When prices fall and long-term opportunity rises

The first quarter of 2026 was a challenging period for our global multi-asset and equity funds.  Our funds declined between 13% and 19% in US dollar terms over the period, materially underperforming the MSCI All Country World Index loss of just more than 3%. We understand how unsettling this can be, particularly following a strong 2025 in which our funds broadly exceeded the global benchmarks.

We do not take your trust for granted. Thus this note is intended to offer some context ahead of the detailed analysis our portfolio managers will share in our quarterly commentaries and Corospondent later this month. Specifically, we want to walk you through the broad themes that drove the selling pressure, offer some comfort that we have stress-tested every holding through the lens of these evolving risks, and share why our conclusion is one of genuine excitement rather than concern: we are seeing valuations we have not encountered in years, and we believe our portfolios are exceptionally well positioned from here.

PRESSURE FROM TWO DIRECTIONS

Two broad themes drove the selling pressure during the quarter:

• The more recent conflict in the Middle East pushed energy prices sharply higher and raised fears about the negative impact on global economic growth, disproportionately penalising portfolios with limited energy exposure, including ours; and
• Fears that artificial intelligence (AI) will erode the competitive advantages of established businesses — a theme that has been building since late 2025 — led to indiscriminate de-ratings mid-quarter across financial services, enterprise software, ecommerce, and media sectors — with little distinction between companies facing genuine disruption risk and those that are structurally resilient or positioned to benefit from AI.

Together, these forces drove prices down and resulted in more favorable valuations of precisely the types of high-quality, cash-generative businesses we favour.

HOW WE HAVE RESPONDED

We have rigorously stress-tested every holding through the lens of these evolving risks. Where appropriate, we have repositioned within our funds — reducing exposure to businesses with genuine vulnerability to AI disruption while increasing allocations to structural beneficiaries. What has not changed is our investment philosophy: disciplined, valuation-driven, with a long-term horizon and based on fundamental research.

WHY WE ARE CONSTRUCTIVE

Crucially, the underlying earnings power of our holdings remains intact. Across our portfolios, revenue, operating profit, and cash earnings growth continue to meaningfully exceed global market averages. What has changed is simply the price that investors are willing to pay for that quality. Several holdings now trade on free cash flow yields of 6–10%. These are valuations we have not seen in years, implying significant upside to our assessment of fair value.

Taken together, we believe our  equity holdings are worth well more than double their current prices (well over 100% upside), reflecting how far markets have fallen and how strong the underlying businesses remain.

WHERE VALUATION DISCIPLINE MATTERS MOST

History demonstrates that periods of indiscriminate selling, wide valuation dispersion, and large disconnects between price and fair value are precisely the conditions from which long-term, active investors generate their strongest subsequent returns. We are very constructive on our portfolios’ prospects from here.

As mentioned at the start, our detailed fund commentaries will follow in the coming weeks. In the meantime, we encourage you to view the current decline in fund value in the context of our longer-term track record and the quality of the businesses we hold on your behalf.

As always, we are grateful that you have chosen to invest with us and for your continued partnership.