| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
Risk assets staged a powerful rebound in Q2 2026, with the S&P 500 rallying 15.2% during the quarter despite accelerating inflation, a more hawkish Federal Reserve, and continued geopolitical uncertainty. The rally was driven primarily by a sharp decline in oil prices from roughly $100 to $70 per barrel as Middle East tensions eased, relieving pressure on inflation expectations. Market participation broadened significantly, with small caps and value stocks outperforming, the Russell 2000 gaining 22.6% year-to-date, and previously unloved sectors contributing meaningfully. Emerging markets led global equity performance, up roughly 24% for the quarter, driven by demand for high-bandwidth memory chips for AI systems. The Federal Reserve held rates unchanged at 3.50% to 3.75% but adopted a more cautious tone. The manager rebalanced portfolios back to long-term targets during the quarter and maintains a moderate gold allocation as a diversifier. While expressing cautious optimism based on resilient growth and supportive earnings, the manager emphasizes the importance of maintaining diversified portfolios given elevated valuations in parts of the market and ongoing geopolitical risks.
The manager advocates for a disciplined, diversified investment approach focused on long-term objectives in an environment where the outlook can change quickly, emphasizing portfolio balance and rebalancing discipline over chasing recent market winners.
The manager expresses cautious optimism while acknowledging ongoing uncertainty. They see reasons for optimism including resilient economic growth, supportive corporate earnings, and potential easing of inflation pressures if energy markets remain stable. However, elevated valuations in parts of the market and ongoing geopolitical risks reinforce the importance of maintaining diversified portfolios. The manager remains focused on the path of inflation, geopolitical developments, and the evolution of the artificial intelligence cycle as key factors that could influence interest rates, market leadership, and overall investor sentiment in the second half of the year.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Aug 4 2026 | 2026 Q2 | - | diversification, energy, Geopolitical Risk, inflation, market breadth, rates, semiconductors, small caps | - | Risk assets rebounded strongly in Q2 2026 as oil prices collapsed from $100 to $70, easing inflation concerns despite Fed hawkishness. Market breadth improved dramatically with small caps and value outperforming. Emerging markets surged 24% on AI-driven semiconductor demand. The manager rebalanced to long-term targets and maintains gold exposure as a diversifier, advocating disciplined diversification over chasing winners despite cautious optimism on growth and earnings. |
| Jun 15 2026 | 2026 Q1 | - | AI, energy, Fed, Geopolitical, inflation, Iran, oil, technology | - | Iran conflict disrupted energy markets with oil surging and tech stocks declining on AI concerns, but underlying fundamentals remain strong. Historical analysis suggests geopolitical shocks have temporary market impacts. Unlike 2022's demand-driven inflation, current risks are supply-based with Fed likely holding rates. Earnings growth continues with broadening market leadership supporting constructive long-term outlook despite elevated tail risks. |
| Jan 27 2026 | 2025 Q4 | - | AI, earnings, growth, international, rates, technology, Valuations | - | Markets delivered strong 2025 returns driven by AI-led technology earnings and international outperformance, but elevated valuations at 23x forward earnings mean future returns depend on earnings durability rather than multiple expansion. Sustained capital investment in AI, infrastructure, and energy supports growth, though selectivity and focus on strong fundamentals become increasingly important in this environment. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
OilOil prices declined sharply during the quarter, with Brent crude falling from roughly $100 per barrel to around $70 as Middle East tensions eased. This reversal relieved pressure on inflation expectations and improved overall market sentiment. The manager views lower energy prices as supportive of the disinflation outlook, though renewed disruption to energy markets remains an important risk to monitor. |
Energy Inflation Middle East Commodities |
Semiconductor CycleSemiconductors, particularly high-bandwidth memory chips for AI systems, drove strong performance in emerging markets and Japan during the quarter. MSCI Korea and Japanese equity markets reached record highs on semiconductor tailwinds. However, technology stocks experienced several periods of weakness during the quarter, with a late-June pullback trimming gains. |
