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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Capitalizing on durable AI infrastructure spending while preparing to exploit debt-driven distress across private commercial real estate."
During the third quarter of 2026, global financial markets experienced heightened volatility characterized by surging sovereign bond yields and commodity shocks. The S&P 500 posted a modest 2.3% gain for the quarter and 12.7% year-to-date, driven primarily by mega-cap technology and energy resilience, while broader market breadth deteriorated and small caps slumped 7.2%. Fixed income faced notable headwinds as the Bloomberg US Aggregate Index declined 3.5% in the third quarter, pressured by the benchmark 10-Year Treasury yield climbing to 5.29%. The firm maintained a constructive net equity stance relative to bonds, keeping portfolios positioned to capture secular growth while preserving operational flexibility to adjust duration and sector exposures if macroeconomic pressures escalate. The investment landscape was predominantly shaped by the intensifying conflict with Iran, which disrupted shipping across the Strait of Hormuz, drove oil prices upward, and reignited inflation expectations. In response to persistent inflation and elevated AI-related infrastructure capital demands, the Federal Reserve executed a 25 basis point policy rate hike on September 16—its first rate increase in more than three years—with markets discounting multiple additional hikes through mid-2027. Concurrently, hyperscaler capital expenditure continued to accelerate across compute, power, and cooling infrastructure, though the sector encountered increasing political and regulatory pushback regarding grid capacity and municipal utility burdens ahead of US midterm elections. From an asset allocation perspective, Chilton emphasized durable compounders levered to the AI hardware ecosystem alongside disciplined public real estate investment trusts. Public REITs, despite suffering a 6.2% quarterly retreat in the Vanguard Real Estate ETF due to higher discount rates, possess average leverage of only 34% with 90% fixed-rate debt, presenting a substantial cost-of-capital advantage over over-leveraged private real estate operators. Fixed income reinvestment was actively targeted toward high-grade 1-to-7-year maturities offering compelling 4.75% to 5.75% yields.
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