Summary points

Geopolitics dominated the quarter, as Venezuela, Greenland-related tariff tensions, and the Iran conflict disrupted trade routes, triggered an oil shock and revived stagflation concerns globally.
The US economy remained broadly resilient, though growth slowed, labor markets softened at the margin, inflation stayed above target and the policy mix became increasingly politicized.
Europe improved modestly from a lower base, supported by easing inflation, recovering PMIs and tighter peripheral spreads, before the Iran-driven energy shock revived stagflation concerns.
China and Asia showed mixed but stable growth, with China near 5%, supported by exports and policy easing, despite weak demand and Strait of Hormuz-related energy risks.
Markets were initially supported by resilient growth and improving earnings breadth, but rising oil prices, AI-led disruption and geopolitical escalation increased dispersion across sectors, styles and regions.
Conclusion: While a severe recession remains unlikely, volatility has risen meaningfully and tail risks are no longer negligible. We have reduced market exposure, emphasizing capital preservation. Within credit, selectivity and diversification remain essential. We continue to favor shorter-duration investment grade and high yield as well as senior secured loans. In equities, we favor active rotation over broad beta. In this volatile environment, capital preservation remains paramount, while retaining flexibility to add equities and longer-duration bonds at more attractive levels if market weakness deepens.

We invite you to review our complete 2nd quarter 2026 investment letter, which includes a more detailed look at the regional macroeconomic backdrop, market consensus forecasts, and more.

Quarterly investment letter – 2nd quarter 2026

Summary points