The Evenlode Global Opportunities fund underperformed its benchmark, the MSCI World Index, in June as the market rallied sharply from the lows of the US-tariff selloff. The recovery was led by cyclically geared sectors, most notably semiconductor, banking, and defence; all areas where the fund holds no allocation at present.

The excitement around artificial intelligence (AI) drove semiconductor share price gains, with the Philadelphia Semiconductor Index (SOX) returning 16.7% in the month (in USD). While hyperscalers continue to invest incredible sums into AI chipsets, we see this as the enabling investment - in largely undifferentiated infrastructure - that will allow future application development. We expect the long-term gains from AI to accrue to those who can create the most valuable services, i.e. those companies with proprietary data and a deep understanding of client workflows. For instance, Verisk is already selling a tool which allows faster review and processing of insurance claims documents. RELX similarly is selling tools which speed up the tasks of lawyers in big white-shoe law firms, allowing quicker ‘Shepardisation’ of legal cases to see if they are valid precedents or not. The Evenlode Global Opportunities strategy includes many vertical-specific data businesses which are less cyclical than semiconductor stocks, and available on superior valuations.

The increase in both banking and defence stocks has been catalysed by macroeconomic and political events. Donald Trump has repeatedly delayed or repealed the proposed US tariffs. Our expectation remains that the final average tariffs will be c.10%, significantly above the previous rate of 2-3%. This increase will be inflationary and has contributed to both a slower expected path of US interest rate cuts and a weaker Dollar. This is good news for banks, which gain from high interest rates - a factor beyond their control. We instead look for companies that can set prices and make their own weather. Similarly, defence companies have benefitted from western governments committing to raise spending following increased tensions and war in both Eastern Europe and the Middle East. These companies depend on large, infrequent contracts that can be delayed or cancelled - factors that weaken the investment case in our opinion.

The fundamentals of the companies within the Evenlode Global Opportunities strategy remain sound. These companies exhibit high returns on capital and continue to grow organic revenues and operating margins steadily, at rates above the wider market. While market prices may not recognise these attributes on a week-to-week basis, we firmly believe that it is the fundamentals that will determine returns over the long term.