July 2026

“The Song Remains the Same.”

It was more of the same in July as markets continued to navigate the crosscurrents of interest rates, geopolitics, and the ongoing tech/AI capex extravaganza. All three factors contributed at various times, but it would be a fair summary to say that there was a theme of rotation out of tech towards financials and other sectors while a “Hawkish hold” Fed and on-again-off-again Iran war peace talks led to intramonth volatility. By month’s end the net result was flat to mildly positive for equity markets and negative for credit markets, and it’s safe to assume that this environment is unlikely to change until September. By then, there will be new factors to consider (e.g. the US mid-term elections) and we may have had a resolution to the conflict in the Persian Gulf, but as faithful readers will know, it’s our belief that the only one that really matters is the direction of official policy rates and how far will they be raised.

A key contributor to the rotation into financials was Q2 earnings reports, which showed that global banks (mostly US) are performing at top-of-the market levels, with all businesses contributing. Of note, equities divisions were the stars for the Investment Banks, reflecting the dynamics of the underlying markets, with even the Europeans showing better results. Concerns remain over private credit exposures and some provisions were taken, but it was not enough to spoil the party. Ominously for the UK banks, the arrival of a new prime minister with a long shopping list is likely to end their honeymoon as an untouched sector for new taxes. Of all the levies being bandied about, it would be a fair bet that nobody will be advocating that the City, in rude financial health to “give a little bit more”.

Given all these factors it was a tepid time for the portfolio, with the fund’s A shares returning +0.34%, with contributions from Fixed Income of +0.43% and Equities being broadly flat on a gross basis. The overall shape of the portfolio was little changed in the month, and we retain considerable flexibility to take advantage of the markets we are likely to see ahead.