MACRO AND MARKET REVIEW
In May, equity markets were lifted by technology, strong earnings and the AI investment cycle, delivering returns that already looked closer to a full-year performance than to a normal monthly advance. June was therefore more a digestion phase than a new bullish impulse, with investors taking profits after an unusually strong run. The geopolitical backdrop also shifted from escalation to de-escalation around the Strait of Hormuz, triggering the classic “buy the rumour, sell the news” dynamic: investors initially responded positively to successive détente headlines, but once the resolution looked more credible, the initial enthusiasm faded. At the same time, the end of the earnings season removed a powerful source of support, leaving markets more exposed to valuation concerns and macro uncertainty. That uncertainty increased further with Kevin Warsh’s first Fed meeting, where a firmer tone and the retreat from forward guidance gave the central bank greater flexibility but reduced visibility for investors. In that context, high real yields became the key constraint, both in the US 10-year market and in Europe, notably in France and Germany. This matters because elevated real rates raise the cost of capital precisely when the cycle is being driven by investment demand, especially around AI and infrastructure. June’s setback should therefore be read as a valuation adjustment rather than a break in the broader investment narrative. For now, the market is not rejecting the AI-led cycle, but it is questioning the price paid for it. In that sense, the June take-profit phase temporarily validates the “sell in May and go away” pattern after an exceptional spring rally.
Monthly performance confirmed this digestion phase: MSCI World declined by 0.8%, the S&P 500 by 1.1% and the Nasdaq by 2.8%, while Europe held up better, with the Eurostoxx 50 up 4.6% and the Russell 2000 up 3.6%. Emerging markets were weaker, down 1.3%, with MSCI China falling 7.5%, while the growth/value split was also consistent with profit-taking, as MSCI Growth lost 1.1% versus 0.5% for Value. In rates, the US curve bear-flattened, with the 2-year yield up 17 bps and the 10-year up 3 bps, while breakevens fell 17 bps and US 10-year real rates rose 20 bps, reinforcing the pressure from higher real discount rates. In Europe, German 10-year yields fell 8 bps but eurozone 10-year real rates still rose 11 bps, while credit was mixed, with US HY spreads widening 13 bps but Xover and EM spreads tightening by 6 bps and 8 bps respectively. Commodities were the clearest expression of the reversal in geopolitical risk premium, with BCOM down 8.8%, energy down 12.1%, oil prices falling 20.4% and gold losing 11.7%, while the dollar rose 2.3% and sector performance showed a defensive tilt, led by healthcare at +4.9% and financials at +3.4%, against weakness in energy, materials and autos.
PORTFOLIO ACTIVITY
Portfolio exposure remained stable over the month at approximately 340% as risk budget remained at its full 10% expected shortfall target. Our volatility estimates slightly increased for developed and emerging market equities, while remaining relatively unchanged for other asset classes. Our aggregate risk-appetite indicator continued to show bullish market conditions, having spent the whole quarter in Risk-On territory. Momentum signals proved more erratic, with commodity trend falling and sovereign bond trend surging, both nearing the inflection point and turning neutral by month-end. Momentum in equity markets remains, however, positive. On the macro side, growth momentum data improved in June and “expansion” seems to be the dominant regime for now. However, inflation-related indicators rose last month, with the oil shock gaining in visibility and a majority of sectors showing an uptick. With these rising inflationary pressures, our monetary policy signals are shifting, indicating a decidedly less accommodative stance—although not yet hawkish.
PERFORMANCE
In June 2026, LO Funds IV–All Roads Enhanced was marginally down 0.76% (USD IA share class). Over the month, fixed income was the top contributor with 70 bps stemming from sovereign bonds and 30 bps from corporate credit and emerging debt. Developed equities performance was also positive which added 40 bps. However, commodities and emerging equities detracted 130 and 30 bps, respectively. The contribution from our overlay strategies was also negative, with all our strategies posting losses, detracting 40 bps.
OUTLOOK
Looking ahead to July, June’s profit-taking does not yet look like the start of a bear market. The easing of energy inflation pressures and signs of firmer global growth are reshuffling the macro narrative: investors feared stagflation during the Iran shock, but the data flow now looks closer to expansion. If the recent data trend holds, cyclical assets could continue to perform in the coming months, supported by better activity and lower commodity pressure. Still, valuation risk remains significant after the spring rally, and the AI theme carries uncertainty around future earnings and capital expenditure (capex) returns. The message for July is therefore constructive, but not complacent: stay exposed to the expansion trade, while keeping diversification high.
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