On 25 January this year, the world watched as one man scaled a 101-story skyscraper without safety gear. As Alex Honnold summited the final tower, there was a sense of awe. This man, this outlier. A true anomaly.

Much like 2025.

Marvin Nair, Head of Smoothed Bonus at Old Mutual Corporate, says last year was a glitch in the market matrix, with extraordinary local equity returns in excess of 40%, plus local bonds delivering close to 25%.

In 2026, it’s going to be about managing volatility rather than chasing the golden glitch of last year’s returns. In a year of US midterm elections and geopolitical uncertainty, now’s the moment to help your clients to stay the course.

Read more on Marvin’s thoughts on 2025’s performance, the Absolute Growth Portfolio’s (AGP) response to it, and his projections for the markets this year:

1. You’ve called 2025 an extraordinary year. Please explain the impact of this for AGP

For December 2025, our usual bonus declaration came to around 1.08%. In response to an extraordinary market year, we added the full 2% discretionary bonus we’re allowed, under Conduct Standard 5 of 2020, bringing the total bonus to 3.08%. This made our smoothed bonus portfolio very competitive and contributed to a one year return of about 15%.

To put the decision to pay our discretionary bonus into perspective, our smoothing formula is designed to work effectively across thousands of different scenarios, producing the most appropriate outcome on average through a suitable bonus formula that limits the smoothing period to no more than 24 months. However, market returns in 2025 were unusually strong and persistent. The bonus was a fittingly unique response to this anomalous market.

Even after this declaration, we still have a solid bonus smoothing reserve of 10-15%, which gives us protection for future months and allows us to deliver more consistent outcomes over the short term. This approach lets us reward performance while maintaining stability and prudent risk management.

Over five- and 10-year periods, AGP remains top quartile relative to smoothed bonus peers, with materially higher reserves than most competitors, enhancing our downside protection going forward.

2. What were the key drivers of last year’s outlying returns?

Performance was driven by exceptional results across several asset classes, including local bonds returning nearly 25% and local equities exceeding 40%. This extraordinary equity performance was largely propelled by commodities such as gold, silver, and platinum group metals.

The core of the AGP proposition is maintaining growth exposure throughout market cycles. By staying invested rather than trying to time the markets, the portfolio participated in these strong periods - a "time in the market" approach that is critical to long-term retirement outcomes.

3. Based on last year’s returns, do you see sentiment moving against defensive funds in favour of a more aggressive approach?

There is definitely a sentiment of FOMO - "fear of missing out" - where people want to go all-in on aggressive funds because they saw a 42% return. However, the kind of returns we’ve just seen are highly unlikely to be repeated. That’s simply not how markets work. We saw something similar in 2021, coming out of 2020; markets rebounded sharply and investors felt like they had quickly ‘made back’ what was lost. But those kinds of outsized returns are typically part of a recovery phase, not a new normal.

A good reality check is this: no asset manager has increased their long-term return targets as a result of this year’s performance. That tells you something. If anyone truly believed these elevated returns were sustainable, they would have adjusted their forward expectations. They haven’t, because they know this was anomalous. Investors may continue chasing stronger-performing assets in the near term but it’s critical to remain balanced and disciplined, and to look through the short-term noise.

While what we have experienced recently may be short-term and sentiment-driven, we continue to have a lot of faith in local equities as part of our robust exposure to growth assets. AGP has around 31% global equity exposure and 34% local equity exposure (on a strategic allocation basis), including a strong allocation to alternatives (Figure 1). Last year, our tactical asset portfolio manager opted for a strong overweight position in local, which has continued into this year, on the basis of price-to-earnings multiples in the US being high compared to here. This positioning has paid off handsomely.

4. What do you foresee for the markets over the next 12 months and how is AGP positioned to capitalise on compelling growth opportunities without compromising its long-term discipline?

I expect volatility; that’s the bottom-line. In 2025, we saw some geopolitical risks, but the market reaction was a lot less than some may have expected. Throughout the year, people sought safety in commodities - we saw close to 100% return in some of these stocks. Interestingly, the strong indication that Kevin Warsh will succeed Jerome Powell as Chair of the Federal Reserve caused a sharp sell-off in commodities recently as there’s a feeling of being able to be “risk-on” given expectations of potentially lower interest rates under Warsh. With this Federal shift, we’ll have to see what policy is actually like; whether interest rates stay higher for longer or move lower. Low interest rates mean more economic activity, making it more attractive to place globally, which takes assets away from local. Conversely, the dollar will be stronger if interest rates are higher, which can cause a bit of economic resistance in the US, leaving scope for local asset growth.

There will probably be support for local assets and some tailwinds coming through on the local equity side given relative value (based on P/E multiples) of local assets when compared to global. We expect to see some opportunities continue to be driven by safe assets such as gold and other precious metals - uncertainty often drives interest in safety. However, local bonds are unlikely to see the same level of exceptional returns they’ve had in 2025.

Globally, everyone is tussling with AI. Whether the AI “bubble” is going to pop is a matter of debate. I think we’re going to continue to see global growth in firms providing the infrastructure and compute-heavy resources for AI.

5. Are we likely to see a market correction? How is AGP protecting against that?

When market returns have been this positive, you’re more poised for the potential of a correction. What sets AGP apart is that it gives you participation in returns – but also protection. With a 10-15% reserve, the underlying portfolio would have to fall by more than 25% to 30% before an investor sees a negative return. Not even COVID-19 drew portfolios down by that much. If the market downturn is even stronger than we’ve seen in the past, AGP provides further protection through built-in proportional guarantees.

This is why AGP and related smoothed bonus portfolios are so important for Retirement Funds and, notably, living annuity solutions in the retail space. They’re extremely effective at managing sequence-of-returns risk – the risk that poor returns early in retirement permanently impair income sustainability. Steadier outcomes are especially valuable when drawing a regular income. Equally importantly, these portfolios do not sacrifice long-term return potential as they’re underpinned by a strong growth asset engine (much more than a typical conservative balanced fund).

6. What message should advisers be sharing with clients right now?

Stay the course. Contribute as much as you can to your retirement savings (at least 15% of your annual income) and get as much growth exposure as you can for the longest time possible. If you were enticed last year to go fully into a market-linked balanced fund, you are fully exposed to a potential correction. If stocks drop by 20% on a Monday and you are fully exposed to the market, you may lock in a significant loss.

Pick a solution, stick with it, and don't be too enticed by last year because it is an anomaly. If you consider the Asset Class Quilt, there is pretty much no asset class that was the top performer for two consecutive years. Local equity is probably not going to give you what it did last year. With the US midterm elections coming up, there is going to be further noise. Don't chase short-term trends; follow the long-term plan. As long as you maintain growth asset exposure, you optimise your potential outcomes.

Help your clients to pick and stick to your Smarties. Anomalous years are like anomalous people – they’re usually once-in-a-generation events.