent is eye-watering. Hyperscaler CapEx has gone from about 235 billion in 2024 to a projected 700 billion-plus this year. Investors have just started punishing companies that can’t show that spending will increase profits sufficiently.
“Early on, this was self-funded by the highly profitable hyperscalers, but more recently it’s being funded through debt, and that’s the bit that worries me. If the market starts to get concerned about these levels of debt and the ability of these companies to service it, that will evidently cause a market wobble.
“We watch the equity markets, but we also have to watch the bond market. A number of US tech companies have had bonds and they’ve gone below the par rate because, even when they’ve been oversubscribed, that future spending is such a tremendous amount of money. You have to be able to show you’re going to make a return and be able to pay your interest.”
Finding true diversification
“Diversification isn’t what it was. It may be again in future, but it certainly isn’t today. So if you have to look for markets that have little or no AI, it brings us back a little bit nearer to home.
“UK and European markets have very few AI-related hyperscaler stocks, ASML in Holland being probably the biggest in Europe that is in the chip business.
“If you’re looking for areas that don’t, then there are other areas like Latin America and frontier markets. They’re niche specialist investment areas, so they’re not mainstream. But those are areas where you can make reasonably cohesive arguments that there are other drivers than just the AI trade powering their growth.
“Particularly in frontier or Latin America, it’s around commodities, and very low-earning consumers moving from very low earnings to low earnings, and from low earnings to middle-to-low earnings.”
What’s interesting now?
“I think commodities are a very interesting place to be invested in higher inflationary times. We’ve talked about gold and silver earlier in the year and maybe late last year, when that had its spectacular run.
“But I think generally, the demand for commodities to power the AI revolution, whether it’s data centres or robots – robots aren’t going to just be these creatures. They’re going to need copper and battery materials like lithium and so on. So I’m positive on commodities.
“They’re are going to be in demand as infrastructure spend continues. So maybe infrastructure is a good play against rising inflation, although you do have to be aware that that too is linked to the AI trade.
“We mentioned India earlier, that has had a rough ride for two years now because it’s the wrong side of the AI trade, and it’s been badly hit by the rising oil price.
“So if there were to be a resolution to the conflict in Iran, then I think India would certainly be the place to be. But maybe I’ll be keeping a bit of healthcare in the mix as a non-AI play as well.”
Conclusion: Despite persistent inflation, geopolitical uncertainty and questions surrounding AI spending, markets have remained remarkably resilient.
With AI exposure appearing more and more across global portfolios, understanding what investors actually own could become increasingly important as markets enter the final months of 2026 and investors look towards the year ahead.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
Main image: Podcast, will-francis-ZDNyhmgkZlQ-unsplash
