MARKET REVIEW
The June macro backdrop highlights a clear regional divergence. The US economy remains resilient, supported by strong consumption and a solid labour market, while inflation—partly driven by energy—keeps the Federal Reserve on a hawkish footing despite some moderation in core prices. In contrast, Europe faces a more fragile, stagflationary environment, with weak growth, contracting activity indicators, and still-elevated inflation, prompting cautious policy tightening. Asia presents a mixed picture: Japan and several economies are tightening amid inflation risks, while China continues to show an imbalanced recovery, with firm industrial activity offset by weak consumption and property sector pressures.
Against this backdrop, equity markets showed a clear broadening of leadership globally. In the US, headline weakness driven by sharp underperformance in mega-cap tech masked a strong underlying rotation, with equal-weight indices advancing and gains spreading across cyclicals, small caps, and defensives. European equities were more macro-driven but displayed greater balance and resilience, benefiting from easing energy prices. In Asia, markets remained more volatile and uneven, with volatile AI-driven rallies and drawdowns in Japan and Korea contrasting with persistent weakness in China, highlighting a more fragile equity dynamic.
PERFORMANCE COMMENT
In June, the fund returned -1.7%, behind the index at -0.7%, giving relative performance of -1.0%. Allocation detracted -0.4% and selection detracted -0.6%. Sector allocation was most helpful in Industrials and Communication Services, but this was more than offset by negative allocation in Health Care, Financials and Materials, while selection was weakest in Financials and Information Technology. At the stock level, the strongest contributors were Taiwan Semiconductor Manufacturing (leading-edge semiconductor foundry; enables more energy-efficient AI and electrification infrastructure through advanced chips) (+14.4%), supported by continued evidence of strong AI-driven demand for advanced nodes and packaging; Owens Corning (building materials and insulation; supports energy-efficient buildings and lower-carbon construction envelopes) (+26.6%), helped by resilient Q1 revenue and margin delivery as it completed its portfolio shift toward branded building products; and SEGRO (logistics real-estate owner; supports efficient urban logistics and modern lower-emission warehousing) (+19.4%), which benefited from improving sentiment toward logistics property following rumours of a bid for the name. On the negative side, Alcoa (aluminium producer; supplies lightweight, recyclable metal used across transport and renewable infrastructure) (-32.7%) weakened as investors reassessed how pricing would develop amidst lower oil prices; Enphase Energy (solar microinverters and home-energy systems; enables distributed solar and residential electrification) (-27.8%) fell on renewed concerns around US residential solar demand and policy support despite new product launches; and NextPower (renewable-power producer; owns and develops solar and clean-power assets) (-24.1%) was pressured following a very strong run in the share price.
For Q2, the portfolio returned +14.7%, ahead of the index at +13.8%, for relative performance of +1.0%. Selection was the key driver at +1.6%, more than offsetting allocation of -0.7%. Information Technology and Communication Services drove positive attribution, while Utilities, Financials and Materials were the main sector-level detractors. The strongest stock contributors were Palo Alto Networks, (+114.4%), supported by accelerating AI-security demand; Samsung Electronics (memory, logic and electronics manufacturer; supplies semiconductors central to efficient AI infrastructure) (+96.0%), helped by the broadening AI-memory rally; and Alchip Technologies (application-specific integrated circuit (ASIC) design services; enables custom, potentially more power-efficient AI semiconductors) (+65.6%), which benefited from momentum in custom AI silicon. The weakest contributors were Verisk Analytics (insurance and risk-data analytics; supports climate-risk modelling and resilience analytics) (-4.9%), Autodesk (design and engineering software; supports resource-efficient buildings, infrastructure and products) (-19.7%), where the market focused on acquisition and guidance risk, and BYD (electric vehicles and batteries; enables transport electrification and battery adoption) (-31.1%), which was hurt by China EV price-war and margin concerns.
FUND ACTIVITY
From an activity perspective, we added Halma (safety, environmental and healthcare technology group; its products help improve water quality, pollution control, safety and healthcare outcomes). The rationale is that Halma offers sustainability exposure through a diversified group of mission-critical niche businesses rather than through a single cyclical climate hardware product. Its subsidiaries address areas such as water-network monitoring, pollution prevention, fire safety, medical diagnostics and air-quality control, all of which are aligned with long-duration regulatory and resilience needs. For clients, the appeal is the combination of durable organic growth, disciplined bolt-on M&A and high returns on invested capital. The company’s most recent full-year update showed revenue growth of 15%, adjusted EBIT growth of 22%, ROTIC of 16.2% and a 23rd consecutive year of adjusted profit growth, underlining that the sustainability thesis is supported by high-quality financial execution. Halma’s decentralised model also means management can compound capital across many small specialist markets, making the position a balanced exposure to safety, health and environmental improvement themes.
OUTLOOK FOR THE STRATEGY
In the context of resilient economic activity across several key regions despite some inflationary headwinds and less accommodative monetary policies, corporate earnings have been strong across many sectors and industries by historical standards, although eclipsed by explosive growth from some AI-related themes. This underlying diverse strength in corporate earnings should favour broadening of equity market performance in 2026, which has been concentrated in a narrow set of stocks since 2023.
We believe the structural trends we focus on are firmly established, rooted in superior economics. We have identified several attractive opportunities that we think are undeservedly overlooked and could regain investor attention including exposure to the ‘real economy’ through the electrification and decarbonization of mobility, buildings, grid infrastructure, and consumer systems; adaptation solutions including climate-risk data providers; as well as key digital enablers forming the backbone of the climate transition. Overall, our portfolio adheres to the principles of strong quality growth while maintaining disciplined valuation. With our dedicated sustainability research team identifying system changes across sectors, we are confident that the Planetary Transition strategy is well-positioned to capture investment opportunities arising from a society transitioning to a net-zero, and digital-enabled end state. This approach aims to provide investors with a diverse range of opportunities exposed to often mispriced structural growth.
FUND STRATEGY
At Lombard Odier, we firmly believe that the current global economic model is unsustainable, and we recognise the ongoing transition towards a circular, lean, inclusive and clean economic model. We believe the transition to net zero is inevitable. Pain points are apparent today. The rising frequency and scale of wildfires has created an insurance crisis in key portions of the US. Heatwaves in Europe and India have disrupted food production, contributing to inflation. Major cities are at risk of becoming unliveable, or require significant adaptation, with implications for infrastructure spending, the distribution of industry, and the structure of our economy.
This transition is driving fundamental changes in economic systems across value chains and industries. The widespread decarbonization and electrification of industry, transport, and the built environment will see us shift from an economic system based of fossil fuels to one that is more efficient, decentralized and flexible. We will see solutions providers on both the supply and demand side enable transition leaders in hard to abate sectors to unlock value as they decarbonize and electrify.
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