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
During June, the strategy delivered positive performance across several alpha sleeves as returns reflected a broadening of market leadership, easing inflation concerns and continued stock-specific dispersion. As we first reported in March, the strategy has transitioned to a clear alpha-beta separation framework with the objective to deliberately structure market exposure through a high-quality, beta foundation aiming to capture the structural investment opportunities across system changes, while isolating alpha generation within dedicated sleeves managed by experienced analysts, with explicit risk budgets, under the oversight of lead PMs. In June, relative outperformance was driven by these alpha sleeves.
Our market exposure benefited from a less challenging macro backdrop as concerns around second-half inflation softened, supported by lower oil prices from mid-June and more constructive feedback from corporates on their ability to manage cost inflation and consumer behavior. Across alpha sleeves, excess returns were diversified, with positive contributions from Consumer, Healthcare, IT Hardware positioning and IT Software/Industrial, partially offset by weakness in Financials.
The Consumer Alpha sleeve was the strongest performing sleeve, supported by the rotation into underperforming sectors and a more constructive view on Consumer Discretionary. Healthcare also contributed positively, with most subsectors outperforming broader markets in June, including managed care, biopharma and tools, while Medtronic rallied following strong fourth-quarter earnings and Iqvia contributed positively after encouraging demand signals across the contract research industry. In IT Software and Industrial, positive profit and loss (P&L) was supported by long positions in Alphabet, Crown Holdings and Smurfit Westrock, alongside underweights in Oracle, Salesforce and PTC.
At the stock level, flatexDEGIRO (+9%) contributed positively within Financials, supported by favourable trading trends and the German pension opportunity, while Generali (+8%) benefited from Italian banking consolidation and Capital One (+7%) from a favourable stress test. Within Healthcare, Iqvia (+6%) was a strong contributor, while long biopharma positions and an underweight view on Pfizer also supported performance.
On the negative side, Financials was the weakest performing sleeve, generating a negative profit and loss (P&L) in June, mainly due to the underweight to banks. Long detractors included Nasdaq (-15%), LSE (-11%) and MSCI (-11%), while underweight detractors included Progressive (+15%), Santander (+10%) and US Bancorp (+11%). Within Healthcare, Hoya was again a negative contributor in medtech, falling 6% over the month, while Abbvie was the largest negative profit and loss (P&L) contributor after announcing the acquisition of Apogee Therapeutics. Overall, June showed the benefit of diversified alpha generation across sleeves, with positive contributions from Consumer, Healthcare and IT Software/Industrial offsetting the weakness in Financials, while the strategy continued to operate within its alpha-beta separation framework.
FUND ACTIVITY
Over the month, trading activity across the alpha sleeves was primarily driven by the quarterly rebalance, active risk management and selective repositioning into areas where conviction improved. Within Consumer, the main portfolio change was a further reduction in food retail and staples brands, alongside an increase in discretionary brands, retail and platforms, reflecting a more constructive view on Consumer Discretionary and less need to allocate capital to inflation-hedge names. New long additions included LVMH and Uber, while the increased exposure to Consumer Discretionary lifted TEV to 0.78% at the end of June, from 0.61% at the end of May.
Within Financials, trading focused on reducing exposures where conviction had weakened and increasing positions in preferred areas. The remaining positions in Wise, MarketAxess and AIA were sold, while existing life insurance holdings NN, Manulife and Storebrand were increased. Conviction was also increased in FinecoBank and MSCI. The sleeve remained underweight banks relative to the beta portfolio, while maintaining exposure to digital banks including FinecoBank, Nu Holding and Capital One, and an overweight in Financial Services across Payments, Financial Exchanges & Data, Asset Management and Brokerage. Within Healthcare, the GSK underweight was closed at a profit and replaced with a new long position, Eli Lilly was gradually reduced and moved to an underweight by month-end, and new positions were introduced in UnitedHealth and McKesson. The Vertex underweight was also reduced to manage risk ahead of potential positive catalysts in the third quarter.
Within Industrials and Materials, trading centred on the portfolio rebalance, with some trimming of high-momentum areas such as AI capex, power and aerospace & defence, and rotation into more defensive areas where valuations were less extreme, including rails, gases, construction and HVAC. Air Products was introduced and the long in Linde was maintained, while the sleeve moved long Republic Services and underweight Waste Management. Alcoa was exited, Steel Dynamics was reduced, and FICO was introduced as a new long. In IT Hardware, memory exposure was increased through Micron becoming a new net long position and Kioxia being added as a new holding, while Samsung and Xiaomi were exited. Semiconductor equipment exposure was shifted toward the US through additions to Applied Materials and Lam Research, funded partly by a reduction in ASML. In IT Software and Industrial, the underweight in software was moderated, United Rentals was exited, Sunbelt was increased, SAP was added as a partial underweight and Microsoft was increased. Following the quarterly rebalance, Autodesk and Rightmove were exited, Alphabet, Crown Holdings and Smurfit Westrock were reduced, and new partial underweight positions were initiated in CrowdStrike and Home Depot.
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. 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 Global Systems Change strategy is well positioned to capture investment opportunities arising from a society transitioning to a net-zero, nature-positive, socially constructive, and digital-enabled end state. This approach aims to provide investors with a diverse range of opportunities that are exposed to mispriced structural growth.
FUND STRATEGY
At Lombard Odier, we believe the global economy is under pressure from multiple, interconnected challenges: climate change, nature loss, rising inequality, and digital disruption. These pain points are exposing the limits of today’s systems and accelerating a shift toward a new economic model. We see the end state as one that is net zero, socially constructive, nature-positive, and digitally enabled. This transformation is already underway. The shift from fossil fuels to electrified, decentralized energy systems is reshaping power markets and creating new winners across the value chain. Ageing populations are straining healthcare and pension systems. Resource scarcity is forcing companies to rethink how they produce and consume. And digital technologies are redefining how we work, connect, and access services. These pressures are triggering deep, structural changes across industries. Our Global Systems Change strategy invests in companies that are enabling or adapting to these shifts, businesses that we believe are well-positioned to benefit from the transition and whose potential is not yet fully priced by markets.
share.