Portfolio update: 2Q2026

The first half of 2026 had plenty of ups and downs, mainly due to the U.S.-Iran conflict and sentiment changes from day to day in anything and everything A.I. related.  Nonetheless, stocks ended the first half higher, led by Japanese and emerging markets stocks.  In the U.S., small caps rediscovered their mojo, with the Russell 2000 leading gains for the U.S. indices.  Bonds had a more difficult time as higher oil prices fed through to inflation expectations, capping returns on U.S. Treasuries and corporate bonds.  Gold gave back some of its gains, losing ground in the first half of the year.  Bitcoin was the worst performer across the indices and assets I track in the first half of the year.  

The disruption of oil shipments through the Strait of Hormuz disproportionately affected (negatively) regions closer to the conflict zone and those most reliant on foreign oil (meaning Europe and Asia).  U.S. risk assets were largely immune from sharply higher global oil prices although U.S. Treasuries suffered as investors repriced long-term inflation expectations, pushing yields higher across the curve.  

Most central banks have now shifted to a more hawkish stance to address war-related inflation, with the ECB having already increased its policy rates as both the Bank of England and the Fed remain on the fence as to their next policy move.    

I continued to shift my portfolio to a slightly more conservative stance by selling shares in a few positions that I felt had moved sharply higher more quickly than I felt was justified.  This added to my end-of-quarter cash position, which increased to 6.7% of my total portfolio at the end of June.  This percentage is historically high for me, and is 2% higher than at the end of 1Q2026.^[1]

My blended 1H2026 return across my entire portfolio (excluding alternative assets) was 8.8%, with income from dividends and interest accounting for 0.9% of this amount.  This is slightly better than the total return of 8.2% for the 1H2026 on a hypothetical benchmark portfolio that reflects my portfolio mix at the end of June.  By contrast, at the end of 1Q2026, my portfolio return was -0.1%, so the second quarter represented a sharp improvement in line with the market recovery during the quarter. 

Context: performance of market assets and indices in 1Q2026 and 1H2026

The tables below summarise performance of select assets and indices for the first quarter of 2026 and the first half of 2026.  Note that the stock indices reflect changes in the index prices only, excluding dividends (so they are not total return).

Investor pain in the first quarter was severe in stocks and bonds, with most U.S. stock indices (especially the tech-heavy NASDAQ) and Bitcoin being the worst performers.  Bonds were mostly flat.  Gold, the FTSE 100, the NIKKEI 225 and the Russell 2000 (U.S. small cap index) served up modest gains, but most other assets lost value.  Energy-related stocks soared, and the U.S. Dollar rediscovered its mojo as investors moved into the greenback as a safe haven during the tumultuous first quarter racked by the U.S.-Iran War.  

In the second quarter, risk assets staged a strong recovery, with U.S. equities rebounding sharply and European and Asian markets also participating.  Semiconductor stocks were a key driver, especially in the latter half of the second quarter, which benefited tech-heavy indices and Asian equity markets where the sector is a key component of the overall indices.  Bonds continued to struggle, mainly because higher oil prices led to lingering concerns around longer-term inflation expectations.  This kept pressure on U.S. Treasuries and corporate credit, while gold gave back some of its earlier gains as yields remained stubbornly high.  Bitcoin remained weak, and the U.S. Dollar remained firm as investors continued to favour safety, and American exceptionalism came back to the forefront.

My portfolio allocation

My portfolio mix continued to shift modestly in the second quarter toward a more conservative footing. At the end of June, equities accounted for 69.5% of my total portfolio, down from 71.3% at year-end 2025, while fixed income and cash together represented a meaningfully larger share than has historically been the case in my portfolio. Government bonds with maturities greater than three months stood at 10.8%, corporate credit at 5.4%, and cash and near-cash instruments at 6.7%. Gold and other precious metals accounted for 4.1%, while alternative assets stood at 3.5%.

As I noted in my first-quarter update, comparisons with year-end 2025 still need to be viewed through the lens of the property sale that closed in January. The proceeds from that sale were invested in a nine-month U.S. Treasury bill, effectively as a temporary parking place while I consider whether to redeploy some of that capital into real estate. Even with that caveat, the broad message is still accurate: I have gradually raised liquidity and kept a somewhat more defensive overall posture as the macro backdrop has remained unusually noisy.

