Welcome to your Quarterly Investment Report for Q2 2026

Markets had a good second quarter in 2026, helped by two things: excitement about artificial intelligence, and calmer conditions elsewhere in the world.

Companies kept spending heavily on AI, putting their money into new data centres, computing power, and the chips needed to run it all. Initially, the big tech firms building AI products got most of the attention. Now, investors have shifted their focus to the companies supplying the hardware behind that boom: chipmakers, memory producers, and equipment suppliers. Our ProsperityBuild fund benefited here, thanks to strong holdings in Asian semiconductor companies.

At the same time, tensions in the Middle East eased and oil prices dropped. Earlier in the quarter, there had been real worry that conflict there would push oil prices up and reignite inflation, forcing central banks to keep interest rates high for longer. When that risk faded, both share and bond markets responded positively.

This shift wasn't good news for everyone, though. Energy companies lost out as oil prices fell, and this weighed on ProsperityBuild due to our holdings in this area. It also weighed on ProsperityShield, where holdings tied to commodity prices held back returns.

Elsewhere, investors grew more willing to hold company bonds, which helped credit strategies deliver strong returns, contributing positively to ProsperityShield. Emerging market investments also performed well, giving the fund a further boost.

Overall, falling energy prices and eased global tensions gave central banks a bit more breathing room, and markets ended the quarter more confident than they'd expected at the start.

The second quarter of 2026 was shaped by two main forces, and together they created a fairly constructive environment for investors, even with plenty of uncertainty still hanging over inflation, growth, and central bank decisions.

The first force was the continuing surge of investment into artificial intelligence. Companies kept pouring capital into data centres, computing infrastructure and semiconductor supply chains, on the view that AI will reshape large parts of the global economy over the coming years. What changed during the quarter was where that enthusiasm was directed.

Early in the AI rally, the big technology platforms building AI products drew most of the attention. As the quarter progressed, investors increasingly looked instead to the companies supplying the infrastructure behind the boom, namely semiconductor manufacturers, memory producers and equipment makers, on the expectation that demand for advanced chips and data centre capacity will stay exceptionally strong for years to come.

This is sometimes described as a "picks and shovels" approach: rather than betting on who wins in AI applications, investors profit from selling the tools everyone in the industry needs. Within ProsperityBuild, this shift showed up directly, with Asian semiconductor holdings performing strongly on the back of leadership in AI memory chips and robust chip-manufacturing demand.

The second force was an improvement in the geopolitical and energy backdrop. Markets had entered the quarter worried that conflict in the Middle East might send oil prices sharply higher, reigniting inflation and forcing central banks to keep interest rates high for longer than expected. As diplomatic progress reduced the risk of a prolonged disruption to energy supplies, oil prices fell again, and investors grew more confident that the feared inflation shock wouldn't materialise. That, in turn, supported both share and bond markets and improved the broader economic outlook.

This wasn't a uniform positive, however. Falling oil prices hurt energy producers and other commodity-exposed companies, even as they eased cost pressures for many other businesses and consumers. In ProsperityBuild, this meant energy holdings held back returns. ProsperityShield saw a similar effect, as holdings linked to commodity prices also weighed on performance, reducing overall returns.

Elsewhere, ProsperityShield had more favourable conditions to work with. Improved risk appetite encouraged investors back into both higher-quality and higher-risk company bonds, and credit strategies ended up one of the fund's biggest contributors to performance. Emerging markets added a further tailwind, delivering another solid contribution to ProsperityShield's returns over the period.

Central banks, meanwhile, stayed cautious. In the United States especially, inflation remained higher than policymakers wanted, so they weren't ready to declare victory. But falling energy prices took some of the pressure off, easing concerns that interest rates would need to stay elevated indefinitely. Taken together, the quarter closed with investors in a noticeably better mood than they had anticipated back in April, due to a combination of cooling inflation worries, resilient economic activity, and steadily improving confidence.

Introduction

The second quarter of 2026 was shaped by two powerful, interconnected themes. First, investor enthusiasm for artificial intelligence continued to support technology and semiconductor-related sectors, as markets focused on the long-term opportunities created by AI investment. Second, easing geopolitical tensions and falling energy prices reduced inflation concerns and supported risk appetite across both equity and fixed income markets. Together, these two forces created a constructive backdrop for investors, even as uncertainty persisted around growth, inflation and central bank policy.

AI infrastructure spending continues to drive market leadership

The dominant theme over the quarter was the continued strength of the AI investment cycle (the ongoing wave of spending by companies building out AI capabilities and infrastructure). Investors stayed focused on the significant capital being deployed into data centres, computing infrastructure, and semiconductor supply chains, despite periodic market volatility. Behind this was a growing belief that artificial intelligence will reshape large parts of the global economy, which supported risk appetite, particularly across technology-related sectors.

