May 2026

The fund returned +4.6% in May. The MSCI ACWI (AUD) returned +2.4%. This FY, the fund is up 17.7% net versus the MSCI at 10.3%.

After April's strong rebound, May was an active month of profit taking and repositioning. We exited semi and AI winners like Advanced Micro Devices [AMD] and Micron [MU], and took cash to 46%. We remain constructive on the AI cycle, with earnings continuing to grow and the structural story intact. However, several positions reached our valuation targets and positioning across parts of the complex has become more stretched, leading us to reduce exposure and prioritise capital preservation.

We rotated proceeds into select software, defensives, value opportunities including Eli Lilly [LLY] (new), ServiceNow [NOW] (added), Oracle [ORCL] and Contemporary Amperex Technology [CATL]. Each one offers earnings durability and a clear asymmetric risk reward.

We closed May with 46% cash, 54% gross long, 15% gross short and net exposure of 40%. We carry residual NQ index protection on top of the single name shorts.

Software valuations have compressed materially while earnings forecasts have started moving higher. The software sector (IGV) is still down 14% from the October high. We believe ServiceNow [NOW] is the cleanest example. Oracle [ORCL] is picking up real AI infrastructure spend in its backlog, which is now flowing through to numbers. We have meaningfully increased our software exposure since month end and have a short list of further opportunities under review.

Goldman Sachs data shows option positioning in US technology and semiconductor ETFs is at the highest level in five years, based on measures including call and put volume, call skew and spot volatility correlation. BofA reported tech had the largest weekly inflow since October 2025. Goldman Sachs Prime data shows exposure to 'momentum' within their global Prime book is at record all-time highs, 50% greater than the prior highs set in 2021. That setup matters more to us than any single earnings print. We are wary of sentiment and positioning around it.

The AI thesis is intact, but following the strong semiconductor rally we would rather hold cash than names susceptible to large profit taking if the market turns lower. We banked Advanced Micro Devices [AMD] and trimmed adjacent exposure. We will return to size on a meaningful pullback.

After banking winners early in the month, we redeployed selectively into quality companies at discounted valuations and defensive growth. The 46% cash is partly defensive and partly dry powder for the short list of new opportunities currently under research. While elevated overall, the cash gives us room to add on weakness.

We remain short Commonwealth Bank of Australia [CBA] and ANZ Group [ANZ]. Australia is exhibiting several characteristics of an early stagflationary environment and the banks are priced to perfection. We also believe the market continues to underappreciate the risk of future policy changes to negative gearing and the 50% CGT discount, which, if enacted, would materially reduce investor demand for housing. CBA's dividend yield less the term deposit rate is now negative. UBS forecasts the value of new home loans to fall roughly 30% over the coming year, with system credit growth slowing from 6% to 4%. We are sized to add to the position on any meaningful rally.

Top 5 contributors, consolidating stock and option positions for each underlying:

ServiceNow [NOW]: Up 14.4% on the month on Knowledge 2026 and the Experian platform deal.

Micron Technology [MU]: Stock rallied on HBM tightness and DRAM pricing. A covered call position reduced returns as the stock rallied beyond our strike price.

Nebius Group [NBIS]: Capacity ramp continues to track ahead of plan and the contracted backlog narrative is intact.

Viridis Mining and Minerals [VMM]: Our critical minerals pick VMM continued progress on the Colossus rare earth project and a supportive Western supply security thematic.

ARM Holdings [ARM]: AI compute read through from the Vera CPU disclosure.

Other meaningful contributors included Oracle [ORCL], LG Corp [003550 KS], Advanced Micro Devices [AMD], Talen Energy [TLN] and Contemporary Amperex Technology [3750 HK].

Top 5 detractors:

Alibaba Group [9988 HK]: Trimmed mid month into China consumer weakness.

Yancoal Australia [YAL]: AU coal weakness. We trimmed into month end as part of the rotation toward defensive growth.

Reddit put hedge [RDDT 155P]: Hedge expired worthless on continued strength.

Sea Ltd [SE]: Stock weakness on the back of a softer regional consumer read.

The Nasdaq hedge also weighed on the month. We trimmed the hedge through May but kept residual protection on. The cost of carry on the protection is acceptable given the stretched complex and our preference to hold rather than chase.

The AI investment cycle that drove April remains intact and earnings have been strong. Following a significant rally across the semiconductor sector, we have taken profits and reduced position sizes. While we remain constructive on the long term outlook, we believe preserving capital and maintaining flexibility is more important than chasing additional upside at current levels.

We are increasingly finding opportunities elsewhere. Software is particularly interesting today, with valuations having compressed materially while earnings expectations are beginning to improve. ServiceNow and Oracle are good examples of businesses benefiting from growing AI adoption, yet their share price performance has lagged much of the AI infrastructure complex. We believe this creates a more attractive balance between risk and reward.

We remain positioned defensively with 46% cash, larger weights in earnings durable businesses such as Eli Lilly, ServiceNow and Talen Energy, increasing exposure to discounted compounders and selective software opportunities, and short exposure to Australian banks against the global long book.

This positioning is deliberate. We would rather hold cash (in USD) than chase momentum from here and we want room to add into the next dislocation.

Our objective remains unchanged: to compound capital through concentrated investments where the upside materially outweighs the downside, while preserving flexibility to exploit periods of market dislocation.

Please email or call any time if you'd like more detail.