As my readers know, I rarely make dramatic changes to my portfolio. Stocks remain the central engine of long-term returns in my investment approach, but I have continued to trim some positions that had run hard and to let my cash and government bond exposure remain above normal levels. That stance reflects caution rather than bearishness; I am simply not convinced that the strong market rebound in the second quarter has removed the macro risks that surfaced in the first quarter.

Equity portfolio: key positions

The table below of my top 10 holdings on June 30 tells an interesting story about both performance and portfolio construction. Cisco Systems moved into the top position at 5.3% of my total portfolio, followed by Berkshire Hathaway at 4.8%, Eli Lilly and Alphabet at 4.3% each, and Microsoft at 4.2%. The top 10 holdings together account for 42.5% of the total portfolio, slightly below the 44.1% figure at year-end 2025, which suggests that concentration has eased a bit over the first half.

A few things stand out immediately. First, Cisco’s rise to the top spot is a reminder that portfolio leadership can come from unexpected places; it is not one of the usual “Mag 7” names, yet it has delivered very strong price performance and now represents my largest single equity exposure. Second, Berkshire Hathaway remains one of my core holdings, although I continue to work that position down slowly over time to reduce concentration. Third, the continued presence of Eli Lilly, Johnson & Johnson, Altria, and Visa among the largest positions underscores that this portfolio still has a meaningful bias toward quality, cash-generative companies rather than pure momentum.  

The direction-of-change columns also show that I have continued to manage around positions rather than make sweeping reallocations. I reduced share counts in Berkshire, Alphabet, and ASML, and also trimmed Cisco after its strong move higher. By contrast, I added to Microsoft and to the Amundi STOXX 600 ETF, while several other large positions were effectively unchanged in share count. In other words, I have been willing to sell into strength and selectively add where valuations looked more reasonable, but only at the margin.

The table below shows my top 5 best and worst performing stocks in the first half of 2026.  The dispersion in stock-level returns across the first half of the year was wide. My five best performers were ASML, Cisco, BHP.L, the Amundi STOXX 600 ETF, and Altria, with ASML and Cisco far ahead of the rest at 86.0% and 53.3%, respectively. Those results reflect a blend of technology strength, non-U.S. outperformance, and some help from commodity-linked exposures.

ASML continues to benefit from the enormous. wave of A.I.-related capital spending, and Cisco appears to have re-rated as investors became more constructive on infrastructure names that can participate in the same theme without carrying some of the more extreme valuations found elsewhere in technology. BHP benefited from stronger commodity pricing, while the Europe ETF and Altria are reminders that good returns in the first half were not confined to the usual high-growth corners of the market.   It is also notable that several of my best performers were not U.S.-based companies, consistent with the much stronger relative performance of Japan, emerging markets, and parts of Europe this year.

On the other side of the ledger, the weakest performers were the China ETF LCCN, Microsoft, McDonald’s, PepsiCo, and Visa. Microsoft has clearly been the biggest disappointment among my larger core holdings, though at a forward P/E of about 20 and a dividend yield close to 1%, the valuation is starting to look more reasonable than it did when the stock was much higher. I added modestly to MSFT in the first half of the year, and remain comfortable selectively adding more at levels below $400/share.

The weakness in consumer-facing names such as McDonald’s, PepsiCo, and Visa may be saying something about the market’s current preference for either stronger growth stories or more obvious defensive stocks.  Meanwhile, the poor showing from the China ETF is another reminder that not all non-U.S. exposure is created equal. Broadly speaking, the first half rewarded selectivity much more than passive diversification across all regions and sectors.

Equity portfolio: sector analysis

The table below illustrates my stock holdings by sector.  Sector exposure remained fairly stable in the second quarter, but the relative importance of a few areas continued to shift. Information Technology remained by far my largest sector exposure at 27.9% of the total portfolio, which is high but not surprising given my long-standing ownership of names such as Microsoft, Cisco, ASML, and others. Financials ranked second at 10.8%, while Healthcare and Consumer Staples each stood at 10.3%. 

The most interesting point here is that the portfolio still carries a strong technology bias, but it is not a one-dimensional technology portfolio. Healthcare, staples, materials, energy, and utilities all represent meaningful weights, and together they give the portfolio a more balanced complexion than one might assume from looking only at the tech allocation. Materials rose to 7.3% and Energy to 4.6%, while Utilities reached 4.2%, which fits with the more defensive and inflation-aware posture I have been describing this year.  

Another thing worth highlighting is that Consumer Discretionary and Communication Services have become somewhat less important exposures. That makes sense given some trimming in large growth names and the stronger performance of more defensive or non-U.S. holdings. The “Mix/Conglomerate/ETF” category at 9.9% also signals that a non-trivial share of my equity book now sits in diversified ETFs rather than just individual stocks, which modestly reduces single-name risk.

