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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Arnott Capital 2026 Q2 Investor Letter | Buyside Digest

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Primary Source Intelligence • Q2 2026 Letter Analysis

Arnott Capital Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Arnott Capital. This analysis is provided for institutional research purposes only and is not investment advice.

SOURCE UNAVAILABLE

Fund Returns

YTD+0.04%

Annualized+18.39%

Digest Analysis

Quick Take

"Arnott Capital returned flat in H1 2026 despite strong gains from AI memory and Korean reform offset by UK homebuilder losses and hedge costs. March commodity shock exposed concentrated oil and rate exposures across seemingly diversified positions."

Executive Summary

The Arnott Opportunities Strategy returned 0.04% net for the six months ending June 30, 2026, with 32% net long exposure. Samsung Electronics and SK Hynix drove strong performance across both the AI memory theme (+511 bps) and Korean Corporate Reform (+518 bps), capitalising on abrupt tightening in AI memory supply as models evolved from chatbots to complex task-performing agents. UK homebuilders detracted 549 bps following Middle East conflict, energy price spikes and a 137 bps repricing in UK rate expectations over 20 days. The manager reshaped homebuilder exposure for the next upswing given 0.65x book valuations versus 1.5x midcycle. March losses exposed concentrated commodity and rate exposures that broad index hedges failed to offset, prompting process refinements. Looking forward, the manager sees compelling opportunities across AI infrastructure, Korean reform and a multi-year physical capital cycle driven by underinvestment in mining, construction and energy infrastructure. Hyperscaler capex now exceeds $1 trillion but amber flags emerge around debt funding and Chinese AI competition. Oil remains tight through year-end under intermittent Hormuz disruption.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

68%

CautiousHigh

Moderate (68%)

The manager names specific positions (Samsung Electronics, SK Hynix), provides detailed thesis work on multiple themes with clear catalysts, and demonstrates willingness to reshape rather than exit positions after drawdowns (UK homebuilders). The letter includes specific performance attribution (+511 bps, +518 bps, -549 bps), discusses position-level decisions, and articulates clear views on capital cycle dynamics. However, the 32% net long exposure, active trimming of winners, and maintained hedges indicate moderate rather than extreme conviction. The manager is convicted on specific themes but manages position sizing and hedging actively, consistent with a score in the moderate-to-high range.

Growth Outlook

35%

BearishBullish

Bearish (35%)

The manager sees 'compelling opportunity set across AI infrastructure, corporate reform and the physical capital cycle' with 'market dispersion remains high' creating selective opportunities. However, this is balanced by significant caution around oil volatility ('tight and volatile through the remainder of 2026'), emerging AI risks ('amber flags'), and the UK homebuilder recovery being 'pushed to the right.' The outlook is constructive on specific themes but acknowledges material near-term headwinds, warranting a mildly positive score.

Risk Appetite

20%

DefensiveAggressive

Defensive (20%)

Net exposure averaged 32% long over the period with 149% gross exposure, indicating moderate hedging. The manager actively reduced memory exposure, exited certain Korean positions, reshaped UK homebuilder exposure, and maintained or rebuilt protection through April-June. This reflects selective risk-taking in specific themes while maintaining defensive positioning overall. The combination of low net exposure, active trimming of winners, and maintained hedges indicates cautious but not defensive positioning.

Capital Deployment

5%

De-riskingDeploying

De-risking (5%)

The letter describes capital rotation rather than net deployment: 'Capital has been reallocated' within Korean reform, 'capital has been shifted' within AI themes, and UK homebuilder exposure was 'reshaped.' Memory positions were 'reduced' and some Korean positions were 'exited.' Protection was 'maintained or rebuilt' through April-June. No cash level changes are disclosed, and the language consistently describes reallocation and reshaping rather than net new capital deployment. This is rotation activity scoring near zero.

Forward Guidance

15%

CautiousExpansionary

Cautious (15%)

The manager describes 'repositioning' and 'reshaping' existing exposures rather than aggressive new deployment. Capital was 'reallocated' within Korean reform and 'shifted' within AI themes. UK homebuilders were 'reshaped to maximise exposure for the next upswing' but the recovery is acknowledged as delayed. The language suggests selective rotation and preparation for future opportunities rather than immediate deployment, with explicit acknowledgment that 'near term risks remain real.' This indicates a watching and waiting posture with selective adjustments.

Language Signal

25%

BearishBullish

Bearish (25%)

The letter balances opportunity language ('compelling opportunity set,' 'attractive asymmetric payoff,' 'meaningful upside') with significant risk discussion ('amber flags emerging,' 'tight and volatile,' 'near term risks remain real,' 'misjudged the timing'). The manager uses constructive framing around specific themes (infrastructure, Korean reform) but embeds substantial caution around AI funding, oil disruption, and UK housing recovery timing. The net balance leans mildly positive but is heavily qualified.

Perceived Risk

72%

Low RiskElevated

Elevated Risk (72%)

The manager devotes substantial discussion to multiple material risks: intermittent Hormuz disruption creating 'recurring inflation risk,' hyperscalers approaching debt funding limits with CDS spreads widening, Chinese AI models threatening competitive dynamics, UK rate repricing of 137 bps over 20 days, and the March episode exposing 'concentrated commodity and interest rate shock' that broad hedges failed to offset. The letter explicitly states 'low net equity exposure does not necessarily mean low portfolio risk' and describes process changes to better identify 'shared commodity and macroeconomic exposures.' The depth and specificity of risk discussion, combined with explicit acknowledgment of past risk management failures, indicates high perceived risk.

Opportunity Density

65%

ScarceAbundant

Abundant (65%)

The manager describes 'compelling opportunity set' and 'market dispersion remains high' creating opportunities across 'AI infrastructure, corporate reform and the physical capital cycle.' Multiple specific themes are discussed with detailed thesis work (Korean reform, infrastructure spending, mining services, AI beneficiaries). However, opportunities are characterized as requiring selectivity: 'underappreciated beneficiaries,' 'second-order beneficiaries,' and 'companies where demand has duration, supply is difficult to replicate.' The manager is finding opportunities but emphasizes the need for careful selection rather than broad abundance.

Time Horizon

72%

Short-TermLong-Term

Decade+ (72%)

The manager discusses multi-year themes: the physical capital cycle is described as having 'duration' with supply unable to respond quickly ('mines require permits, transmission lines require approvals'), the UK homebuilder recovery is 'pushed to the right' but maintained given structural undersupply, and Korean reform is positioned for 'the next phase.' The letter references 2027-2028 capacity constraints and medium-term oil outlook. However, the manager also actively trades around positions (trimming memory, exiting Korean holdings, reshaping homebuilders) and discusses near-term catalysts (Q2 earnings calls, 2026 forecasts). This indicates a 2-4 year investment horizon with active position management, consistent with a score in the 0.65-0.80 range.