Coronation Global Managed Fund

This commentary is for the retail class of the fund.

MARKET BACKDROP

Global equity indices set fresh all-time highs in the third quarter of 2026 (Q3) even as the macro backdrop deteriorated on a number of fronts: the Middle East war pushed oil prices back above $100 a barrel, the majority of developed-market central banks raised rates, and government bond yields reached multi-decade highs, with the US 10-year Treasury ending the quarter above 5%. Corporate earnings, however, grew strongly, led by the artificial intelligence (AI) capex beneficiaries. Yet, despite the global equity market (MSCI All Country World Index) returning 17% over the last year, valuations have actually compressed from c. 19x to c. 16x forward earnings.

The narrowness we described in Q2 intensified: the equal-weighted S&P 500 declined, and by quarter-end barely 25% of S&P 500 constituents were trading above their 50-day moving average.

PERFORMANCE AND FUND POSITIONING

Against this backdrop, global equities rose 1.6% in the quarter, while the global bond index declined -2.5%, leaving the Fund’s benchmark return marginally negative. The Fund underperformed by c. 1% – the cost, for now, of holding a diversified portfolio in a market rewarding concentration. We expand on this below.

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

• 73% effective equity
• 8% in real assets (listed infrastructure and property)
• 2% in high-yield fixed income
• 5% in inflation-linked assets
• 10% in investment-grade fixed income instruments
• 2% in short-dated T-bills

Our fixed income holdings largely tracked the index. The duration of these holdings has risen and is now only marginally below the index’s six years. This reflects our decision to extend duration in our US inflation-linked positions to take advantage of real yields in the 3% range. We also switched shorter-dated US Treasuries into equities in the Q1 sell-off earlier this year. As the allocation above makes clear, however, equities remain our key call – and where we see the greatest opportunity.

We estimate the equity portion of the portfolio will generate a five-year internal rate of return (IRR) approaching 20% and that the stocks are collectively worth c. 90% more than where they trade. Relative to the Fund’s own history, the current degree of undervaluation sits well within the top quartile. Equally important is the composition of the portfolio. It is possible for a portfolio manager to manufacture upside by owning stocks that look extremely cheap (e.g., stocks that trade on very low price-to-earnings [PE] multiples). However, these stocks are often cheap for a reason: with weak or declining competitive positions, no durable competitive advantage, over-leveraged balance sheets, and/or a poor management team. The hit rate of earning good returns from these weak businesses is typically very low. In contrast, our current portfolio is on the opposite end of the spectrum, representing a diversified set of leading businesses across sectors, geographies, and business risks. Recently, diversification has diluted returns relative to concentrated indices, and momentum has been a superior strategy to owning undervalued stocks. Over time, we expect diversification to prove a strength again and undervaluation to be a driver of returns.

The largest contributor for the quarter was Meta, which investors promoted into the ‘AI winner’ camp following September’s release of Muse – an example of value emerging at the application layer of the AI stack, an area the market has not been focusing on. Muse illustrates the optionality embedded in our investment case. Early adoption has been exceptional: Muse reached five million US downloads within 22 days of launch – a milestone that took ChatGPT’s app 56 days – albeit helped by Meta’s unmatched distribution.

Auto1 Group was the largest detractor. The share price continues to experience significant volatility, as the chart below illustrates. Much of this is driven by market participants scraping high-frequency operational data (listings, pricing), which has predictive value for short-term results but little bearing on long-term business value. We remain positive on the business’s long-term fundamentals, as the company continues to build scale advantages that, combined with improving inventory turns, should drive high returns on invested capital.

Our team continues to focus on the fundamentals of each stock we research and own. This involves a comprehensive assessment of both the risks and opportunities AI presents. Given how fast this technology is moving, we regularly reassess these views and re-underwrite our investment cases. In general, we are encouraged by the strong underlying performance of the stocks which comprise our equity portfolio, the quality of the management teams at the helm, and the valuations at which they trade.

Thank you for your support and interest in the Fund.

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