Date:

Marketing Communication | Quarterly Commentary

Market Update

Global markets delivered positive returns during the third quarter despite heightened geopolitical tensions, rising bond yields and renewed inflation concerns. Strong corporate earnings, particularly within the technology sector, continued to support equity markets, helping the MSCI ACWI remain firmly in positive territory year-to-date.

The quarter was characterised by volatility linked to tensions in the Middle East, which contributed to higher energy prices and increased inflation concerns. Developed markets, led by the US and Japan, outperformed emerging markets, supported by resilient economic growth and upward revisions to earnings expectations. However, September saw a rotation back towards large-cap technology stocks, while European markets underperformed amid rising energy costs and political uncertainty. Bond markets faced persistent pressure as investors adjusted to expectations that interest rates may remain higher for longer. Government bond yields rose across developed markets, reflecting resilient economic activity, elevated energy prices and concerns over rising public debt levels. Corporate bond spreads also widened from historically low levels, resulting in weaker fixed income returns.

Currency and commodity markets were influenced by central bank policy expectations and interventions to support the Japanese yen. While the US dollar weakened during parts of the quarter, it regained strength towards quarter-end as bond yields moved higher. Gold benefited from periods of dollar weakness before giving back some gains as real yields increased.


Fund Performance & Positioning

During the third quarter of 2026, the New Capital US Value Fund returned -4.01%, compared to 2.47% for the Russell 1000 Value Index, resulting in relative underperformance of 648 basis points (bps). Underperformance was driven almost entirely by security selection (-639bps), while allocation was a modest positive (+10bps). Meanwhile, from a sector perspective, Energy was the only positive contributor (+15bps), as strong selection (+27bps) more than offset the cost of a modest underweight. The largest detractors were Information Technology, Financials, Health Care and Consumer Discretionary, with Utilities and Communication Services also weighing on results. During the quarter, Anuca Laudat was added as an additional portfolio manager.

Information Technology was the largest detractor, accounting for 304bps, or approximately half of the Fund’s total underperformance. This was driven almost entirely by security selection (-302bps), while allocation had a negligible impact (-2bps). Applied Materials, which is no longer a benchmark constituent following the June reconstitution, gave back some of its strong second-quarter gains. Positions in IBM and an underweight to Microsoft also detracted. Meanwhile, Financials, which had been the strongest contributor in the previous quarter, detracted 101bps, driven by negative security selection (-102bps), as our capital markets, card and regional bank holdings lagged a broadly flat benchmark sector.

Health Care detracted 73bps, with negative security selection (-87bps) outweighing a modest positive allocation effect (+14bps). Weakness in UnitedHealth, Zoetis and Cigna more than offset gains in Medtronic, Merck and Bristol-Myers Squibb. Consumer Discretionary detracted 66bps, again primarily due to security selection (-84bps), as housing-related holdings PulteGroup and Lowe’s, alongside BorgWarner, declined. Utilities detracted 41bps, largely due to allocation (-32bps), as the portfolio’s overweight position weighed on relative performance amid a roughly 12% decline in the sector.

Trading activity during the quarter continued to reflect selective repositioning rather than a broad portfolio overhaul. We initiated seven new positions in Amazon, Cisco, Autodesk, Citigroup, AbbVie, Newmont and Honeywell Aerospace, while exiting Adobe, Becton Dickinson, Boeing, Diageo, First Horizon and MasterBrand. We also increased positions in Microsoft, Oracle, Qualcomm, Medtronic, Bristol-Myers Squibb, Mondelez and American Express, while reducing Applied Materials following its strong performance.

