Carmignac Investissement

US equities were down as Trump policy caused confusion around tariffs. DOGE cuts and immigration added to uncertainty amid recent weakness in incoming data.

European and Chinese equities were a bright spot though as they managed to deliver positive returns even as Trump’s aggressive tariff stance towards the month end shaved off some performance.

Investors are pulling back from the AI-related mania that has dominated the last two years. Even stellar earnings from industry leaders like Nvidia have failed to lift equity markets. This retreat is fuelled by a mix of factors, including new LLM models, rising competition from China, fears of looming tariffs, escalating geopolitical tensions, overextended market positions & valuations, and high expectations for company earnings.

The S&P 500 reported growth in earnings of 17.8% - the highest growth since Q4 2024.

The main reason behind the underperformance has been our exposure to tech stocks (TSMC, Amazon, Alphabet) in the wake of the tech correction.

Our underweight banks, Europe and China as well as our stock picking in healthcare were also negative factors.

TSMC, the biggest holding of the fund, was down due to policy uncertainties under the Trump administration (tariffs threats and tighter US export controls on AI chips), which have created market instability. Additionally, the emergence of cheaper LLM models has led to concerns about capex growth trajectories.

Alphabet suffered from worries about increasing reliance on AI for answering user queries, which could potentially revolutionize search methodologies.

Block, which provides financial services to both consumers and merchants, was the biggest detractor due to weak earnings.

In healthcare, Daiichi and Centene both declined due to policy uncertainties stemming from Trump’s tariffs and Medicaid cuts.

Markets are trading on a political narrative, leading to a rally in low-quality/value stocks, mostly in Europe and China; moving away from the US exceptionalism trade.

With global growth influenced by unpredictable policies from key regions such as the US, China, and Europe, our strategy remains grounded in company fundamentals.

We prioritize assets like growth stocks that are less dependent on the economic cycle across the US, Europe, and EM; and stocks already reflecting a high level of uncertainty in their valuations.

As negative sentiment hits the tech sector, we keep our tech investments broadly unchanged. There's a lot of noise, but little has changed in terms of fundamentals so far. Tactical hedges are however in place to cushion volatility.

Regarding the future of AI capex, substantial and ongoing capital investment is essential for fostering groundbreaking innovations, such as artificial general intelligence. Hyperscalers have already projected a significant 70% increase in capex for 2025.