How AJ Bell funds are shifting their asset allocation this year

Each year, the AJ Bell investment team reviews their fund range and prepares for the changing market environment by tweaking the fund allocations.

Although the fund range will consider many of the same factors, the specifics of the adjustments will be on a fund-to-fund basis, to account for different risk levels. This year’s asset allocation decisions addressed three main themes that could impact the market in 2026: higher valuations in equity markets, strong market confidence in corporate bonds, and the delicate position of government bonds. We’ll dive into what each of these themes mean, and how it will affect the portfolios, below.  

This table shows the changes to the AJ Bell Balanced fund. If you hold a different fund, you can use the table at the bottom of this article to see what changes have been made for that specific fund.

There are three main changes to portfolios this year: For higher risk portfolios, the biggest shift will be the increase in US equities. For lower risk portfolios, the most significant movement is in bonds, where the team is introducing positions in global government and global corporate bonds which are not affected by currency changes, as well as increasing the position in bonds that are linked to inflation rates in the US and UK.  

Why the increase in US equities?

At face value, increasing US equities exposure might seem surprising. The US market has been a popular way of gaining exposure to the AI theme and it has led the global equity market rally over the past three years, despite other regions outperforming in 2025. Although we are increasing our allocation, it is not through a general exposure to the market. Instead of the big AI names, the focus instead is on accessing a more diverse range of US companies. This includes upping sector exposure to utilities, health care, and energy.  

Most of the funds will also increase their holding in equal-weighted US indices, meaning that each company in the index is given the same allocation, rather than it being decided by their market value. In fact, for almost all of the funds, exposure to the traditional funds weighted by market value has been decreased.  

The increase in US exposure is mostly balanced by a drop of holdings in Europe, and for higher risk funds, a slight lessening in exposure to emerging markets (not including China). This is where the theme of higher valuations come into play. In the past year, investors have started to take notice of the ‘quieter’ markets we have favoured in the past, like the UK and Europe. This has led to an increase in valuations there, which essentially means that investors are willing to pay more for those companies.  

But where the US has been able to stand out, and why it’s started to look more appealing, is because its valuation has been backed up by company earnings. It’s the only region where we’ve really seen this trend. In other places, the companies have performed about the same over the year, while prices have gone up. In the US, this price rise has been backed up by the numbers.  

The changes coming to bond holdings

This year, the funds will be making some significant adjustments to how they hold bonds. Note that these changes will have little effect on the adventurous fund and none on the global growth fund, because their exposure to bonds is low or zero.  

But for the other funds, the main change will come in holding much less in UK corporate bonds and increasing holdings in global government bonds (focused on Europe, the UK and the US) and global corporate bonds. These increases will be done through funds that aren’t affected by changes to currency. So, for example, if the US dollar was to become less valuable in comparison to the pound, this change wouldn’t directly impact the bond funds. Only the value of the bonds themselves would impact the fund.  

These changes have been made to diversify the fund’s bond holdings away from the UK, creating more global exposure. In terms of government bonds, the focus has been on ensuring that these investments are outpacing inflation.  

In the UK gilt market, most bonds offer a yield that is based on the coupon (interest payment) and the return of the bond price to its original value over time. However, there are also bonds that have their coupons and value adjusted for inflation, these are called index-linked gilts.  While the level of inflation in the UK has eased, it is still well above the Bank of England's 2% target and the long-term outlook is uncertain. For this reason, the funds have increased positions in bonds that are linked to inflation. Simply put, it means that the returns investors get on these bonds aren’t based on a fixed rate, but instead on the rate of inflation, plus a bit extra.  

Less money held in cash

Slowly but surely, we’ve started to see a decrease in interest rates over the past year in both the UK and the US. While this can be good for businesses, and for bonds value as they move up when interest rates fall, it means a smaller return for cash savings.  

In the last few years, we’ve kept a larger amount of our low-risk holdings in cash because the returns could be upwards of 5%. Now, as those interest rates are coming down, the return offering for cash is less attractive, and interest rates look primed to lower further throughout this year. The decrease in cash holdings will be largely replaced by the inflation-linked bonds mentioned above. In higher-risk portfolios, the lowering of cash will mean a slight increase in equity holdings.  

Understanding our Income and Responsible funds

Keen-eyed investors may notice a slight difference in the way asset allocations are shown in the table below for this article and on the fund’s fact sheet. This is because the income and responsible funds are a bit more specialised, so they need to invest in different products than the other growth funds, which show up differently when they are broken out into categories. On the fact sheet, you will see these broader underlying investment categories. This table shows a further breakdown of the allocation, and how pieces of those investments separate out.