Market Review
Markets enjoyed a recovery during the quarter as it became clear that the US/Israeli conflict with Iran would not escalate into a wider regional war. The focus of investors returned to second-guessing the impact of AI adoption, with market leadership increasingly dominated by the semiconductor industry.
The MSCI World index, with its greater exposure to technology companies, generated a return of 13.0% over the quarter. The influence of AI upon investment returns is stark. Software companies have reversed all of their relative gains of recent years in recent quarters as investors bet that AI will erode the value of traditional software businesses. Even so, Technology was the strongest sector globally in Q2, but this was very reliant upon Semiconductor names. The Philadelphia Semiconductor Index rose by almost 90% during the quarter, far outpacing the 33.5% gain recorded by the wider Technology sector.
In the UK, where technology stocks are only a minor component of the broader market, the All Share Index still managed to generate a return of 4.7% over the quarter, quite a number behind other major markets. Banking names were prominent amongst the winners over the quarter, whilst the biggest drag on the index came from the Energy sector, which surrendered most of the gains that had been made upon the outbreak of the conflict in the Middle East.
The US posted returns of over 14%. Surprisingly unfazed by the ongoing conflict with Iran, the world’s largest economy continued to show resilience with unstoppable capital expenditures directed towards data infrastructure supporting the AI boom.
On the continent, Europe delivered 12.3% for the period. With tensions easing somewhat in the Middle East, the de-escalation allowed for the region to breathe a sigh of relief.
Emerging markets also had a strong run for the period with a remarkable gain of 23.3% in GBP terms. The index has significant exposure to tech hardware and benefited greatly from the quarter’s trend.
Commodities on the other hand was out of favour. The weakness of oil prices as the Middle Eastern conflict cooled meant that Energy sector weakness was a global phenomenon in Q2, with the sector acting as the biggest drag on the global index too. Precious metals such as gold also underperformed, falling by 13.4% as investors continued to lean towards growth stocks with a risk-positive attitude.
Fund Review
The fund delivered a return of 9.8% over the second quarter. Whilst this was positive in absolute terms, it lagged the wider market. An underweight in technology, specifically semiconductors and hardware, contributed to this relative underperformance. This was only partly offset by a positive contribution from our exposure to industrial cyclicals.
30/06/2021 To 30/06/2022 | 30/06/2022 To 30/06/2023 | 30/06/2023 To 30/06/2024 | 30/06/2024 To 30/06/2025 | 30/06/2025 To 30/06/2026 | |
|---|---|---|---|---|---|
HL Select Global Growth Shares A Acc | -16.4% | 14.7% | 15.6% | 3.8% | 6.3% |
FTSE World TR GBP | -2.8% | 13.5% | 21.1% | 7.8% | 30.2% |
IA Global | -8.7% | 10.8% | 15.0% | 4.2% | 19.9% |
MSCI World NR GBP | -2.6% | 13.2% | 20.9% | 7.2% | 25.3% |
The following information is supplied by the Fund’s appointed Investment Managers J.P. Morgan Asset Management and reflects activity or performance over the period since taking on the management of the Fund.
Winners & Losers
Winners
Security Name | Average Weight | Contribution |
|---|---|---|
Micron Technology | 1.25% | 1.16% |
ASML | 2.04% | 0.69% |
TSMC | 2.58% | 0.63% |
Apple | 3.55% | 0.47% |
UnitedHealth | 1.49% | 0.44% |
Our stock selection in the Industrial Cyclical sector was supportive over the quarter, with Keyence, the factory automation company, and Safran, the French aerospace company, outperforming on the back of super-normal demand and results which were ahead of market expectations. Moreover, United Rentals, an industrial company that rents equipment to construction sites, utilities etc., announced first quarter earnings which were ahead of market expectations and suggested continuing solid demand for their services.
Other sectors that contributed positively included the Health Services sector (UnitedHealth Group rallied on the back of strong financial performance, an improvement in margins and share buybacks) and Property (owning Ventas, a senior housing REIT with solid execution and high occupancy).
Regionally, stock selection in Continental Europe and Emerging Markets helped relative returns.