The largest positive contributors to relative performance included Chevron (CVX) with a return of +24.3% and a contribution of +32bps, ConocoPhillips (COP) +30bps, Adobe (ADBE) +21bps, and Medtronic (MDT) +19bps. Additional support came from Merck (MRK) +10bps, Oracle (ORCL) +8bps, Walt Disney (DIS) +8bps, and Bristol-Myers Squibb (BMY) +3bps. Conversely, the largest detractors included Applied Materials (AMAT) -149bps, MasterBrand (MBC) -58bps, IBM -44bps, PulteGroup (PHM) -40bps, Sempra (SRE) -39bps, NextEra Energy (NEE) -38bps, Microsoft (MSFT) -34bps, Lowe's (LOW) -31bps, Newmark Group (NMRK) -31bps, and American Express (AXP) -31bps.

Energy was the clear source of strength during the quarter. Chevron and ConocoPhillips rallied as renewed tensions in the Middle East supported oil prices, with crude rising above $100 per barrel by quarter-end. Both companies continued to demonstrate disciplined capital allocation and strong free cash flow generation, positioning them to benefit from higher oil prices. Adobe was also a positive contributor while held, and we used this strength to exit the position during the quarter.

Within Health Care, Medtronic, Merck and Bristol-Myers Squibb posted solid gains as investors favoured durable, less economically sensitive earnings against a backdrop of rising rates. We added to our positions in Medtronic and Bristol-Myers Squibb over the period. Oracle also contributed positively despite a negative holding-period return, reflecting the timing of our additions as we increased the position during the quarter.

The largest detractor during the quarter was Applied Materials, which gave back some of its strong earlier gains. The company reported record fiscal third-quarter results and provided guidance above expectations, but following a significant rise in the share price earlier in the year, shares weakened as the market reassessed expectations for artificial intelligence (AI) infrastructure investment. MasterBrand also detracted following a second-quarter loss and continued weakness in repair and remodelling demand, and we exited the position during the quarter. IBM declined sharply in July following a preliminary warning, as clients redirected budgets towards AI hardware and software and infrastructure revenue fell short of expectations.

Rate-sensitive holdings were another key source of weakness. With oil above $100 and inflation remaining elevated, long-term Treasury yields rose to multi-decade highs and the Federal Reserve raised interest rates in September for the first time since 2023. This backdrop weighed on homebuilder PulteGroup, home improvement retailer Lowe’s, utilities Sempra and NextEra Energy, and commercial real estate services firm Newmark Group.

Microsoft detracted from relative performance despite gaining 37.8%, as the portfolio remained underweight the stock relative to the benchmark for most of the quarter. We added to the position during the period, reducing the underweight. American Express declined alongside our capital markets holdings as financials came under pressure late in the quarter amid higher yields, and we added to the position on weakness.

Additional detractors included Clorox, BorgWarner, Morgan Stanley, Allstate, First Horizon and UnitedHealth. Clorox lagged alongside the broader consumer staples sector, while BorgWarner declined with other auto suppliers in a higher-rate environment. Morgan Stanley and Allstate gave back some of their strong first-half gains as financials weakened, while we exited First Horizon during the quarter. UnitedHealth remained under pressure as sentiment towards managed care remained weak, although we continue to see value in the company’s longer-term potential.

Outlook

Market leadership remained narrow over the third quarter of 2026, while index-level valuations continued to appear elevated. The third quarter also demonstrated how quickly market leadership can shift. Gains remained concentrated among a relatively small group of mega-cap technology companies, while market breadth deteriorated towards quarter-end, with fewer than half of large-cap stocks trading above their long-term trends. The quarter also highlighted the importance of expectations, with companies reporting record results coming under pressure where valuations had moved ahead of underlying fundamentals. Against this backdrop of market concentration, elevated valuations and narrowing breadth, we believe disciplined valuation remains particularly important. The discount at which much of the value universe trades continues, in our view, to provide a degree of valuation support relative to the broader index.

