Semiconductor manufacturers drive equity indices in the first half – Kevin Warsh triggers unexpected market reactions!
After the first quarter was dominated by the attack on Iran, financial markets calmed down unexpectedly quickly in the second quarter, sparking enthusiasm for semiconductor manufacturers that bordered on hysteria. Nvidia and TSMC were joined by names traditionally associated with low-tech memory chips, foremost among them Micron Technologies, Samsung Electronics, SanDisk and SK Hynix. They are currently regarded as the winners in the build-out of AI infrastructure and have replaced the much-loved ‘Magnificent 7’ – except for Nvidia – as market-driving investments.
Companies such as Alphabet, Amazon, Meta and Microsoft are now even regarded as ‘AI losers’, as they will ultimately have to shoulder the costs of building the database infrastructure.
Having previously been characterised by exorbitantly high levels of corporate liquidity, these companies must now draw on all their cash and even take on additional debt to cover the high costs of AI data centres. They bear some resemblance to the global telecoms companies that built the infrastructure for mobile telephony in the 1990s, only to then have to cede the big profits to other firms.
We shall see to what extent the market is right here, or whether we will soon be faced with new narratives. What is certain, however, is that investors who invest broadly across regions and sectors should, in any case, be among the winners! For stock pickers who wish to hold only a few shares in their portfolio, it is becoming increasingly important to participate sufficiently in these market hypes, as failure to do so could result in a significant underperformance. We can witness this with some of our favourite managers who are now trailing the market for a 3rd year.
The rally that began in April swept across all global regions and sectors, apart from China. The Nasdaq 100, as well as semiconductor-driven indices in South Korea and Taiwan, surged from one all-time high to the next, strongly reminiscent of the internet boom of the late 1990s.
This was accompanied by the successful IPO of SpaceX, which, alongside the anticipated IPOs of Anthropic and OpenAI, appears to be further fuelling the AI frenzy. Even ageing IT companies such as Cisco Systems, Dell, IBM and Intel are being traded as AI or quantum computing winners, which does raise a few questions.
The price charts for these shares often resemble flagpoles, clearly indicating that many uncritical buyers appear to be active in these names. The same applies to the valuations of these companies, which seem very ambitious and harbour considerable scope for disappointment.
Fortunately, many of our community members are indirectly exposed to these hyped-up trends, as the ‘value ETFs’ we favour – such as the MSCI World Value and the MSCI EM Value – are significantly invested in these stocks. That’s very encouraging! Nevertheless, we would advise caution at this stage and recommend not blindly chasing the markets in South Korea and Taiwan, nor the sector ETFs focused on global semiconductor stocks. What rises sharply can also fall sharply!
At the end of the second quarter, we are already seeing some rotation out of technology shares into more favourably valued sectors such as healthcare, financials and consumer goods. Community members with very heavy weightings in the semiconductor sector should consider rebalancing!
Anyone looking at the so-called equity factors will note that shares attributable to the ‘value’ and ‘momentum’ factors enjoyed an exceptionally strong second quarter. This was due to the heavy weighting of semiconductor stocks in both indices.
However, all other factors (quality and company size), as well as the equally weighted multi-factor strategy, also had a very good second quarter.
The same applies to our active managers who were invested to a significant extent in semiconductor shares (e.g. CT Global Technology and CT Global Focus).
Managers like Fundsmith and Walter Scott who steered clear of these sectors paid the price with a significant underperformance.
Selected Return Investments
The traditional index components of the MSCI and FTSE Russell families are once again leading the way with double-digit gains following the first-quarter losses, thereby delivering returns that exceed the long-term average of 7–9% p.a.
The country indices in South Korea and Taiwan are significantly above these levels, which amounts to a kind of investment frenzy. The same applies to the ‘SOX’ semiconductor index. Only India, China and Vietnam remain in negative territory at the end of the second quarter. Joining them are the shares of gold and precious metals producers, which are showing double-digit losses at the mid-year point. Broadly diversified commodity indices remain in positive territory since the start of the year, despite their correction in June!
