Q2 2026 Fund Commentary

Commentary and opinions are provided by Keyridge Asset Management Limited.

Market commentary

The conflict in the Middle East and its consequent impact on supply chains and interest rates was the most significant geopolitical and macroeconomic factor affecting European equities in the second quarter. With risk appetite troughing at the end of the first quarter, increased confidence in a resolution to the conflict drove positive market sentiment through the quarter and supported a strong rebound from earlier lows.

Performance

At the sector level, security selection contributed strongly to relative performance, with share price outperformance from DCC plc, ASML Holding NV and BNP Paribas SA. The Fund's underweight to U.K. equities also contributed as the U.K. was among the weakest markets in the quarter.

ASML Holding NV was the leading individual contributor. The company dominates the market for lithography machines, a vital process in the manufacture of advanced semiconductors for AI applications, and demand remains strong, which is feeding through into corporate results. William Demant Holding AS also contributed as demand for hearing aids improved following a period of slower post-pandemic growth, leading to stronger revenue growth reflected in share price performance. DCC plc contributed after two private equity firms, KKR and Energy Partners, returned to the table with a higher takeover offer, which is now reflected in the share price.

At the sector level, the Fund's overweight to health care detracted as the sector underperformed the benchmark, continuing a trend seen over several quarters. In the sub-advisor's view, companies in the health care sector continue to fit the investment philosophy of investing in quality companies at reasonable prices. An underweight to financials also detracted, as banks were among the strongest performing sub-sectors amid the potential for higher interest rates.

ENI SpA detracted the most from performance. The stock had performed strongly in the first quarter as the oil price rose amid the conflict in the Middle East, but underperformed in the second quarter as the oil price fell on the potential for a resolution. Coloplast AS also detracted; revenue growth was marginally weaker than expected, with China and the U.S. softer than anticipated, and cost inflation ran higher than expected, weighing on margins. CRH plc detracted as the potential for higher U.S. interest rates can be viewed as detrimental to demand for infrastructure and construction projects. CRH plc generates the majority of its profits in the U.S. and is therefore more exposed to U.S. rates.

Portfolio activity

The sub-advisor increased CaixaBank SA and BNP Paribas SA.

Outlook

In the sub-advisor's view, global economies continue to perform strongly, and corporate earnings are growing at healthy rates. Much of this growth is being driven by the information technology sector, but the sub-advisor believes growth is broadening across other sectors, which could benefit international equities.

Supply chain risk is an area the sub-advisor is monitoring closely. The use of oil is ubiquitous, either as a direct input into the manufacture of goods or indirectly as an energy source, and disruptions to oil supply could negatively affect many global sectors and Fund holdings. Inflation and the potential for higher interest rates is another area under close watch. Higher rates may benefit sectors like banks but could weigh on interest-rate-sensitive sectors such as utilities and real estate.