“Once you bid farewell to discipline, you say goodbye to success.”
It’s been a busy quarter across portfolios as we continue to navigate an evolving investment landscape. In many ways, the challenge is not unlike that faced by today’s football managers around the world. Success requires a careful balance of strategy and tactics: staying committed to a long-term plan while remaining agile enough to respond to changing conditions on the pitch.
As investors, our focus is always on the long game. Compounding wealth is rarely about reacting to every twist and turn; it’s about maintaining discipline, adapting when necessary, and positioning portfolios to achieve sustainable growth over time. That said, just as a manager may tweak a formation or make a crucial substitution, we must also be prepared to make thoughtful adjustments as markets, economies and opportunities evolve.
While investing may not unite nations in quite the same visible way as the beautiful game, its broader impact can be just as powerful. Strong investment supports innovation, creates jobs, fuels economic growth and helps individuals and communities build greater financial resilience. Over the long term, these benefits contribute to rising prosperity and confidence, providing their own kind of morale boost for societies around the world.
Managing concentration in the AI era
Emerging markets (EM) are now one of the most tightly concentrated segments of global equities. The MSCI EM Index, traditionally a mix of financials, commodities, consumer sectors and regional growth stories, is now unusually concentrated in a handful of semiconductor and hardware companies. Three North Asian chipmakers dominate the EM ex China ETF universe, turning what was once a broad, diversified exposure into a narrow stake on a single industry. Passive EM exposure, which investors may assume is neutral and diversified, now represents a bet on the AI supply chain.
This concentration has created a dilemma: semiconductors remain strategically important, but the risk of overexposure has risen sharply. Towards the end of May, we trimmed our semiconductor allocation - not because we don’t like the theme, but due to the sector’s strong performance, our allocation had grown disproportionately large according to our strict risk management methodology. We reduced the position size, taking profits before concentration became excessive. We still want semiconductors in the portfolio; we just don’t want to be overexposed to it, so we tactically trimmed our exposure.
We also wanted to reduce our passive value exposure in favour of increasing our targeted active value. Earnings expectations were so strong that these companies screened as value, pulling passive value allocations into the AI trade. Plus, we wanted to reduce our EM concentration. Reducing semiconductor weight meant reducing EM exposure overall, given how dominant the sector has become.
We did not exit the theme entirely. In our view, the bottlenecks in semiconductor supply remain a tailwind for these companies although the outlook remains uncertain. We just didn’t want to be overexposed.
To rebalance risk without abandoning the opportunity, we made two key shifts:
- Reduced our EM semiconductor concentration. This also allowed us to modestly reduce our underweight to the US, where exposure is more diversified across the AI supply chain.
- Increased exposure to active management in value. We tilted away from passive value ETFs, which had become stealth AI exposure; additionally, we are now looking for an active manager that gives us that quality exposure, but not singularly through a portfolio of software companies.
Emerging markets, once a broad macro play, have become a concentrated semiconductor bet. We believe that managing that exposure thoughtfully is now essential.
An equal-weighted approach to US equities
We want to diversify our sources of return, and allocating to active value managers — specifically those not heavily leveraged to the AI build out — is an effective way of doing so. This shift also connects directly to how we are reducing our underweight to the US. Rather than owning the market cap S&P 500, which is narrowly concentrated in the Magnificent 7, we have chosen the equal weight S&P 500, which gives us exposure to a broader, more balanced set of US equities.
Equal weighting allows us to participate in US earnings momentum, which is now broadening beyond AI and mega cap tech, without re introducing the concentration risk we are deliberately avoiding.
We have long argued that the US is expensive. That view still broadly holds. But the median US company, which equal weight indices managers emphasise, has more valuation support. Valuations are still elevated, but not as extreme, and this approach helps us avoid the pockets of the market where we think the margin of safety is lowest.
Why we’ve gone back into bonds
We’ve stayed out of fixed income for a while because we didn’t think the compensation for taking duration risk was good enough. We believed rate cut expectations were too optimistic, inflation pricing was too complacent, and other assets offered better risk adjusted protection. But since the Iran conflict has reshaped the macro landscape, we think bonds have become tactically attractive again.