Development of Selected Stock Markets – Q2 2026
- O2-I | Vanguard All-World ETF
- Portfolio 6 | Dimensional – World Equity Fund
- R76-I | Franklin FTSE Korea ETF
- R78-I | Xtrackers MSCI Taiwan ETF
- O17-F | iShares MSCI World Momentum Factor ETF
- O18-F | iShares MSCI World Value Factor ETF
For the first time since Das Family Office was founded, the extremely broadly diversified factor portfolios from Dimensional Fund Advisors have clearly outperformed the MSCI AC World IMI and the FTSE Russell All World indices. With a gain of just under 13% at the end of the quarter, they are performing almost 2% better, which we are delighted about. This excellent result was clearly outperformed by both the MSCI World Value Factor Index and the MSCI World Momentum Index. This is because both indices are significantly weighted towards semiconductor shares.
The MSCI World Quality Factor managed to keep pace to some extent with the MSCI AC World IMI Index at the end of the second quarter, thereby reducing its significant underperformance. The Stoxx Global Multifactor Index managed to draw level with the MSCI AC World IMI. All value indices (Global, USA, Europe and emerging markets) significantly outperformed the MSCI World AC IMI. The company size factor, based on the MSCI World Small Cap, has posted a clear gain of almost 16 per cent since the start of the year and is 5 percentage points ahead of the MSCI World AC IMI. This shows that including small-cap companies makes sense, even though we had to wait a relatively long time for these positive figures.
Our stock pickers were particularly successful in the technology and biotech sectors (CT Technology, Polar Biotech). They also achieved very good results in Asia (JPM Asia, BNP Japan Smaller Companies). Among actively managed funds with broad global exposure, CT Global Focus and T Rowe Global Focus Growth delivered outstanding results and beat their benchmarks by about 8 percentage points!
Many other managers underperformed their benchmarks in the second quarter. The portfolios of the growth managers at Baillie Gifford and Morgan Stanley were hit hardest. This is primarily due to rising interest rates and appears to be following a similar pattern to 2022.
Focus Global Bond Markets
After global bonds experienced a bit of a slump in April, they posted gains again in May and June. Long-dated government bonds and bonds from emerging markets recorded good gains. Since the start of the year, almost all bond categories are therefore back in positive territory!
This was due not least to the fact that the new Fed Chair, Kevin Warsh, is perceived as an inflation hawk despite his appointment by Donald Trump. He has emphasised on several occasions that, unlike his predecessors, he will work specifically to ensure that the 2 per cent annual inflation target is no longer consistently exceeded, as we have had to observe in recent years. This is highly unexpected, as global bond markets had originally speculated that Warsh would seek ways and means to cut key interest rates further, despite elevated inflation. Warsh’s significantly altered stance has therefore led to rising bond prices and a strong US dollar throughout June.
In contrast, commodities – and precious metals in particular – have suffered losses, as they appear to be less in demand as an investment alternative in a world where the central bank is once again stepping up its efforts to combat inflation.
Development of Selected Bond Investments – Q2 2026
- Portfolio 3 | Dimensional World Allocation 40/60 Fund
- G1-I | iShares USD Treasury Bond 20+yr ETF
- P5-I | iShares USD Floating Rate Bond
Given that current interest rates are significantly above the expected medium-term inflation rate, and that high volatility on the equity markets is not uncommon during the summer months, bondholders should feel confident in holding onto their positions.
Investors who have so far invested little in bonds should take advantage of current valuations to buy more or reduce their overweight in equities by increasing their holdings of high-quality bonds.
Selected Safety Investments
The traditional index building blocks have performed well in money market investments (FairHorizont Lila), achieving positive returns of between 1% and 2% p.a. Bonds with normal duration (7 years) saw gains following the losses in the first quarter and have achieved returns of between 0.10% and 2% p.a. since the start of the year.
Long dated government bonds and Emerging Market bonds also saw positive returns in Q2 after seeing some losses in Q1. They’re now returning between 1% and 4% p.a. for the year.
For the first time in many quarters, our actively managed bond portfolios failed to outperform their index peers in the first quarter and lost slightly more. This was rectified in the second quarter. In special situations such as high-yield bonds, subordinated debt or emerging market bonds, there was a recovery following the losses in the first quarter, which is why the current annual returns here range between 2% and 8% p.a.
Focus Global Private Markets
Private equity and private credit investments had a stable but unremarkable second quarter, despite the many redemption obligations faced by numerous funds. Shares in private asset managers have continued to improve technically following the sell-off over the last 24 months and are seeing tentative buying interest.
It appears that we are currently witnessing a sort of peak in retail clients’ willingness to sell private assets, which is why counter-cyclical purchases may well be rewarded. We can therefore envisage buying back the private equity ETFs included in our advisory universe (components R48 and R49-I). However, we would allocate no more than 10–15% of an equity portfolio to these components.
