3Q 2026 Global Growth Commentary
The central feature of the quarter was a material reversal in market leadership, as many direct AI-capex beneficiaries, including semiconductors, memory, and certain industrial businesses tied to data center construction and power infrastructure, cooled during the July and August sell-off after significant strength earlier in the year.
At the same time, software and services businesses, which had been under pressure from generative AI disruption fears, began to recover as investors appeared more willing to distinguish between companies that may be disrupted by AI and those where AI may enhance long-term growth.
The Portfolio benefited from this change in sentiment, with top relative contributors including ServiceNow, Shopify, and Microsoft. By contrast, the largest relative detractors were Tokyo Electron, Apple (not owned), and GE Aerospace.
What Drove Global Equity Returns in Q3 2026?
The central feature of the market performance this quarter was a material reversal in leadership. In the first half of the year, global markets sharply rewarded direct AI-capex beneficiaries, particularly semiconductors, memory, and certain industrial businesses tied to data center construction, power, and AI infrastructure. During the third quarter, that trade cooled notably, while software and services businesses, which had been under significant pressure from generative AI disruption fears, began to recover. In our view, this was less a change in the underlying fundamentals than a change in what the market was willing to recognize.
Which Holdings Had the Largest Impact on Returns?
Top relative contributors to the Portfolio’s performance included ServiceNow, Shopify, and Microsoft. By contrast, the largest relative detractors in the quarter were Tokyo Electron, Apple (not owned), and GE Aerospace.
ServiceNow was the Portfolio’s top-performing holding during the quarter as improving sentiment toward high-quality software companies coincided with another strong earnings report. Tokyo Electron was the Portfolio's largest relative detractor, primarily reflecting the broader cooling in semiconductor-related stocks as investors reassessed what they were willing to pay for AI-driven growth, rather than any change in the company's fundamentals.
How Is the Portfolio Being Repositioned Globally?
In Q3 2026, we initiated new positions in Seagate Technology, Advanced Micro Devices, Quanta Services, and SK Hynix, while selling Oracle. We also added to our existing positions in Meta Platforms and Keyence, while trimming NVIDIA, Broadcom, Shopify, ServiceNow, Tencent, Aon, Adyen and Tokyo Electron.
The goal of this activity was to improve the Portfolio’s balance by redeploying capital toward businesses where we see stronger current momentum, attractive long-term growth prospects, and more visible demand tailwinds. We continue to own software, services, payments, internet, and information-based businesses where we believe long-term competitive advantages remain underappreciated.
What Is the Team's Forward View?
The team continues to see attractive opportunities within the AI ecosystem, as well as in areas where they believe concerns about AI-related disruption may be overstated. They believe the Portfolio is better balanced today, with exposure to both durable compounders and areas of strong business momentum. However, elevated government bond yields, persistent inflation, and higher energy prices reinforce the need for valuation discipline.
Frequently Asked Questions
Past performance does not guarantee future results. The commentary is not intended as a guarantee of profitable outcomes. Please see Important Disclosures in the full commentary.