At the height of the conflict, rate expectations flipped dramatically. Instead of multiple cuts, markets began to price in rate hikes across major economies. That repricing created a more balanced risk reward for owning duration. Inflation expectations finally adjusted as inflation swaps began to reflect the possibility of more persistent inflation. Expectations rose to levels that better captured geopolitical risk and energy price sensitivity. Finally, the yields on 10-year US government bonds reached a more attractive level, at c. 4.5%, which meant the compensation for duration risk became more compelling.
We chose the US in particular as they are a net energy exporter, so saw less inflationary impact from the conflict in the Middle East. Plus, the country has a more resilient macro backdrop in our opinion. This led us to the view that the US treasury market was an attractive place to begin building a modest duration position.
Our rotation out of gold miners
We are rotating out of our gold mining ETF exposure and reallocating into a more diversified basket of industrial and precious metal mining companies.
This shift marks the natural evolution of a highly successful tactical trade. Our gold miners allocation, initiated in Q1 2024, has delivered strong performance for our managed portfolios. With the investment thesis largely realised and the risk/reward profile now more balanced, we are redeploying capital into a broader mining opportunity where supply constraints, structural demand, and sector fundamentals are increasingly compelling.
Our gold miners position was never intended as a strategic, long term holding. It was a tactical expression of two views; a favourable supply/demand imbalance in gold mining and a constructive outlook on the gold price, driven by geopolitical risk, central bank buying, and real rate dynamics. That thesis played out exceptionally well.
Today, however, the risk/reward profile of gold miners is more two sided. The gold price remains currently supported, but miners have already repriced significantly, and we believe the opportunity has broadened beyond precious metals.
We think there are plausible reasons for industrial metals demand to increase. Across copper, iron ore, and base metals, supply discipline remains tight. Years of underinvestment and capital allocation caution have constrained new production. These conditions mirror the early stage dynamics we identified in gold miners last year. Plus, multiple global trends are driving durable demand for industrial metals, such as AI build out and the energy transition.
Given the strong performance of gold miners and the more balanced risk profile today, it has been an opportune moment for us to crystallise gains and redeploy into broader opportunities.
Investment strategy and outlook
We entered 2026 feeling constructive on global growth and therefore on equities. We continued to tilt the core of our portfolios to the areas of opportunity including Japanese, EM, and value equities, but maintained targeted exposure to US growth stocks through the Nasdaq ETF and the Call Spread on the S&P 500. We’re trying to build a resilient portfolio given the continued levels of uncertainty and higher valuations, without taking a big bet on any one particular outcome. The first two months of the year delivered returns consistent with this theme playing out with strong returns from some of our 2025 leading investments, including EM, Japanese, value, and small-cap equities.
A key question that we – and most investors – are grappling with is whether the impact of the conflict in Iran has materially changed the prospect for global growth, and the risk of inflation. Consensus appears to be moving towards a higher probability of slightly lower growth and a period of slightly higher inflation, with the debate being most clearly played out in interest rate expectations and bond markets. The diversification in the portfolio has helped, and we remain both optimistic for the longer-term opportunities.
We have taken a few actions in the portfolio recently in response to changing market conditions. Firstly, we have invested in government bonds again, taking a small position in a 10-year US treasury bond. Although a deflationary slowdown in which bonds deliver strong returns is not our base case, we recognise that the probability of this has somewhat risen and as yields have risen on the back of investors repricing inflation risks, a starting yield of c. 4.5% provided an attractive entry point for our portfolios.
Away from geopolitics, the AI theme has been driving markets again, in particular pushing up the prices of semiconductor stocks both in the US and emerging markets. We have trimmed our exposure to the emerging markets ex-China ETF which has become ever more concentrated in three semiconductor names, as well as taking some profits from the passive global value ETF which had a large contribution to risk from the same theme. We have reinvested the profits across the equity allocation in the portfolio, most notably including initiating a position in a new holding, the equal weighted S&P 500. This has reduced our underweight to US equities - although this remains a key tilt in the portfolio – without increasing the exposure to the similarly concentrated market-cap weighted index in the US.
We have also sold down our gold miners position, which has been a significant contributor in the portfolio during the last few years (see article above). Our thesis on the asset has been fulfilled, and we’ve taken profits and reallocated the capital to industrial metals where we believe the long-term demands may provide a supportive backdrop.
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