Focus Global Commodity Markets & Bitcoin
Broadly diversified commodity investments and precious metals tended to be among the underperformers, particularly towards the end of the quarter, even though they’re still posting gains since the start of the year.
The price of gold has now fallen below the so-called 200-day moving average, which stands at around 4,400 USD per troy ounce, and has since been struggling to hold above the 4,000 USD mark. It is conceivable that the gold price could fall to levels of around USD 3,500 per ounce, where there is a very strong technical support level. However, we are already seeing significant buying interest at current levels, which is why the correction in the gold price may already be coming to an end. The same applies to the Bloomberg Commodity Index (Bloomberg Commodity Index Total Return BCOMTR:Index), which is stabilising from a technical perspective and appears to be heavily oversold. At these levels, we would be more inclined to buy commodities than to sell them, as we believe that even Kevin Warsh would agree that the conflict-ridden world we have had to come to terms with since 2022 is unfortunately here to stay!
Bitcoin has since fallen below USD 60,000, meaning it was heavily oversold. It has now climbed back above this key technical level and appears to be attracting buyers once more. We still see no need to include Bitcoin in a portfolio strategy. We would therefore urge you not to overdo it with such emotional or ideological investments and to focus instead on traditional asset classes.
REITs had a very good second quarter and are roughly on a par with global equity markets.
Focus Global Currencies
Since the end of February, the US Dollar had stabilised between 98 and 100 points on the DXY index and, following various statements by Kevin Warsh as well as strong US corporate earnings, rose to almost 102 points. At this level, the US dollar appears overbought and is likely to trade sideways for the time being. Following the release of weak US labour market data today, the temporary strength of the US Dollar could also come to an end. That’s because the US government tends to favour a weaker dollar, and the currency appears overvalued given America’s high level of debt and based on its purchasing power parity.
A certain diversification into more stable currencies such as the CHF, SGD, AUD and NOK may be advisable.
If community members are interested in foreign currency financing, we currently favour the CHF, SGD and HKD over the Japanese Yen as funding currencies.
Development of DXY Index – 2026
Development of our Investment Styles
We generally advocate three investment strategies or philosophies that we can confidently assume are highly likely to lead to success in the long term. They are well established and have delivered good results for investors who have consistently followed them, even if there are significant short-term fluctuations and return dispersions.
1) Traditional index investing
Traditional indexing is based on the idea of simply buying the entire market at the lowest possible cost, without giving further thought to which market segments might perform better or worse. As a rule, market-capitalisation-weighted indices for equity and bond markets are calculated and invested in via low-cost index funds or ETFs. This strategy works very well and there is no reason to question it. However, on the equity side, the strategy also means that many indices in the MSCI and FTSE Russell families are currently heavily dominated by US equities. It is therefore important to assess the extent to which one’s own portfolio might also be – and should be – overweight in the US.
When it comes to bond indices, the fact is that traditional indices are inevitably more heavily invested in bonds from higher-debt issuers than in those from less indebted companies. For this reason, investors keen on ETFs should take the trouble to compare bond indices with systematically designed indices (e.g. Dimensional) or good actively managed bond portfolios (e.g. Pimco Income).
2) Factor-based or scientific investing
Factor investing stems primarily from the so-called Chicago School and is associated with Nobel Prize-winning economist Eugene Fama. Eugene Fama and Kenneth French, along with other economists, recognised that the entire equity market can be broken down into certain factors, which can deliver market outperformance, thus should enable investors to achieve excess returns.
Many of these factors are not investable by retail investors; however, all the main factors – such as small-cap companies (Size), profitable companies (Quality), undervalued companies (Value), stocks with strong directional price moves (Momentum) or all factors equally weighted (Multi-factor) – are available as easily investable ETFs or index funds. In addition to global factor indices, there are now also regional factor indices for the USA, Europe and Emerging Markets. Since the start of the year, especially the value and momentum factors have achieved strong excess returns. Shares in small companies (the size factor) have also performed very well this year, particularly in Japan and the US.
The quality factor has improved significantly following a poor showing in previous years and is now roughly on par with the broader market.
