Monthly Research Letter | February 2026

The lookback period spanning the last 48 months captures a transition from extreme monetary tightening to a regime defined by divergent industrial growth. 

From a London-based perspective, the primary shifts in the risk landscape involve the stabilisation of the GBP/USD exchange rate and a reset in equity volatility across the technology sector. UK regime of heightened divergence between hardware-driven technology and traditional energy/materials. In the USA, the semiconductor cluster (NVDA, ASML, LRCX) continues to exhibit high realised volatility, which, under our framework, necessitates dynamic sizing to prevent over-concentration.

While the previous 24 months were characterized by high-velocity returns in specific US-listed semiconductors and European industrials, the current environment shows an expansion in the variance of these returns. The risk is no longer just a matter of price direction, but of the increased cost of holding concentrated positions as correlations fluctuate.

Why the Core Framework Remains Appropriate

The continuous Kelly framework used for this model portfolio is designed to solve for one specific objective: maximising long-term capital growth while strictly respecting the observed volatility of each asset. By adjusting all international returns (S&P 500, Nasdaq, Sensex, and European equities) into GBP terms, the framework accounts for the "hidden" risk of currency erosion, which often undermines UK-based portfolios.

This month, the framework maintains heavy weighting in sectors where the realised growth has consistently outpaced the associated volatility. The use of a 25% cap on individual positions serves as a necessary guardrail against the inherent aggressiveness of the Kelly criterion, ensuring that no single idiosyncratic event in the semiconductor or aerospace sectors can destabilise the total capital base.

What We Are Deliberately Not Reacting To

We are observing several short-term market narratives—specifically regarding interest rate pivots in the UK and geopolitical friction in emerging markets—without adjusting the model’s parameters. We also remain indifferent to the "cheapness" or "expensiveness" of valuation multiples; the framework reacts only to the mathematical relationship between growth and risk. We do not adjust for "noise" or anticipated news events.

Why Position Sizing and Risk Balance Matter More Than Ideas

It is a common misconception that investment success is purely a result of finding the "right" company. In reality, the most insightful idea can lead to financial ruin if the position size is inappropriate.

The discipline of this model lies in treating every asset not as a "story," but as a probability distribution. Position sizing is the bridge between an idea and capital survival. By anchoring allocations to volatility and historical performance, we remove the emotional impulse to "double down" on losers or exit winners too early. Discipline under uncertainty means accepting that we do not know the future; we only know the mathematical cost of being wrong.

Final Positioning Summary

This portfolio illustrates hypothetical model-based approaches for educational and informational purposes. It is designed to demonstrate how a London-based investor might apply mathematical discipline to global markets. Investors may choose to replicate or adapt these models based on their own objectives.

We publish global investment research and model portfolios designed to help self-directed investors understand asset allocation, risk, and long-term portfolio construction.

We do not provide personalised investment advice or manage client assets.