Losers
Security Name | Average Weight | Base Contribution |
|---|---|---|
Meta Platforms | 2.42% | -0.42% |
Shell | 1.97% | -0.26% |
Munich Re | 1.37% | -0.24% |
Toyota Motor | 0.94% | -0.21% |
Lowes | 1.66% | -0.16% |
Relative underperformance was primarily driven by stock selection in the technology – semiconductors/hardware sector, where owning NVIDIA was a drag on relative performance. The semiconductor giant underperformed the broader sector owing to a broad rotation away from high-flying AI hardware companies to emerging opportunities in memory chips and other infrastructure bottlenecks. The likes of AMD, Intel and Marvell (where we are underweight) saw exponential growth in their share prices driven by robust earnings momentum, as investors rewarded explosive demand and supply chain constraints that enabled temporary pricing power.
Despite this short-term shift towards other parts of the market, we continue to prefer semiconductor names such as NVIDIA, TSMC and Broadcom given their clear market leadership and attractive relative valuations, whilst also recognising the need to manage our underweight exposure in companies which, despite experiencing market support, potentially face execution challenges.
Stock selection, and being overweight, in the Retail sector also detracted from relative returns. McDonald’s and Yum! China Holdings are two high quality, low-cost consumer franchise companies but, due to the conflict in the Middle East, have seen headwinds from the impact of rising fuel and living costs for lower-income households. Despite strong pricing power, these companies have focused on expanding discount offerings which has led to challenges in increasing sales growth across markets.
Regionally, stock selection in the United States (as explained above) and the United Kingdom was negative over the period.
Outlook
While investors have had to contend with a steady stream of economic and geopolitical developments in 2026, equity markets have remained surprisingly resilient. The key question for markets over the remainder of the year is whether recent optimism can be sustained in the face of ongoing geopolitical uncertainty, evolving monetary policy, and elevated valuations in parts of the market. Although risks remain, particularly surrounding developments in the Middle East, our base case remains that tensions gradually de-escalate and that the broader economic impact remains manageable. Nevertheless, we continue to monitor developments closely given the potential implications for inflation, growth, and corporate profitability.
Despite this uncertain backdrop, corporate earnings expectations continue to strengthen globally. Robust investment spending, particularly in artificial intelligence (AI) infrastructure, alongside supportive fiscal policy in several regions, has helped underpin economic activity and improve profit forecasts. We are forecasting strong earnings growth in 2026, with growth becoming increasingly broad-based across regions and sectors rather than being concentrated in a small group of US technology companies.
In the US, attention remains focused on the earnings outlook beyond the Magnificent Seven. While these companies continue to deliver strong profit growth, expectations for the broader market have improved meaningfully, reflecting stronger demand across industries benefiting from AI-related investment and increased business spending. We believe the 493 non-“Magnificent Seven” companies in the S&P 500 will grow at a significantly improved rate in 2026 as compared to their performance in 2025. This broadening of earnings growth is encouraging and supports a more constructive outlook for equity markets overall.
Outside the US, we also see scope for improving earnings momentum. Emerging markets, which we forecast to see a huge earnings growth in 2026, continue to benefit from strong demand linked to the AI supply chain, particularly in Taiwan and South Korea, while Japan is experiencing sustained improvements in corporate governance, capital efficiency and shareholder returns. In Europe, economic growth remains relatively subdued compared with other regions, but fiscal stimulus initiatives and a stabilisation in key industries are beginning to support a more favourable earnings outlook.
We remain highly constructive on the long-term opportunity presented by AI and continue to see significant investment across a wide range of industries. However, while the technology's potential is becoming increasingly clear, we believe the benefits are not yet being realised equally across all companies. As a result, market outcomes are likely to become more differentiated. In some areas, share prices already reflect very optimistic assumptions, while in others, long-term opportunities remain underappreciated. We therefore believe the next phase of the AI investment cycle will be characterised less by broad market leadership and more by company-specific winners and losers.
Against this backdrop, we continue to emphasise bottom-up stock selection. Periods of heightened volatility and uncertainty often create opportunities to invest in high-quality businesses whose share prices have become disconnected from their long-term fundamentals. While macroeconomic conditions are likely to remain volatile, we believe the combination of resilient earnings growth, ongoing AI-led investment and improving opportunities for active stock selection provides a constructive backdrop for long-term investors.