As far as systematic investing in bonds is concerned, it might be more appropriate to refer to this as systematic investing rather than factor investing. Generally, fewer bonds are purchased than is the case with the traditional indices of the FTSE Russell and Bloomberg families. This approach makes it possible to reduce the risk associated with individual issuers and achieve a better overall return without deviating significantly from the nature of the benchmark index. Systematically constructed bond portfolios can therefore generally outperform traditional bond indices by a credible margin. This has also been the case so far in 2026.
3) Investing in just a small number of securities
So-called ‘stock picking’ or ‘bond picking’ has increasingly fallen out of favour in the age of indexing, as these strategies are often associated with high management fees. This is not incorrect; however, our community has access to the very favourable institutional pricing of actively managed strategies, which is why the strategies of good stock and bond pickers compare very favourably with index funds and ETFs.
Admittedly, there are only a few experts like Warren Buffett and Charlie Munger; however, Henrik Bessembinder’s research has made it clear that the long-term performance of an index is generally determined by just a handful of shares.
Most of the shares included do not generate any added value for investors and could, in fact, be ignored. However, as only a few investors can consistently identify these few relevant shares, traditional indexing is also supported by Bessembinder’s research. Ultimately, it is better to buy the few good shares along with the rest, rather than not owning them at all…
Nevertheless, there are a few experts who generate significant added value with concentrated portfolios, which is why we do not wish to withhold this information from our community.
After our preferred actively managed bond portfolios underperformed their benchmarks in the first quarter, they made a strong recovery in the second quarter and are back in the lead.
The same applies to our active equity managers, who got back on track in the second quarter. Paul Wick, the manager of the CT Global Technology Fund, has had a fantastic run this year and, with a gain of 55% since the start of the year, is a total of 38 points ahead of the Nasdaq 100 Index. His focus on Bloom Energy and the semiconductor industry has led to this exceptional outperformance. We prefer his portfolio to the very popular Nasdaq 100 ETFs, even if the current record figures are unlikely to be repeated any time soon!
Our general guideline (exceptions prove the rule!) is that, in the very short term, we rely on money market ETFs and index funds. For bonds with normal duration and in special situations within the bond sector, we rely on systematic strategies or active managers at institutional prices. For global equity strategies, we rely on a mix of factor indices and active managers. For individual equity themes such as technology, healthcare and emerging markets, we usually rely on active managers. For investments in traditional equity markets, we usually rely on indices.
Development of Model Portfolios
We use the Dimensional World Allocation Portfolios as our standard model portfolios, as they provide a highly representative picture of global financial markets, are very cost-effective to acquire and cover all our FairHorizons in all relevant currencies (USD, EUR, GBP and SGD).
All six building blocks had an exceptionally good quarter, which was primarily due to the strong performance of the Dimensional equity strategy. It is currently benefiting significantly from the strong performance of small-cap companies as well as the overweighting of the value factor. Given their very low costs, we are happy to showcase these strategies to our community members who are very dissatisfied with the asset management services provided by major banks.
The current performance of the Dimensional portfolios is very encouraging and underscores the fact that it can be worthwhile to stick with the same strategy over the long term. I would even go so far as to suggest that these portfolios outperform more than 90% of all asset management services offered by private banks and independent asset managers. This is because the low costs and systematic approach cannot be replicated by private banks and are often derided by Warren Buffett wannabes.
For investors whose reference currency is the Euro or the Pound Sterling, Vanguard also offers a range of investable model portfolios (Vanguard LifeStrategy), which have likewise performed very well and present a viable alternative to the asset management services offered by private banks.
Furthermore, for Euro-denominated investors, there are a few interesting options available for the FairHorizons Yellow (7–10 years) and Orange (10–15 years) horizons, which are also suitable for long-term investment (e.g. ARERO, Global Portfolio One).
All the strategies mentioned had a very encouraging second quarter.
Outlook for the Coming Months
Following the strong rally in the second quarter, many undervalued stocks have recovered significantly, and it is difficult to describe the broader equity market as cheap. I would now deem valuations as normalised, which certainly makes long-term investment a sensible option; however, there are no real bargains to be had. Consequently, no one should be worried about missing out in the short term.
Added to this is the fact that we are now in the somewhat weaker summer period, during which global equity markets typically record slightly lower returns than during the period between November and April. This seasonality could play a role following the strong performance in the second quarter of this year.
Furthermore, despite all the statements to the contrary, the war in Iran is far from over, and global oil and gas prices remain at elevated levels. In the long term, this is likely to continue to be reflected in higher prices, which will probably mean that global central banks will not cut their interest rates anytime soon.
