How the experts are building ‘core’ portfolios right now

Building the core of a portfolio has become more complicated as investors contend with stretched valuations, concentration in US mega-cap technology and a less predictable macroeconomic backdrop.

For a balanced investor with a medium risk profile, the starting point remains familiar: a combination of equities, bonds and diversifying assets. But beneath that broad framework, there is less agreement over how those exposures should be built.

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Should investors favour low-cost passive funds for broad market exposure, pay up for active managers who can seek opportunities beyond the index or combine the two? And as market leadership becomes narrower, which holdings can provide the foundations of a resilient portfolio?

We asked three investment professionals how they would construct the core of a medium-risk portfolio today, with each taking a different approach to the balance between asset classes and active and passive management.

Building a low-cost core

At First Wealth, the core of a balanced portfolio is built around a straightforward asset allocation of 50% equities, 40% bonds and 10% in diversifiers.

“For our typical medium-risk client, this gives a portfolio that can absorb volatility without relying on any single asset class to do all the work,” says chartered financial planner Ben Brown.

Within equities, the firm runs a modest overweight to UK equities relative to their global market capitalisation weight, with UK equities accounting for just 3.5% of the MSCI World index, reflecting the value opportunity in a market that has traded cheaply relative to other developed markets.

Emerging markets account for around 15% of the equity allocation, while currency is left unhedged as a source of diversification over the long term, rather than treating currency exposure as a risk that needs to be eliminated.

The bond allocation is duration-constrained (in terms of its sensitivity to interest rate changes) to up to 10 years, hedged back to sterling and predominantly high quality. Brown says the firm treats bonds as “defensive ballast rather than a source of return”, to cushion the portfolio when equities fall rather than to maximise income.

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The diversifiers allocation is held through global property, broadening the portfolio’s sources of return beyond mainstream equities and bonds.

At the core, First Wealth remains predominantly passive. 

“The evidence continues to support this,” says Brown. S&P’s latest SPIVA scorecard report found that 79% of actively managed large-cap US equity funds underperformed the S&P 500 in 2025, while over a 15-year period, there was not a single equity or fixed income category where most active managers beat their benchmark.

“Given that evidence base, we build the backbone of client portfolios from low-cost index funds, layering in modest tilts where the case for a persistent premium is strongest,” adds Brown.

Core holdings include Fidelity Index World P Acc (BJS8SJ3) for global developed equities, Fidelity Index Japan P Acc (BHZK887) and the iShares Envir&Lw Carb Tilt REIdx(UK)DAcc (B5BFJG7) for the diversifiers allocation.

The standout change over the past year has been the addition of Fidelity Index Japan, which broadened regional diversification and was the portfolio’s strongest-performing holding over the 12 months to the end of June, returning 34%.

“It’s a good illustration of why we stay disciplined and diversified across regions rather than concentrating client portfolios in the US, however strong the recent narrative,” says Brown.

Looking beyond the index

At Tideway Wealth, a typical medium-risk profile has 40-45% in global equities, 40-45% in fixed income and 15-20% in alternatives.

“The exact numbers will vary depending on valuations and how attractive we believe certain assets are,” says chartered wealth manager Mihir Choughule.

As of the end of June, the split was 43% equities, 42% fixed income and 15% alternatives. 

All funds held are actively managed. 

“This allows us to choose the best fund managers, who are aligned with their investors and can go and invest in companies they believe are the most attractive,” says Choughule.

He sees index concentration as a particular risk. Around 75% of a typical global equity index is exposed to the US, he says, with roughly 30% concentrated in the Magnificent Seven big technology companies.

“It doesn’t take much for that tide to reverse and when it does, we believe active fund managers with sound philosophies stand to benefit,” he says.

Rather than making concentrated sector or geographic bets, Tideway partners with managers with global mandates who can invest where they see value. 

Its portfolios are currently significantly underweight the US, with around 40% invested there compared with more than 60% for the MSCI All Country World index, and overweight every other region.

“Our managers see far more value in regions left behind like Japan and emerging markets, which also have secular AI winners, for example, that have not been appreciated by the market to the level of US-based holdings,” says Choughule.

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The firm’s highest conviction equity fund picks include the Schroder Global Recovery Z Acc GBP (BYRJXL9), Heriot Global A GBP Acc (B99M6Y5) and Artemis Global Income I Inc (B5N9956) funds.

The firm is even more strongly committed to active management in fixed income, where Choughule argues that passive investing can create an unintended concentration in the companies with the largest debt piles.

Allocations are short duration, with maturities below five years, reflecting the view that inflation will remain persistent and interest rates are likely to be more volatile than during the post-global financial crisis period.

“We are optimistic about fixed income, with forward yields projected to be around 6-8% on high-yield bonds, with minimal default risk at present and greater earnings visibility than on equities,” says Choughule.

Man Sterling Corp Bd Profl Acc C (BNLYQX6) and Artemis Short-Duration Stgy Bd I GBP Acc (BJXPPH6) are among the funds used in this part of the portfolio.

In alternatives, WS Ruffer Diversified Return C GBP Acc (BMWLQT5) and FTF ClearBridge Global Infras Inc WAcc (BMF7D55) provide additional sources of diversification.

Preparing for different market environments

For Dzmitry Lipski, head of funds research at interactive investor, the most appropriate core for a medium-risk investor is a globally diversified mixed-asset portfolio.

A broad 60/40-style equity/bond allocation remains a useful starting point, combining global equities for long-term growth with bonds for income and diversification. 

A fund like Vanguard LifeStrategy 60% Equity A Acc (B3TYHH9) can provide a straightforward core, but Lipski believes investors should look beyond the traditional equity and bond split to manage concentration risk and access additional sources of return.

He sees a role for both active and passive strategies, using low-cost passive funds for broad market exposure and active managers where there is greater scope to add value in less efficient or more specialist areas of the market.

For equities, he suggests allocating 40-60% to global markets while reducing concentration risk, particularly in US mega-cap technology. 

This could mean greater exposure to value, income and non-US markets, although investors should also be mindful of concentration within emerging market indices.

Bonds could make up 15-30% of the portfolio, with Lipski advocating a more active approach to the asset class. 

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Rather than simply providing defensive ballast, he believes bonds can be used for income, diversification and opportunities as market conditions change.

Real assets could account for another 10-20%, with gold, silver, commodities and infrastructure offering sources of diversification beyond traditional equities and bonds.

A smaller 5% allocation to thematic growth could provide targeted exposure to long-term themes such as AI and defence without allowing them to dominate the portfolio.

Fund examples across these allocations include Artemis Global Income, which takes a flexible, valuation-driven approach to global equities, and Jupiter Strategic Bond I Acc (B4T6SD5), which invests across government and corporate bonds while actively adjusting interest rate and credit exposure.

Within real assets, Jupiter Gold & Silver I GBP Acc (BYVJRH9) offers exposure to physical gold and silver as well as mining companies. 

For thematic growth, Landseer Glb Artfcll Intlgc I GBP Bs Acc (BNYN9Q4) provides actively managed exposure to companies developing or applying AI technologies, while the L&G Artificial Intelligence ETF GBP (LSE:AIAG) offer a lower-cost passive alternative. 

The VanEck Defense ETF A USD Acc GBP (LSE:DFNG) provides another route to targeted exposure, investing globally across aerospace, defence contractors and related technologies.

“The key is not to try to predict the next market move but to build a well-diversified core that can perform across different market environments,” says Lipski.