We remain constructive on the cyclical and financial businesses that represent a significant portion of the portfolio, despite a challenging quarter for several holdings. Corporate earnings growth has remained strong and is beginning to broaden beyond artificial intelligence (AI)-related companies towards Industrials, Financials and other economically sensitive areas. The economy has also demonstrated resilience in the face of higher energy prices and interest rates. Financials continue to trade at discounted valuations relative to the broader market, while credit trends remain healthy and capital markets and merger and acquisition (M&A) activity have continued to recover. We viewed the late-quarter weakness as primarily driven by higher rates rather than a deterioration in underlying fundamentals and used the period to add to American Express.

Our energy holdings provide a degree of resilience should supply constraints persist, while Health Care, where our exposure spans Managed Care, Pharmaceuticals and Medical Technology, offers relatively undemanding valuations alongside durable, less economically sensitive earnings. Recent additions within Technology, including Microsoft, Oracle, Cisco and Autodesk, together with Amazon, have brought the portfolio closer to the benchmark’s evolving Technology exposure while maintaining our focus on reasonably valued, cash-generative businesses.

The path of inflation and Federal Reserve policy remains a key consideration, with the balance shifting during the quarter. With oil prices rising above $100 and inflation remaining above target, the Federal Reserve raised interest rates in September for the first time since 2023 and indicated that further tightening may be required, while long-term Treasury yields reached multi-decade highs. Higher rates weighed on the portfolio’s housing-related, utility and real estate holdings during the quarter and remain a key near-term risk for rate-sensitive areas of the value universe.

More positively, inflation outside of energy has shown signs of moderating. An easing of energy-related pressures could allow the Federal Reserve greater flexibility, potentially reducing pressure on rate-sensitive cyclicals and supporting a broadening of market leadership. Against this backdrop, we believe a disciplined, valuation-aware approach focused on quality businesses leaves the portfolio well positioned while remaining mindful of the potential for continued market volatility.

Disclaimer

MARKETING COMMUNICATION

For professional clients, qualified investors and accredited investors only. The value of investments and the income derived from them can fall as well as rise, your capital is at risk. Note: Past performance is not a guide to the future. Returns may increase or decrease as a result of currency fluctuations.

All sources: EFG Asset Management (UK) Limited ("EFGAM"), Factset, Bloomberg, Morningstar as at end of the month.  Any other sources as applicable. 

This document has been produced by EFG Asset Management (UK) Limited for use by the EFG International  ("EFG Group" or "EFG") worldwide subsidiaries and affiliates within the EFG Group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389736. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111. 

This document has been prepared solely for information purposes. The information contained herein constitutes a marketing communication and should not be construed as financial research or analysis, an offer, a public offer, an investment advice, a recommendation or solicitation to buy, sell or subscribe to financial instruments and/or to the provision of a financial service. It is not intended to be a final representation of the terms and conditions of any investment, security, other financial instrument or other product or service. The content of this document is intended only for persons who understand and are capable of assuming all risks involved. Further, this document is not intended to provide any financial, legal, accounting or tax advice and should not be relied upon in this regard. The information in this document does not take into account the specific investment objectives, financial situation or particular needs of the recipient. You should seek your own professional advice (including tax advice) suitable to your particular circumstances prior to making any investment or if you are in doubt as to the information in this document. 

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The information and views expressed herein at the time of writing are subject to change at any time without notice and there is no obligation to update or remove outdated information.
 
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For Professional, Institutional and Wholesale Investors Only. This document has been prepared and issued by EFG Asset Management (UK) Limited, a private limited company with registered number 7389736 and with its registered office address at Park House, Park Street, London W1K 6AP (telephone number +44 (0)20 7491 9111). EFG Asset Management (UK) Limited is regulated and authorized by the Financial Conduct Authority No. 536771. EFG Asset Management (UK) Limited is exempt from the requirement to hold an Australian financial services licence in respect of the financial services it provides to wholesale clients in Australia and is authorised and regulated by the Financial Conduct Authority of the United Kingdom (FCA Registration No. 536771) under the laws of the United Kingdom which differ from Australian laws.  This document is personnal and intended solely for the use of the person to whom it is given or sent and may not be reproduced, in whole or in part, to any other person.
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