Geopolitical tensions have intensified rather than eased. The conflict in the Middle East has escalated sharply, with military action involving Iran now reshaping regional dynamics in ways that were difficult to anticipate even a few months ago. Oil prices have spiked in response, feeding renewed inflation anxiety and renewed pressure on consumers who were only beginning to recover from the squeeze of the past two years. The war in Ukraine grinds on. The trade conflict between the United States and much of the rest of the world – driven by an administration that has made deliberate disruption its governing principle – continues to weigh on business confidence, supply chains, consumer spending and investment decisions globally.
The macroeconomic picture reflects this. We began 2026 with cautious optimism: labour markets have remained resilient, real wage growth has been broadly positive, inflation has moderated from its peaks and monetary policy has been shifting towards support. These positive fundamentals have been challenged by ongoing political volatility, which has made it harder for businesses and consumers to plan with confidence.
As investors, we remain focused on the long term and on fundamentals. Companies that operate in the real economy, producing real things and real services for real people, generating real cash and reinvesting it in innovation, growth and capacity continue to prosper through adversity. Quality companies with strong competitive positions, exceptional management and strong balance sheets can act where others must react, invest where others must retrench, and acquire where others are forced to sell. Adversity, for the businesses we own, is not merely a risk to be managed. It is an opportunity to be seized.
There is a further dimension to the current moment that we should not overlook. The valuations of quality companies are, by historical measures, at their most attractive in over a decade. The MSCI World Quality index has underperformed the MSCI World by more than 11% since the since second quarter of 2024 – the largest dislocation in over twenty years – driven by rotation into precisely the sectors we have always avoided: balance-sheet-driven financials, capital-intensive energy and resources, and policy-dependent utilities. Those rotations have a long history of reversing, sharply and suddenly. The evidence of the most recent comparable dislocation – in 1999, 2003, 2009 and 2020 – is that what follows is a powerful recovery in quality. We believe we are at that inflection point now. The case for owning the world's best businesses at their prices today has rarely been stronger.
We remain long-term investors and, as has been said, optimists because we see little point in being anything else.
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