The conflict with Iran currently appears to be less of a decisive factor for global financial markets. The upcoming IPO of SpaceX, as well as continued positive news from the AI sector, seems to be having a stronger influence. Experience shows that sunshine is often followed by a downpour – so the current market euphoria should be used to scrutinise one’s portfolio for imbalances and, if necessary, carry out a rebalancing.
Review – The Enthusiasm for Value and Semiconductor Stocks Leaves Plenty of Room for Disappointment – Caution Is Advised!
The merry month of May saw the share-price rally that began in April continue; except for China, it now appears to be sweeping across all regions and sectors. The Nasdaq 100, as well as the semiconductor-driven indices in South Korea and Taiwan, are racing from one all-time high to the next – a situation now strongly reminiscent of the internet boom of the late 1990s. The upcoming IPOs of SpaceX, Anthropic and OpenAI appear to be further fuelling the AI fever.
Meanwhile, ageing IT companies such as Cisco Systems, Dell, IBM, Intel and Micron Technology are also being treated as AI or quantum-computing winners, which raises a few questions. The charts of these stocks all look like flagpoles – which should be seen as red flags! The same applies to their valuations, which appear ambitious and harbour significant scope for disappointment.
Fortunately, many of our community members are indirectly involved in these trends, as some of the ETFs we favour – such as the MSCI World Value and the MSCI EM Value – are significantly invested in these stocks. Nevertheless, we would now advise caution and recommend not blindly chasing either the markets in South Korea and Taiwan or sector ETFs focused on global semiconductor stocks. What rises sharply can also fall sharply!
All major global equity markets posted gains in May, some in the high single digits; only China, India and Vietnam dipped. On the factor side, the value factor was once again in the lead with double-digit gains based on the MSCI World Value Index, followed by momentum with gains of more than 8%. All other factors also enjoyed a positive May, as did our active managers.
Focus: Global Bond Markets
After a slump in April, global bonds posted gains in May, with long-dated government bonds and Emerging Market bonds in particular having a strong month. Nevertheless, bond indices with a normal duration are still showing small losses for the year – so 2026 can clearly be described as a year for equities so far. We must not forget, however, that the primary role of bonds in a portfolio is to provide stability and support short-term liquidity needs.
Given that current interest rates are well above the expected medium-term inflation rate, and that elevated volatility in equity markets is not uncommon during the summer months, bondholders should not be discouraged. Investors may wish to use current bond price levels as an opportunity to increase their bond allocations and reduce outsized equity exposure.
Focus: Commodity Markets & Bitcoin
Broadly diversified commodity investments delivered positive returns in May but were unable to keep pace with equity markets, with the exception of copper and copper-mining stocks.
The price of gold remained largely unchanged over the month and continues to trade sideways. The 200-day moving average is now coming into view at around USD 4,400 per troy ounce; should this level be breached, declines towards USD 4,000 are conceivable. Shares of gold producers have also come under pressure, even though they are currently very attractively valued.
After a strong run in April, Bitcoin failed to break technical resistance around USD 83,000 in May and has since fallen back below USD 70,000. From a technical perspective this is not encouraging; only levels around USD 60,000 now appear likely to provide strong support. The community of fortune-hunters is currently focused on semiconductor and AI stocks, and Bitcoin continues to fall short of its reputation as a crisis hedge. Hence our advice not to overdo such emotional or ideological investments and to focus instead on traditional asset classes.
Focus: Property & Private Markets
Property shares experienced a slight dip in May following a very strong April. Private equity and private credit investments had another stable month, while the shares of private asset managers continued to improve. At the beginning of July we will gain a better understanding of whether retail investors are turning away from this asset class or are willing to adopt a longer-term perspective. If the latter proves to be the case, we would be prepared to recommend private-equity-manager ETFs once again (building blocks R48-I/R49-I).
Focus: Currencies
Since the end of February, the US dollar has stabilised between 98 and 100 on the DXY Index and is expected to trade sideways for now. However, we tend to see a degree of dollar weakness whenever there is positive news regarding Iran, so an end to the Iran crisis could trigger renewed selling pressure. The US government generally favours a weaker dollar, and the currency appears somewhat overvalued given high debt levels and on purchasing-power-parity measures.
Some diversification into more stable currencies such as CHF, SGD, AUD and NOK may be advisable. For community members interested in foreign-currency financing, we currently favour CHF, SGD and HKD over the Japanese yen.