Given that the ECB has already raised its key interest rates and Kevin Warsh has positioned himself as an inflation hawk, it is even conceivable that the US Federal Reserve might also raise interest rates slightly.
The two-year US Treasury bond, which is regarded as a good indicator of the US Federal Reserve’s decisions, is trading well above 4% p.a. today and is thus significantly above the Fed’s target rate of 3.75%. This could provide an argument for an interest rate hike. However, weak US labour market data and a further stabilisation of oil prices in the coming months should give the Fed the opportunity to simply do nothing for the time being.
If we look at the current valuations of the high return and safety components in our high-rise charts (pages 11–14), we can see that the current yields on the safety components are all above the expected medium-term inflation rate of around 2% per annum, regardless of the investment horizon (FairHorizons: purple to green).
Even the returns on money market investments are close to current inflation rates and help preserve purchasing power, even if we must contend with the sharp rise in oil and gas prices.
Regarding the high return components that we select for longer-term investment horizons (FairHorizons yellow to red), we always communicate a minimum target return of 6% p.a. or a projected long-term return of between 6 and 8% p.a. This corresponds to price-to-earnings ratios (P/E ratios) of between 14 and 17. Most of the high return components currently have valuations that make these long-term returns possible. Only the Nasdaq 100, the S&P 500, the MSCI World and the MSCI World Quality Index are significantly below this level, which is why these indices could lag the performance of other markets in the coming years.
Shares in Europe, Asia and Emerging Markets carry risk premiums (i.e. target returns) of between 7 and 8 per cent per annum, which is why we are comfortably on the buy side here, even though valuations are no longer as favourable as they were at the end of the first quarter.
The valuations of the components of our ‘losers of 2025’ – namely Indian equities, REITs, quality factor index ETFs and quality fund managers, the healthcare sector and listed private equity firms – remain attractive to very attractive.
The healthcare sector is already benefiting from a rotation out of the technology sector, and the Indian market also appears to be stabilising. In my view, valuation levels here are very attractive.
The same applies to shares in private asset managers. They can now be added to broadly diversified portfolios as ‘satellite’ investments.
Shares in precious metals and copper producers are very attractive following the sharp correction in June and can serve as a portfolio addition. The same applies to our preferred commodity indices, which are technically heavily oversold.
Even if Kevin Warsh presents himself differently than expected, the realities of global conflicts and spiralling government debt in the developed world have not gone away.
Anyone who has considered an allocation of around 10–15 per cent to commodities since 2020 has been able to significantly enhance their portfolio of traditional investments and achieved some outperformance. We would therefore not throw in the towel following the commodities correction in June but rather look to buy more. Nevertheless, we would not wish to exceed a 10–15 per cent allocation to commodities in a portfolio.
Over the long term, investments in metals and precious metals have outperformed commodities that must be acquired via futures, which involve significant (roll) costs and erode returns. These include, above all, energy and agricultural commodities, which account for around 60–70 per cent of some commodity indices, which explains our preference for metals and precious metals, or shares in metal and precious metal producers.
As regards our three preferred investment styles, we can only emphasise that all three strategies perform very well in the long term, even if they may prove disappointing in the short term. Investors should therefore definitely stick to their chosen investment styles and not change them out of disappointment.
Anyone wishing simply to follow current trends with fresh capital should continue to buy into value strategies as well as multi-factor strategies. Here, the positive trend of recent years appears to be continuing and valuations remain favourable.
As a rule, we recommend indexing for money market investments, active management for most bond strategies, and a mix of indexing and stock picking for equity investments. That’s how we do it ourselves, and we’re delighted when we see the results.
For ‘fresh money’, we recommend our proven concept of FairHorizons, which we have developed based on established asset allocation principles. It offers a simple way of creating portfolios that can beat inflation and earn attractive risk premiums.
Please also look at our standard investment portfolio ideas on pages 18-21, which follow the principles of investment legends like Jack Bogle, Eugene Fama/Kenneth French and Warren Buffett/Charlie Munger. Whilst all of them represent different investment philosophies, they’re all very effective and successful in the long term.
If you are worried whether your portfolio is well equipped for the significant changes in today’s world, just get in touch with us. We’ll be more than happy to check for you.
Otherwise, I would be delighted if you could tell your friends and family about Das Family Office so that they can also become part of our community.
With best wishes for a beautiful summer!
Yours,
Mario Becker
