30th June 2026
Ever the students of history, we were reminded of the saying made famous by Donald Rumsfeld musing about Known Knowns, Known Unknowns and Unknown Unknowns. This quarter President Trump continued to shift more Knowns to Unknowns as he remained determined to gradually shred the established rule book both internationally and domestically.
Possibly the most remarkable thing about the quarter was how sanguine global stock markets were, drifting ever upwards spurred on by a fragile ceasefire between the US and Iran, easing oil prices and inflationary pressures and strong corporate profitability.
There are always many questions we ask ourselves when constructing a portfolio but this quarter we wanted to focus our discussion on just three of them:
1. AI: We know it is coming but will it really change the world in which we live?
AI is already starting to automate work processes and accelerating scientific discovery, but its full impact on employment, inflation, and returns on investment remains uncertain, especially regarding the development of Artificial General Intelligence (AGI). The hybrid AI model, where AI assists human productivity, is starting to be achieved but it is unclear whether AGI is possible and how long it might take to develop. If it is successful then the impact will be game changing. To date, employment has only been marginally dented, but were AGI to be successful then the impact will be far more disruptive. Short-term inflationary pressures are likely to arise from heavy AI infrastructure investment, but long-term deflationary effects are possible due to productivity gains. Vast amounts of capital have already been invested in AI infrastructure, and even more will be invested in the future. We don’t know yet whether this capital will ever achieve a decent return but it is important to remember that many of the companies spending the money have very strong balance sheets.
2. Geopolitics: Despite Trump’s best efforts, does he really catalyse the end of the US hegemony?
Trump’s policies may challenge US dominance but the US’s fundamental strengths in the economy, currency, military, and institutions persist. The US remains the ultimate capitalist economy where innovation is highly rewarded which creates a dynamism that no other country has so far matched. The size and depth of the stock and bond market combined with the dollar being the world’s reserve currency are not going to change overnight, even if Trump’s actions are unhelpful and damaging.
3. Geopolitics: China is undoubtedly emerging, but can it really take on the baton as the global hegemon from the US?
China has expanded its global trade influence but faces challenges in innovation and governance that question its ability to supplant US hegemony imminently. However, while the US remains the core of our portfolio, we think there are attractive opportunities in China and elsewhere for those willing to search for them.
We still see little reason to change our long-held view that the portfolio should remain fully invested but continue to emphasise diversification across countries, styles, and factors to manage risks from AI concentration and geopolitical shifts. It is typically the Unknown Unknowns that lead to recessions with AGI having the potential to create a seismic change that could upset global markets. We continue to watch and monitor this, and other developments, and remain ready to act decisively if necessary.