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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"L1 Capital underperformed in Q2 2026 as extreme market concentration favored AI momentum stocks the fund didn't own. The manager increased Nvidia exposure while reducing software holdings due to AI disruption risks, rebalancing toward quality non-AI businesses at compelling valuations."
L1 Capital International returned 2.6% net in Q2 2026 versus the benchmark's 12.5%, with underperformance driven primarily by not holding certain AI momentum stocks rather than poor stock selection. The market has become extraordinarily concentrated, with AI capex beneficiaries accounting for 45% of index returns and just three companies (AMD, Intel, Micron) contributing 17% of quarterly returns despite representing only 2% of market cap. The manager increased exposure to Nvidia, viewing it as trading well below fair value despite strong earnings growth, while reducing software exposure due to AI disruption concerns, selling Salesforce and CDW. The portfolio was rebalanced toward high-quality, non-AI-sensitive businesses trading at compelling valuations including American Express, Apollo, Danaher, HCA and ICE. While AI capital expenditure is expected to remain extremely strong for years, the manager sees stretched valuations in some AI Winners alongside attractive opportunities in quality businesses whose long-term prospects are underappreciated. The portfolio holds 22 investments with 5% cash, positioned to deliver attractive risk-adjusted returns for patient investors.
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