South Africa - Personal
This commentary is for the retail class of the fund.
PERFORMANCE
The Fund returned -4.7% for the quarter, compared with 1.6% for the MSCI All Country World Index (ACWI). Over the rolling 12 months, the Fund returned -1.2% against 16.8% for the benchmark.
MARKET REVIEW
Global equities rose modestly in the third quarter of 2026 (Q3), with the MSCI ACWI returning 1.6%, but the headline masked a narrow and volatile market. Gains were concentrated in a handful of large US technology and communication services companies. The S&P 500 added about 2.0% and the Nasdaq about 2.5%, while the Dow fell 2.7% and the small-cap Russell 2000 lost 7.5%. Only four of the 11 sectors in the S&P 500 finished higher, led by energy. Developed markets outperformed emerging markets in Q3, which ended marginally lower after an exceptional first half.
The quarter opened with an abrupt reversal in the artificial intelligence (AI) hardware trade. Semiconductor shares had risen more than 80% in the first half and investors began taking profits in early July. Samsung’s results were strong but not strong enough for expectations, and reports that DeepSeek is developing its own AI chip added to the unease. The Philadelphia Semiconductor Index fell by 4.7% on 7 July and the selling spread to memory producers in Korea and Japan, driven by oversupply concerns, stretched valuations and the unwinding of leveraged positions. At its worst, SK Hynix was around 45% below its June peak, and Korea and Taiwan pulled emerging markets lower. Earnings were not the problem: Nvidia reported revenue up 106% year on year (y/y), and guided above expectations. This was a reset of expectations rather than a collapse in demand. In August money rotated into software, which had been de-rated on fears that AI agents would displace existing products, and companies such as Salesforce and Workday rebounded sharply.
The dominant macro development was higher bond yields. The US 10-year yield rose roughly 85 basis points (bps) to 5.29%, the largest quarterly increase in several years, and the 30-year yield touched a 19-year high in August. Ongoing conflict in the Middle East resulted in disrupted shipping through the Strait of Hormuz, lifting oil prices by about 29% over the quarter, although talks between Iran and Oman on reopening the strait eased prices late in the period. With US inflation at 3.4%, the Federal Reserve, under its new Chair Kevin Warsh, raised rates by 25 bps to a range of 3.75%-4.00% on 16 September, its first increase since 2023, and signalled another hike this year. Higher discount rates weighed on small caps, long-duration growth and construction as well as infrastructure names, while energy and banks benefited. Europe was broadly flat, with the STOXX Europe 600 down 0.4% and the FTSE 100 up 1.3%.
UNDERLYING FUND REVIEW
The relative underperformance came mainly from Lone Monterey, with Tremblant Capital, Contrarius Global Equity Fund and Coronation Global Emerging Markets Fund also lagging, partly offset by SEG Crosby Street and Coronation Global Equity Select.
Egerton Capital returned -0.3%, the most resilient of our larger holdings, helped by its large financials exposure. BBVA (+13.4%) reported record first-half profits and announced an additional €2 billion share buyback, and Nvidia (+14.3%) guided next quarter above expectations after revenue more than doubled. Applied Materials (-29.2%) fell despite beating estimates, as US export controls are expected to remove around $600 million from fiscal 2026 revenue and the shares were priced for perfection, while CRH (-22.3%) declined after announcing an $8.5 billion acquisition of Arcosa and pausing its buyback, with higher yields weighing on construction-related stocks.
Contrarius Global Equity Fund returned -3.4%. Tesla (-15.6%) fell after second-quarter results, as $5.8 billion of AI and robotics spending produced its first cash burn in two years, while Chinese rivals such as BYD took share in Europe. Intel (-13.9%) retreated after a sharp rally as investors questioned the premium placed on its foundry ambitions, with a large equity raise adding to supply. Dell (+24.9%) lifted its full-year revenue guidance to $192 billion after record AI server orders, and Nintendo (+16.6%) beat first-quarter expectations and raised its profit outlook.
Lone Monterey returned -22.9%. The portfolio is concentrated in beneficiaries of AI infrastructure spending, including memory, optical, semiconductor equipment and electrification, precisely the group that de-rated after the first-half surge. Kioxia (-39.5%) and SK Hynix (-32.7%) fell on fears of memory oversupply, rising Chinese NAND capacity and the unwinding of leveraged positions. Corning (-39.7%) fell after guiding third-quarter sales below expectations on slowing fibre growth, and MasTec (-48.7%) dropped sharply on a small earnings miss and cautious guidance, then fell further as long-dated yields surged. There was little to offset these moves as the portfolio has minimal exposure to the financials and energy sectors that led the market. Lone Pine Capital has subsequently made some changes to the portfolio management team. Kelly Granat will leave the firm and Rahul Anne was promoted to co-CIO with David Craver, who will have a final investment decision-making authority under the new structure.
Coronation Global Equity Select returned 0.7%. Microsoft (+37.8%) was among the software names that rebounded in August as fears of AI disruption eased, and IQVIA (+39.1%) rose after beating second-quarter estimates, raising guidance and reporting record new bookings. CATL (-25.7%) fell to one-year lows as Chinese automakers broadened their battery sourcing, and Coupang (-20.1%) was weak for the reasons noted above.
Coronation Global Emerging Markets Fund returned -2.0%, held back by weakness in Korean technology and company-specific setbacks. HDFC Bank (-7.9%) fell on leadership uncertainty after its CEO said he would not seek another term, and CATL (-25.7%), Coupang (-20.1%) and SK Hynix (-32.7%) detracted for the reasons already described.
SEG Crosby Street returned 2.1%, helped by software and healthcare. Workday (+55.6%) surged on reports of takeover interest and an earnings beat, Salesforce (+46.8%) jumped after strong results and an expanded partnership with Anthropic, and Thermo Fisher (+34.7%) beat second-quarter estimates and raised its full-year outlook. Viking Holdings (-25.2%) detracted as higher oil prices, low river water levels and weaker cruise sentiment weighed on the shares.
Tremblant Capital returned -4.8%. Shopify (+29.9%) jumped after second-quarter revenue grew 34% with strong free cash flow and a confident outlook, and Lumentum (+13.2%) benefited from AI data centre demand for optical components, with revenue roughly doubling and guidance well ahead of expectations. MKS (-40.3%) sold off with the semiconductor equipment group on valuation and margin concerns despite beating estimates, and Coupang (-20.1%) was hurt by the fallout from last year’s data breach, including a record Korean fine, and a second-quarter earnings miss.
OUTLOOK
Markets face three near-term tests. The first is the interest rate path: the Federal Reserve meets again at the end of October and a second hike is possible, so further rises in long-dated yields would extend the pressure on valuations. The second is oil: a negotiated reopening of the Strait of Hormuz would ease inflation, while renewed disruption would do the opposite. The third is the third-quarter earnings season, which must show that AI spending is converting into profits and that earnings growth is broadening beyond a few mega-cap companies.
Over the medium term, we view the quarter’s sell-off in AI hardware as a reset rather than the end of the AI investment cycle. Demand indicators from Nvidia, TSMC and Dell remain very strong, but returns on that spending will be scrutinised and valuations leave little room for error. Market leadership has been narrow and return dispersion is high, which means that a well-diversified portfolio can lag the index. Given the uncertainty in geopolitics and current valuations, our managers continue to look for value across sectors and to focus on businesses that can deliver attractive long-term returns.
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