Fairtree Balanced Prescient Fund Q2 2026 commentary

*Net of fees  
Source: Prescient, 30 June 2026. Fund inception: January 2017
Benchmark: SA – Multi Asset – High Equity Category Average

Geopolitics take centre stage

Macro overview

The second quarter of 2026 was defined by geopolitical disruption followed by rapid policy recalibration. Markets entered the quarter already navigating elevated Middle East uncertainty, and when Brent crude spiked above US$120 per barrel in late April and May, the inflation shock was immediate and broad-based. US CPI reached a three-year high of 4.2%, and the ECB delivered its first rate hike since 2023. The mid-June ceasefire then reopened the Strait of Hormuz, sending oil back to the low US$70s and unwinding much of the inflation premium by quarter end, vindicating the view that the spike was fuel-driven and transitory rather than structural. Despite the volatility, global equities advanced strongly, with the MSCI All Country World Index returning 14.9% and the MSCI World Index returning 13.8% in US dollars, while commodities were the clear laggard.

In the US, the S&P 500 rose 15.2% over the quarter, its strongest quarterly gain since 2020, while the Nasdaq Composite gained 21%, leaving the two up 10% and 13% respectively for the year to date. The advance was led by the AI investment cycle, with capital continuing to flow into companies exposed to computing power, data infrastructure and semiconductors, and the PHLX Semiconductor Index gained 88% as record results from memory and equipment makers reassured investors that the infrastructure buildout remained intact. Leadership, though narrow early on, broadened toward quarter end as more cyclical sectors participated. Corporate earnings underpinned the move, with S&P 500 second-quarter earnings expected to rise around 22% on 10% higher revenue, and the market absorbed the record US$75 billion SpaceX listing, the largest IPO on record.

US macro data pointed to a resilient but cooling economy, with first-quarter GDP revised to 2.1% quarter-on-quarter as softer consumer spending weighed on growth. Inflation proved sticky, with headline CPI rising to 4.2% year-on-year in May from 3.8% in April, while the Fed’s preferred PCE measure climbed to 4.1%, breaking above 4% for the first time in three years. At his first meeting as Federal Reserve Chair, Kevin Warsh struck a notably more hawkish tone, holding the fund’s rate at 3.50% to 3.75% but removing the easing bias. The dot plot swung sharply, with nine officials now projecting at least one rate increase this year, signalling that policy would stay higher for longer and could tighten further should inflation persist.

European markets rose over the quarter, with the MSCI EMU Index driven by information technology and financials, while energy and communication services lagged as oil retreated to pre-conflict levels. The region nonetheless trailed Wall Street and Asia given its lower technology concentration, though the STOXX 600 held a 10% gain for the year to date. Eurozone inflation quickened to 3.2% in May from 3.0% in April as the energy shock strained supply lines, prompting the ECB to raise its three key rates by 25 basis points and taking the deposit rate to 2.25%. Alongside the hike, the Bank lifted its inflation projections and cut growth forecasts to 0.8% for 2026 and 1.2% for 2027, a more stagflationary balance of risks. First-quarter GDP had contracted 0.2% quarter-on-quarter, and although the June composite PMI improved to 49.5 from 48.5, it remained in contraction.

Emerging markets delivered the standout return, with the MSCI Emerging Markets Index up 24.1% in US dollars, its strongest quarter since 2009, as Korea and Taiwan rallied to record highs on memory and semiconductor demand tied to the AI theme. China, by contrast, lagged, with the MSCI China Index down 15% year to date, weighed by weak domestic consumption, disappointing results from internet heavyweights such as Alibaba and Tencent, and limited exposure to the global AI hardware supply chain. The economy itself remained firmer, with first-quarter GDP up 5.0% year-on-year on strong, export-led activity and another sizeable trade surplus. Headline CPI held at 1.2% in May, below the People’s Bank of China’s 2% target for a third consecutive year, and the PBoC left the one-year and five-year loan prime rates unchanged at 3.00% and 3.50%.

Commodities were the weakest major asset class. Energy was the standout underperformer as the US–Iran ceasefire and the reopening of the Strait of Hormuz sent Brent crude 38.4% lower from its intra-quarter highs. Precious metals also came under pressure, with gold down around 12%, silver 19%, platinum 18% and palladium 14%, as higher real yields and firmer rate expectations reduced their appeal. Industrial metals were the exception, with copper up 10% and zinc 12% on tighter supply and firmer growth expectations, leaving a persistent disconnect between constructive fundamentals and softer price action.

South African markets reflected these crosscurrents, with the FTSE/JSE All Share Index returning -2.4% in rand for the quarter and -3% year to date, as the bourse’s resource-heavy composition became a headwind. Platinum fell roughly 19% and resources shed 8.6%, only partly offset by industrials and financials, up 4% and 8%. In a split four-to-two decision, the SARB raised the repo rate by 25 basis points to 7.00% at its 28 May meeting, its first hike since May 2023, responding to fuel-driven inflation that rose from 4.0% in April to 4.5% in May even as core inflation stayed contained at 3.8%. First-quarter GDP grew 0.5% quarter-on-quarter. Domestic bonds and listed property nonetheless delivered strongly, returning 7.9% and 10.5% in rand, as the well-anticipated hike, contained core inflation and improving fiscal credibility supported sentiment, reinforced by Fitch’s upgrade to BB, its first in nearly two decades, and a resilient rand.

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