Quarterly review for WAY investors – June 2026
Global equities rose 14.32% in sterling over the quarter while oil prices fell 22.06% as the US and Iran signed a memorandum of understanding to end their war, triggering hopes that the Strait of Hormuz, through which about a fifth of the world’s oil passes, would soon reopen. In July, however, talks failed and the US resumed bombing Iran after the Iranians attacked shipping in the strait.
Technology stocks rose 33.32% in sterling over the quarter as investor enthusiasm about artificial intelligence (AI) outweighed geopolitical concerns. In June, Elon Musk’s SpaceX, which makes spacecraft and operates the Starlink satellite internet network, floated in New York. The shares initially rose but then fell below the o er price. The fanfare surrounding SpaceX reminded older investors of over-hyped flotations at the height of the dotcom boom in 2000.
Hardware stocks mostly outperformed software stocks as AI’s ability to code and manage data, traditionally the province of software providers, undermined investor confidence in the software sector. On July 14, IBM shares fell 25.45% in sterling as the company, a major software supplier, announced disappointing second-quarter results. Arvind Krishna, IBM’s chairman, said customers had prioritised investment in servers, storage and memory at the expense of software.
Brompton’s client portfolios, as appropriate to the various strategies, include holdings in the iShares MSCI Global Semi conductors exchange-traded fund or Polar Capital Global Technology, where the manager has a
high weighting in hardware suppliers rather than
focussing on trying to identify the next generation of
tech disruptors. The pace of innovation means some of
the world’s largest companies may be rapidly
superseded by innovators should history repeat itself.
At the turn of the century, Nokia was the largest mobile
phone provider, accounting for about 40% of the
market, but it failed to adapt to touch screen
technology and lost market share to smartphone
makers and ceded industry leadership to Apple. By
contrast, makers of semiconductors, the building
blocks of electronic devices, are less exposed to the risk
of technological obsolescence compared to platform
or device companies being akin to the makers of picks
and shovels in a gold rush.
Equities in Asia excluding Japan and emerging markets
rose 26.96% and 23.35% in sterling respectively over the quarter as technology hardware stocks benefited
from strong demand for semiconductors. Asian
companies are critical components in the
semiconductor supply chain. Nvidia, the world’s
leading designer of graphics processing units (GPUs)
for AI, does not make its products and Taiwan
Semiconductor Manufacturing Company (TSMC), the
world’s largest semiconductor foundry, is the primary
maker of its GPUs. TSMC in turn buys machinery from
Tokyo Electron, the world’s leading lithography and
wafer processing equipment supplier. TSMC and
Tokyo Electron also supply Nvidia’s competitors and
may benefit from greater resilience and longevity than
some customers. The charts below show the
dominance of hardware companies in Asia compared
to the US, home to a similar spread of hardware and
software companies. The prevalence of hardware
manufacturers is one reason why Brompton’s client
portfolios have high allocations in Asia.
Global bonds returned only 0.22% in sterling over the
quarter as the oil price rise triggered by the US-Israel
war against Iran led to higher-than-expected inflation,
leaving it above leading central bank targets, with the
result that policy interest rates are likely to remain
higher for longer. The chart overleaf shows conditions
worsened after the quarter end as US bombing in
response to Iranian attacks on shipping in the Strait of
Hormuz reduced tanker traffic.
The US core personal consumption expenditures
inflation index, the Federal Reserve’s preferred
measure, rose from 3.3% in March to 3.4% in May. The
Fed kept its policy rate on hold at 3.5-3.75% as its
newly-appointed chairman, Kevin Warsh, said inflation
was “too high”. Warsh’s hawkishness coupled with his
commitment to Fed independence reassured investors
that policy would not be politicised just because he
was Donald Trump’s nominee. The Bank of England left
its rate at 3.75% as inflation eased from 3.3% in March
to 2.6% in June.
By contrast, the European Central Bank increased its
key policy rate in June by a quarter percentage point to
2.25% to combat eurozone inflation as the harmonised
index of consumer prices rose from 2.6% in March to
3.2% in May before falling to 2.8% in June.
The UK’s new prime minister, Andy Burnham, promised
policies to address the cost of living and rebuild the
economy but there are grounds for caution about UK
government bonds and Brompton’s client portfolios
hold no dedicated UK government bond investments.
The UK’s high public sector debt and its fiscal deficit
may constrain a government committed to spending
more on welfare. John Healey, the new chancellor, will
need to keep investors on side if he is to meet
government objectives without paying more to service
borrowing. There are, however, grounds to be positive about UK large companies, which typically have big
overseas interests, while being cautious about smaller
companies, which are lowly-rated yet are more
sensitive to domestic trends.
Prospects for equity markets overall appear positive,
with emerging markets, Japanese stocks and UK large
companies more attractive than US equities. In
addition, investments in infrastructure companies and
utilities should prove defensive because of the
bond-like dependability of their cash flows and strong
demand as a result of electrification and the transition
to clean energy.
Within the bond markets, sterling-hedged investments
in US short-dated inflation-linked bonds should
provide some protection in real terms should the
prospect of a peaceful resolution to war in the Middle
East recede, leading to higher oil prices. Sovereign
bonds appear more attractive than corporate bonds on
valuation grounds and because of fears that there may
be some contagion from private debt markets, where a
deterioration in loan quality may lead to more
bankruptcies and the halting of redemptions from
funds that specialise in this sector.
Important information
This document is issued by Brompton Asset Management Limited (Brompton), which is authorised and regulated by the Financial Conduct Authority, firm reference number 942254. It is based on the opinions of the asset management team at the time of writing, supported by publicly-available information and
other sources Brompton believes to be reliable. Brompton cannot guarantee the accuracy of the information in the document. The opinions expressed are subject to change. This document and the opinions expressed in it do not constitute investment advice and should not be relied upon as such. It should not be considered a solicitation or recommendation to buy or sell a security. Brompton will not be liable for any direct or indirect losses arising from the use of this document. Past performance is no guarantee of future performance and the value of investments, and the income from them, may fall as well as rise.
Brompton Asset Management Limited, 1 Knightsbridge Green, London, SW1X 7QA