Coronation Global Managed Fund

MARKET BACKDROP: CRISES AND CONCENTRATION

The turmoil from the Middle East conflict, which pushed equity markets into correction territory at the end of March, already feels like a distant memory. At least to the market, as many indices ended the second quarter (Q2) at all-time highs, 15%–20% above their March lows. So far, the Middle East crisis is following the pattern of recent macro-driven sell-offs, the Tariff Tantrum of 2025 among them: an external shock triggers indiscriminate, market-wide selling, leaving some thriving – and in some cases perfectly insulated – businesses even more dislocated. Every crisis reshapes the opportunity set. And while we don’t expect every sell-off to resolve as quickly as the recent ones have, the mispricings created by indiscriminate declines can be extreme.

The nature of this recovery makes the relative opportunity even more compelling, because while the rebound has been strong and sharp, it has been driven by a remarkably narrow cohort of stocks. The Philadelphia Semiconductor Index (SOX) rallied 88% in Q2 – by some distance its best quarter ever.

From Empirical Research Partners: “We’re starting the knockout phase of the World Cup and at this point it’s still anyone’s tournament. That’s not at all the case in the stock market, where investors are quite certain they’ve already got the winners and losers figured out, as evidenced by one of the biggest momentum markets in the modern history of equities. Forget Messi and Mbappé, it’s the AI Spending Beneficiaries that are seen as close to a sure thing, having produced 85% of the market’s return this year.”

The result is a one-dimensional market, where relative success has been predicated on building undiversified, “one-idea” portfolios and riding the trend. Semiconductors now represent nearly one-fifth of the S&P 500 – a weight that has quadrupled since mid-2020 and now exceeds even the dot-com peak.

FUND POSITIONING

The corollary of a narrow market is that as narrative, attention, and capital converge on what is working, “Everything Else” is neglected. And outside of the spotlight, we think investors are being presented with genuinely attractive opportunities.

Two examples illustrate our approach to taking advantage of these market dislocations: ASML and the payment networks Visa and Mastercard. All are excellent businesses that the team has researched and followed since 2013.

ASML designs and sells the photolithography machines essential to advanced chipmaking. As the world’s only producer of EUV lithography systems, it holds an effective monopoly on the equipment required to manufacture leading-edge semiconductors – the chips on which OpenAI’s and Anthropic’s models are trained. Like the market, we have long admired the business, and it has typically commanded a very high forward price-to-earnings (P/E) multiple, averaging in the low 30s and peaking at almost 50x earnings. In March 2025, however, ASML sold off significantly amid widespread tariff-related de-risking. By then, the stock had underperformed the global equity market by c.40% – its worst relative performance, by a meaningful margin, in over two decades. We saw a dominant business at a very attractive price and doubled the Fund’s position. Over the following 15 months, the stock returned c.160% in USD, driven primarily by a re-rating back to 45x earnings. Post quarter-end, we exited the position, notwithstanding a very favourable outlook for the company: the price one pays matters, and today’s very high starting valuation already reflects that favourable outlook, in our view.

In the first half of 2026, Visa and Mastercard found themselves where ASML stood at its lows: trading at their lowest multiples in over a decade, having underperformed by roughly the same 40% over the prior year, as investors feared that stablecoins and AI-agent payments would route transactions around the card networks entirely, compounded by proposed US interest-rate caps on credit cards. Visa and Mastercard operate the two dominant global payment networks, connecting billions of cards to over a hundred million merchants. This entrenched duopoly – protected by network effects no rival has replicated at scale – allows them to collect a small toll on a vast share of the world’s electronic transactions. We think it likely that agentic commerce will run on this existing, trusted payment infrastructure, so to the extent that AI reshapes online shopping, it could prove an accelerant to their growth rather than a threat. We used the share price declines to build/increase positions in both stocks.

The Fund’s relatively short journey in ASML shows the pattern completed – from building the position to full exit. Visa and Mastercard, by contrast, are investments still in progress. Stepping back, the Fund today holds a diversified collection of thriving businesses at attractive valuations – a positioning quite distinct from the narrow leadership driving today’s index highs, and one that drives our asset allocation.

At quarter-end, the portfolio was positioned as follows:

• 73% effective equity
• 7% in real assets (listed infrastructure and property)
• 2% in high-yield fixed income
• 6% in inflation-linked assets
• 10% in investment-grade fixed income instruments
• 2% in short-dated T-bills

PERFORMANCE

The Fund had a strong recovery in the quarter, advancing by 8.4%, though slightly behind the benchmark’s 9.1% return. We remain genuinely encouraged by the opportunity set presented by this dynamic market backdrop. As we said last quarter, history has shown repeatedly that when the market paints with too broad a brush, it creates compelling alpha opportunities for long-term, valuation-focused investors. In recent years, we capitalised on similar dislocations during Covid (2020), the rate-hike-driven long-duration sell-off (2022), and the Tariff Tantrum (2025) to add value to client portfolios.

Some businesses will embrace AI to win, while others will fall behind, and we expect the gap to widen. The equity portion of the portfolio is an attractive collection of businesses firmly in the winner’s camp: competitively advantaged, with strong growth prospects and compelling valuations. The remainder is invested primarily in liquid investment-grade bonds, with a further 6% allocation to US inflation-linked bonds, which, at c. 2% real yields, represent good value in our view.

Thank you for your support and interest in the Fund.

Insights Disclaimer
Comprehensive Fund Factsheets