Our World Stars Global Equity strategy was up +6.8% for the quarter, reversing much of the pullback in Q1 and leaving it down -2.3% for the year net of fees of 1%. This compares to the MSCI World NTR up +13.8% during the quarter and +9.7% for the year to date. Our underperformance was most marked in April and May for the reasons we discuss below. This outcome is clearly below our expectations for positive absolute and relative returns over a market and investment cycle (all data in USD unless noted).
The underlying global economy remains resilient despite the geopolitical and economic challenges. In the United States, Europe and across much of Asia, corporate investment is strong, labour markets are stable and demand is holding up. Only two weeks ago the IMF updated its forecasts for global GDP, with a small reduction in 2026 to 3.0% (3.1%) and 3.4% for 2027.
The positive forces driving this growth are real: investment in technology and computing infrastructure driven by AI; expansion of power generation and transmission capacity; a step-up in European defence spending; investment in energy independence and resilience; and reshoring of critical industries like semiconductors. Positive income effects from tax refunds and the strong US equity market are also supporting US high-end consumer spending. These structural tailwinds are substantial.
During the second quarter there was a significant de-escalation in the Middle East, starting in early May. This pushed the oil price down from US$114 to US$72, which eased fears over inflationary pressures for companies and consumers, and also led to a shift in expectations of forward interest rates. Reduced fears over a spike in inflation shifted the consensus view to one of ‘unchanged rates’ in the short-term whilst policymakers assessed the duration of the price pressures. This position was epitomised by the US Fed’s FOMC minutes under the new leadership of Kevin Warsh. The FOMC minutes noted that inflation was elevated, but kept rates unchanged at 3.5-3.75%.
At the time of writing, there has been a further upsurge in hostile activities in the Middle East, which has taken the oil price back to US$90, and will impact on the assessment above. But events continue to change week by week.
Across many industries, the world has been buoyant in managing through the episodes of closure and partial reopening of the Strait of Hormuz. On the trade front, the partial reversal of last year's tariff impact has provided some relief, following the US Supreme Court ruling and associated refunds.
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