Equity analysis: geographic exposure

My equity portfolio continued to drift towards non-U.S. based names throughout the first half of the year, similar to the first quarter.  There was some reallocation into non-U.S. markets, mainly because of the relative outperformance of non-U.S. stocks (until the U.S.-Iran war) and increasingly rich valuations of U.S. stocks that became more pronounced throughout the second quarter.   Nonetheless, most of my exposure remains to U.S.-based companies, although it is worth remembering that nearly all of the U.S. companies I own are multinational in their operations.

Equity hedges

I continue to carry a series of stock index puts as a modest downside hedge.  I did not alter my hedges at all in the second quarter.  At the end of June, I held QQQ (NASDAQ) puts expiring at the end of September and December, providing downside protection.  

With the run higher in the NASDAQ in the second quarter, these options are now significantly out of the money.  As such, I will probably maintain them although their protection is limited at this point unless the market were to sell off sharply.  

Fixed income portfolio analysis

The fixed-income and cash table shows clearly how unusual the current structure of my portfolio is relative to its own history.   

Total fixed income stood at 23.0% of the portfolio at the end of June, split between 10.8% in government bonds, 5.4% in corporate credit, and 6.7% in cash and cash equivalents. For me, that is a relatively high level of dry powder and safe assets.  

Most of the government-bond allocation remains tied to U.S. Treasuries with maturities greater than three months, which account for 9.4% of the total portfolio. I also hold a UK Gilt 1yr-5yr ETF in my UK pension (SIPP), which accounts for 1.4% of my portfolio. Within corporate credit, investment-grade bond ETFs account for 2.9% of the total portfolio and leveraged loans for 2.5%. That mix reflects a continued preference for keeping duration moderate and avoiding an overly aggressive reach for yield in a still-uncertain macro environment.  

The combination of elevated cash, meaningful Treasury exposure, and modest corporate credit suggests that I remain cautious on both valuations and the broader economic backdrop. Higher oil prices and the resulting inflation concerns have kept long-duration bonds from offering the kind of ballast investors often hope for, so I have preferred liquidity and shorter exposures over making a big duration call. For now, that still feels like the right trade-off.

Portfolio returns

My blended return for the first half of 2026 across the portfolio, excluding alternative assets, was 8.8%, with dividends and interest accounting for 0.9% of that amount. That slightly exceeded the 8.2% return on the hypothetical benchmark portfolio that reflects my current asset mix.  Keep in mind that this reflects the modest effect of the hedges I am running (QQQ puts), which decreased in value rather significantly in the second quarter as the NASDAQ rallied.  Given the difficult start to the year and some of the unusual circumstances,  I am really quite pleased with the performance of my overall portfolio.   

The rebound in equities during the second quarter did most of the heavy lifting, but the return profile also says something important about diversification. Even though bonds did not provide especially strong returns and gold gave back some of its earlier gains, the portfolio still benefited from a broad spread of winners across technology, healthcare, staples, Europe, and commodities-linked exposures. The result was a first half that ended up being significantly better than it looked likely to be back in March.

One point worth noting is that the portfolio’s performance was achieved despite maintaining higher-than-normal levels of cash and government bonds. In other words, this was not a return profile driven by aggressive risk-taking. If anything, it suggests that the underlying equity book held up well and that selective exposure outside the most crowded U.S. large-cap growth trades added value.

What’s ahead

Looking into the second half of 2026, I remain cautious.  Markets have recovered much more sharply than I would have expected given the geopolitical backdrop, the inflation implications of higher oil prices, and the still-unresolved questions around the sustainability of the A.I. spending boom. That does not mean the rally cannot continue, but it does mean I am reluctant to chase it aggressively from here.  

My base case is still that changes to the portfolio will remain around the edges. I expect to continue trimming positions that become too expensive, maintaining a healthy level of liquidity, and selectively adding where weakness creates better risk-reward. As always, I am not an “in-and-out” investor, and the core of the portfolio is built to compound over time rather than to trade every market swing.

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^[1] Keep in mind that there was a one-time cash inflow into my portfolio in early January related to the sale of a property, and this needs to continue to be considered when looking at the composition of my portfolio at the end of the first half of 2026 compared to year-end 2025.  The proceeds of this real estate sale were invested fully in a nine-month U.S. Treasury bill, awaiting possible deployment into other real estate.