Our Investment Styles
We generally advocate three investment strategies, which we can confidently assume are highly likely to lead to success over the long term.
1) Traditional Index Investing (Jack Bogle, the Founder of Vanguard)
This strategy works very well. On the equity side, though, it means that many MSCI and FTSE Russell indices are currently heavily dominated by US equities, so it is important to assess the extent to which one’s own portfolio is – or should be – overweight the US. On the bond side, traditional indices are more heavily invested in the debt of highly indebted borrowers, so ETF investors should compare traditional bond indices with systematically designed bond portfolios (e.g. Dimensional) or high-quality active bond portfolios (e.g. Pimco Income).
2) Factor-Based or Scientific Investing (Eugene Fama / Kenneth French)
Since the start of the year, the value factor has generated the strongest excess returns, followed by momentum. Smaller companies (the size factor) have also performed very well, particularly in Japan and the United States, with Europe now appearing to catch up. The quality factor has recovered somewhat after a weak year but still lags. In bonds it is more appropriate to speak of systematic investing: systematically managed bond portfolios hold fewer bonds than traditional indices, reducing issuer-specific risk and often improving results – as has again been the case in 2026.
3) Investing Focused on a Few Securities (Warren Buffett / Charlie Munger / Hendrik Bessembinder)
After lagging until the end of March, our preferred actively managed bond portfolios have caught up since April and are once again comfortably ahead. The same applies to our active equity managers. Paul Wick, manager of the CT Global Technology Fund, has had a fantastic year – up 47% year-to-date, outperforming the Nasdaq 100 by 28 percentage points, driven by his focus on Bloom Energy and semiconductors. We continue to favour this portfolio over the popular Nasdaq 100 ETFs, even though such extraordinary results are unlikely to repeat in the near future.
Our Model Portfolio Performance
We use the Dimensional World Allocation Portfolios as our standard model portfolios for benchmarking and client reporting: they provide highly representative exposure to global markets, are very cost-effective and cover all our FairHorizons across the relevant currencies (USD, EUR, GBP, AUD and SGD).
All six portfolios delivered an exceptionally strong performance in May, driven primarily by the Dimensional equity strategy, which is currently benefiting from the strong performance of smaller companies and its overweight to the value factor. The current performance is very encouraging and reinforces the idea that maintaining a consistent long-term strategy can be highly rewarding – I would go so far as to suggest these portfolios outperform more than 90% of the wealth-management solutions offered by private banks and independent providers.
For investors whose reference currency is EUR or GBP, Vanguard’s LifeStrategy model portfolios have also performed very well and serve as attractive alternatives. For euro-based investors, there are further options within the FairHorizons Yellow (7–10 years) and Orange (10–15 years) categories, such as ARERO and Global Portfolio One.
Outlook – A Time for Discipline, Not Euphoria
It is now even conceivable that both the ECB and the US Federal Reserve could raise policy rates modestly. The two-year US Treasury yield – a useful indicator of future Fed decisions – is once again trading well above 4% p.a., remaining significantly above the Fed’s 3.75% target. This is generally not supportive of financial markets; while I would not currently advise against new investments, I would also not take on excessive risk, nor chase semiconductor stocks or the revived ageing US technology companies.
Following the remarkable rally in April and May, many mispricings have been significantly reduced and it is increasingly difficult to call the broader equity market cheap. I would now describe valuations as normalised – which makes long-term investing sensible, but there are virtually no bargains left, so no one should fear missing out in the short term. We are also entering the seasonally weaker summer period, which often brings somewhat lower returns and higher volatility, and the Iran conflict keeps oil and gas prices elevated, which may prevent central banks from cutting rates further.
Equities in Europe, Asia and emerging markets offer risk premiums (expected returns) of between 7% and 8% p.a., which is why we remain comfortable buyers even though valuations are no longer as attractive as in early April. The valuations of our “losers of 2025” – Indian equities, REITs, quality-factor ETFs and managers, healthcare and listed private equity – remain attractive to very attractive and may offer interesting opportunities. Shares in precious-metal and copper producers remain attractive diversifiers; commodity indices do not appear overpriced, though we would not allocate more than 10–15% of a portfolio to commodities.
As for our three preferred investment styles, all three have proven highly effective over the long term, even if they occasionally disappoint over shorter periods. Investors should remain committed to their chosen style and avoid changes based on short-term disappointment.
With best wishes for a wonderful Midsummer,
Mario Becker