Market leadership evolved significantly during the period. The initial phase of the AI rally was driven by large technology platforms investing heavily in their own AI capabilities. As the quarter progressed, attention increasingly shifted towards the companies supplying the infrastructure behind that expansion. Semiconductor manufacturers, computer memory producers, and equipment suppliers benefited most, as expectations grew that demand for advanced chips, networking equipment, and data centre capacity would remain exceptionally strong for several years. Within ProsperityBuild, this shift showed up directly: Asian semiconductor holdings performed strongly, driven by continued investment in AI infrastructure, leadership in AI memory chips, and robust demand for advanced chip manufacturing.

This shift reflects a classic "picks and shovels" dynamic (profiting from the tools and infrastructure behind a boom, rather than the end product itself, with the famous example being the sale of picks and shovels to gold miners instead of mining the gold). Rather than betting solely on which companies would win in AI applications, investors increasingly favoured the businesses providing the hardware that AI needs to run. As investment plans continued to expand, these infrastructure providers were seen as some of the clearest winners from the broader AI spending boom.

The broader technology sector benefited too, as confidence grew that AI adoption is beginning to have a measurable impact on productivity and corporate earnings. Questions remain about the ultimate scale of future demand, but market participants continued to view AI as one of the most significant long-term investment themes. This supported strong performance across technology and selected emerging market equities during the quarter.

Falling energy prices and easing geopolitical risks supported markets

A second key theme was the improvement in investor sentiment that followed easing geopolitical tensions and a sharp decline in energy prices. Markets had entered the quarter concerned that conflict in the Middle East could trigger a prolonged surge in oil prices, which in turn might reignite inflationary pressures and delay anticipated monetary policy easing.

Conditions improved significantly, however, as diplomatic progress reduced the risk of an extended disruption to global energy supplies. As oil prices retreated, investors grew more confident that the inflation shock feared earlier in the quarter was unlikely to materialise. This supported both equity and fixed income markets and improved confidence in the broader economic outlook.

The decline in energy prices also created a notable divergence in performance across sectors. Lower oil prices weighed on energy producers and companies exposed to commodity revenues, even as they provided a tailwind for many other sectors by reducing input costs and easing pressure on consumers. Within ProsperityBuild, this negative impact on energy producers detracted from performance. ProsperityShield felt a similar effect, where holdings linked to commodity prices also detracted from returns.

Elsewhere, ProsperityShield benefited from more favourable conditions. Credit markets gained from improved risk appetite, as investors showed greater willingness to move into both higher-quality and higher-risk company bonds, which was one of the biggest contributors to the fund's performance over the quarter, with credit strategies supporting returns. Emerging markets added a further boost, delivering another strong contribution to ProsperityShield's overall performance.

Central banks, meanwhile, remained cautious. In the United States particularly, inflation continued to prove relatively resilient, so policymakers were not yet ready to ease back. Falling energy prices did, however, help alleviate concerns that interest rates would need to stay high for longer than expected. Taken together, markets ended the quarter with a more constructive outlook than many had anticipated at the start of the period. This was supported by moderating inflation concerns, resilient economic activity, and improving investor confidence. 

Our strong stock selection in IT drove the positive returns seen in ProsperityBuild this quarter, with semiconductors, electronic equipment, and technology hardware leading the gains. Semiconductor holdings performed particularly strongly on the back of continued AI infrastructure spending, with SK Hynix benefiting from its leadership in AI memory chips and TSMC gaining on robust demand for advanced chip manufacturing. ASML advanced as AI investment supported demand for its manufacturing equipment, while Samsung Electronics and Murata Manufacturing also contributed strongly amid broader enthusiasm for AI-related memory demand. Financials further supported performance, led by HSBC, which benefited from confidence in its restructuring, capital returns, and earnings resilience. At a regional level, the US and Emerging Markets boosted returns, while the Pacific region lagged.

By contrast, selected energy and utility names were the biggest drag on returns, as weaker oil prices weighed on the sector following easing geopolitical tensions in the Middle East. IT services provider Cognizant also detracted after issuing a softer-than-expected revenue outlook amid a challenging macroeconomic environment.

Global credit holdings were the primary driver of returns, benefiting from higher-than-usual interest income, resilient corporate fundamentals, and spread compression (which is a narrowing of the extra yield paid on corporate bonds versus government bonds, which lifts bond prices). Convertible bond exposure also added value, as stronger equity markets increased the worth of the stock-conversion feature built into these bonds. Emerging market debt also contributed, with hard currency bonds gaining from modest spread tightening and local currency bonds benefiting from strong carry. Government bonds added further gains, as US treasuries rose on falling oil prices following easing Middle East tensions, while UK gilts benefited from moderating inflation and reduced fiscal concerns. Within alternatives, Asian equity allocations and technology sector exposure, aided by AI-driven momentum, supported returns.

On the downside, commodities detracted from performance, with industrial metals and broader commodity index exposure losing value amid sector-wide weakness. Gold holdings, used for hedging, also weighed on returns as improved risk sentiment, a stronger US dollar, and higher-for-longer rate expectations reduced demand for safe-haven assets.