Fairtree Global Equity Fund Q2 2026 commentary

The Fund returned 8.8% for the quarter, underperforming the benchmark by 6.1%. Global equity markets staged a powerful recovery over the period, with the MSCI ACWI gaining 14.93%, while the MSCI Emerging Markets Index led all major regions, climbing 24.05% (all figures in US dollars).

The quarter was defined by two overlapping themes: a sharp rebound from the March US-Iran shock, as the geopolitical risk premium unwound and oil prices retraced, and an exceptionally powerful but highly concentrated AI and semiconductor rally that drove index returns before consolidating in June following a more hawkish shift in interest rate expectations. The momentum factor has continued to post record outperformance versus the market and other factors. This has resulted in a narrow market over the past three-and-a-half years, where only around 30% of stocks outperform the S&P 500 and MSCI Emerging Market Index benchmarks. The Fairtree global funds are always positioned overweight in value, growth and quality on an absolute and relative basis, but our exposure to momentum is traditionally only marginally positive, and this has therefore not been a market environment conducive to the Fund’s style. The momentum run has been fuelled by growth in leveraged ETFs crossing US$200bn and same-day expiry option trading going through the 50% mark. The sectors that have benefited from this momentum factor have been semiconductors, which grew from around 5% of the S&P 500 a couple of years ago to around 20%, alongside power and infrastructure plays. These ‘picks-and-shovels’ plays have been the beneficiaries of the AI capex boom, while hyperscalers, software and platform companies are used as funders.

Global equity markets rebounded strongly over the quarter, recovering from the March sell-off that had followed the outbreak of the US-Iran war. The announcement of a ceasefire on 7 April removed much of the geopolitical risk premium that had built up, and Brent crude fell 38.4% over the quarter as the conflict de-escalated and supply returned to the market. US equities led the recovery, with the S&P 500 rising 15.2% and the Nasdaq 100 gaining 27.7%, driven by renewed optimism around AI-related capital expenditure, stronger than expected first-quarter corporate earnings across mega-cap technology, and easing concerns over a broader escalation in the Middle East. The Federal Reserve held its target range at 3.50% to 3.75% throughout the quarter, but adopted a more hawkish tone at its June meeting, signalling that a further hike was possible, which supported the US dollar and prompted a pause in the semiconductor rally. The US labour market remained resilient, with unemployment holding at 4.3%, while gold fell 13.2% as safe-haven demand unwound and the dollar strengthened.

European equity markets also advanced over the quarter, with the MSCI Europe Index rising 10.9%. The Netherlands was the standout performer globally, rising 36%, as ASML, which represents roughly 55% of the MSCI Netherlands Index, rallied strongly on robust demand for its EUV lithography systems used in AI chip manufacturing and continued investor appetite for AI infrastructure exposure. The most significant policy development came in June, when the European Central Bank raised its three key policy rates by 25 basis points, taking the deposit rate to 2.25%, its first hike since 2023, as the Middle East conflict added to inflationary pressures. Eurozone inflation rose to 3.2% during the quarter, its highest level since September 2023.

Emerging markets delivered the strongest regional returns over the quarter, with the MSCI Emerging Markets Index rising 24.05%, more than reversing the March decline. Performance diverged sharply on a country level. South Korea and Taiwan were the standout performers, surging 64.1% and 48.9%, respectively, driven by an exceptional rally in semiconductor and memory stocks as AI-related demand lifted Samsung, SK Hynix and TSMC. The rally paused in June, however, as profit taking swept through the semiconductor complex following a sharp single-day sell-off. Indonesia was the weakest market, falling 27%, weighed down by a record low rupiah, persistent foreign outflows, fiscal deficit concerns and MSCI investability concerns, while Brazil declined 8.2% as inflation and restrictive monetary policy weighed on sentiment. China fell 6.6%, pressured by a technology-led sell-off, a weak property market and subdued consumer confidence.

On a sector level, Information Technology was the best performing sector over the quarter, where the Fund’s stock selection detracted from relative performance. The Fund’s overweight to Materials, combined with weaker stock selection, was the next largest detractor from relative performance, followed by an underweight in Health Care and Industrials. Stock selection in Consumer Staples contributed positively to relative performance, while stock selection in Consumer Discretionary stocks detracted from relative performance.

Notable portfolio activity during the quarter was focused on adding to technology and AI exposure while broadening into financials. On the buy-side, the largest move was a substantial top-up to Booking Holdings, alongside additions to Meta and to TSMC, and new positions in Shibaura Mechatronics, a Japanese semiconductor equipment maker geared to the AI capital expenditure cycle, Charles Schwab and Robinhood in US financials, LVMH in luxury, and Sasol and Gold Fields in South African resources. On the sell-side, the fund sold out of Qualcomm, TDK Corp, Richemont, Edenred, BHP, MercadoLibre, KDDI, Denso, Accenture and ANA Holdings, exiting positions where the risk-reward or portfolio fit had become less compelling. Notable contributors to fund performance over the quarter were positions in TSMC (+109bps absolute and +55bps relative), Alphabet (+81bps absolute and -3bps relative) and Samsung Electronics (+81bps absolute and +23bps relative). Notable detractors were Zoetis (-35bps absolute and -33bps relative), Impala Platinum (-35bps absolute and -35bps relative) and Northam Platinum (-33bps absolute and -33bps relative).

The Fund is positioned with an underweight in cyclical names, in favour of technology exposure. From a geographical perspective, the Fund remains underweight in North America, while being overweight in South Africa, Kazakhstan and China.

Reflecting on the performance of the Fund over the quarter, the recovery in global equity markets proved as sharp as the preceding sell-off, but the rally was unusually narrow, concentrated in a small number of momentum-driven mega-cap technology and semiconductor names. This extreme concentration, combined with the Fund’s structural tilt towards value, growth and quality rather than momentum, was the primary driver of the Fund’s underperformance relative to its benchmark. Periods of such narrow leadership have historically been followed by a broadening of returns as fundamentals reassert themselves, and capital that exits quickly in these environments can return just as fast. We believe current conditions continue to present a compelling opportunity set, with valuations across several of our holdings remaining attractive relative to their underlying business fundamentals. Our approach remains valuation disciplined, style-agnostic and highly active, and we continue to adjust positioning as opportunities evolve, focusing on situations where the risk-reward profile has improved meaningfully.