AI Memory Technology Asia | |
Small CapsSmall caps performed exceptionally well during the quarter as market participation broadened. The Russell 2000 gained 22.6% in the first half of 2026, with previously unloved sectors beginning to carry their fair share in late June. The manager views broadening market participation as a healthier sign than narrow leadership. |
Market breadth Russell 2000 Value | |
GoldThe manager maintains a moderate allocation to gold as a portfolio diversifier. While gold can experience periods of volatility and does not generate income, it has historically provided diversification benefits during periods of heightened geopolitical uncertainty, elevated inflation, or declining confidence in traditional financial assets. The allocation is described as a measured source of portfolio resilience rather than a tactical market call. |
Diversification Geopolitical risk Inflation hedge | |
InflationInflation moved higher during the quarter, though much of the increase reflected higher energy prices rather than broad-based price pressures. The manager believes the recent acceleration in inflation is likely to moderate over the coming months as oil prices retreated toward quarter-end, though the path may remain uneven. Lower energy prices have supported easing in inflation expectations. |
Energy prices Federal Reserve Rates | |
RatesThe Federal Reserve kept interest rates unchanged during the quarter at 3.50% to 3.75%, marking a fourth consecutive hold, but adopted a more cautious tone as inflation remained elevated. Markets gradually adjusted to the possibility that rates may remain higher for longer than previously expected. Higher bond yields continue to provide attractive income opportunities, particularly within high-quality fixed income investments. |
Federal Reserve Bonds Inflation | |
| 2026 Q1 |
OilThe conflict in Iran has shut the Strait of Hormuz, stranding 20 million barrels of daily oil transit representing 20% of global demand. Oil prices have risen significantly, with energy stocks up 38.2% in Q1. The manager notes oil fields cannot simply be turned on and off, and restarting will take weeks to months. |
Oil Energy Strait of Hormuz Iran Geopolitical |
Natural GasQatar's LNG production is 100% offline due to the war, representing 20% of global LNG supply. Iran targeted Qatar's Ras Laffan LNG complex, damaging 17% of capacity that could take years to repair. The manager emphasizes the lasting effects on energy markets from infrastructure damage. |
LNG Natural Gas Qatar Infrastructure Energy | |
AIMega-cap tech stocks were laggards in early 2026 due to fears around elevated AI spending and growing concerns that AI agents could weaken software company moats. The S&P North American Expanded Technology Software Index fell over 24% year-to-date and is down 30% from September highs. |
AI Technology Software Spending Moats | |
InflationThe manager believes the current environment differs from 2022's inflation spike, which was driven by multiple factors including fiscal stimulus and supply chain disruptions. Today's potential inflation increase would be supply-driven rather than demand-driven, with the Fed likely to hold rates rather than hike them. |
Inflation Fed Supply Demand Rates | |
GeopoliticalThe quarter was dominated by geopolitical events including Venezuela's president capture and the Iran conflict. Historical analysis shows geopolitical shocks typically have short-lived market impacts unless they materially change economic fundamentals. The manager notes tail risks have increased but maintains a measured approach. |
Geopolitical Iran Venezuela Risk Conflict | |
| 2025 Q4 |
AIAI investment has been a major contributor to recent growth and technology-led earnings, supported by long-term capital investment. However, the pace of AI-related investment is expected to slow from exceptionally fast levels seen over the past two years. |
Artificial Intelligence Technology Investment Growth |
ValuationsEquity valuations remain elevated with the S&P 500 trading near 23x forward earnings, well above its long-term average of 15.6x. Elevated valuations may constrain longer-term returns and increase market sensitivity to earnings disappointments. |
Valuations Multiples Risk Returns | |
RatesThe Federal Reserve cut rates three times in 2025 and currently expects one more cut in 2026. Higher yields have improved income potential with the 10-year Treasury ending at 4.18%, offering reasonable income and diversification benefits. |
Federal Reserve Interest Rates Monetary Policy Bonds | |
DollarA weaker U.S. dollar, down 9.4% in 2025, provided a notable tailwind for foreign assets and contributed significantly to international equity outperformance. |
Currency International Foreign Assets |
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