Quarterly commentary - Q1 2026

Market commentary

The first quarter of 2026 was defined by a sudden and dramatic escalation in Middle East geopolitical tensions that reshaped financial markets in the second half of the period. This followed a more encouraging start to the year. Overall, global equity markets delivered mixed returns, with commodities emerging as the standout asset class and government bonds coming under meaningful pressure as inflation expectations shifted sharply higher.
Equity and bond markets had begun the year on a broadly constructive footing. European and emerging market equities led global gains in January, with the MSCI Emerging Markets Index rising almost 10% in US dollar terms in that month alone. European equities extended their record-setting run from 2025, meaningfully outperforming their US counterparts. In the US, large-cap technology stocks came under scrutiny early in the quarter, as investors grew concerned about the ability of the so-called hyperscalers to justify ever-increasing levels of AI capital expenditure. Questions also arose about the durability of the software-as-a-service model in the face of rapidly improving AI capabilities.

The dominant market event of the quarter was, however, the outbreak of armed conflict involving Iran in early March. Following joint US-Israeli military strikes, Iran responded by restricting passage through the Strait of Hormuz — a critical 21-mile waterway through which approximately 20% of the world's daily oil supply and a significant share of global liquefied natural gas (LNG) passes. The closure of this chokepoint triggered what the International Energy Agency described as the largest supply disruption in the history of the global oil market. The price of Brent crude oil surged during March, settling at almost $120 per barrel by month-end and almost doubling in the quarter, the largest quarterly price increase since the first Gulf War in 1990.

The energy shock had wide-ranging consequences across global asset markets. In equities, the rotation away from mega-cap technology names that had characterised the early part of the year meant that value stocks materially outperformed growth stocks for the quarter. The best-performing major equity market was Japan, where the TOPIX Index rose 3.6% in total return terms. Japanese equities were supported by yen weakness, and the perceived pro-growth implications of the ruling Liberal Democratic Party's victory in February's snap general election. The UK's FTSE All-Share Index delivered a total return of 2.4% over the quarter, supported by the index's meaningful exposure to the energy sector at a time of surging oil and gas prices, as well as some additional tailwind from a weaker sterling. Emerging market equities were broadly flat, though Asian markets came under pressure later in the quarter given that more than 80% of the oil and gas flowing through the Strait of Hormuz is destined for Asian consumers. The S&P 500 fell 4.3% over the first quarter, and the MSCI Europe ex-UK Index declined 2.2%.

Rising inflation expectations resulting from the energy shock drove sovereign bond markets materially lower across most regions. UK Gilts were the worst-performing major sovereign market, with the 10-year yield rising from 4.5% to 4.9%. Prior to the outbreak of conflict in the Middle East, Gilts had been one of the better-performing sovereign markets as evidence of easing UK inflation had increased market expectations for further rate cuts by the Bank of England. However, as a country with a relatively high dependence on natural gas, the UK is regarded as particularly vulnerable to an energy shock, and the Bank of England struck a decidedly hawkish tone at its March meeting, indicating that it "stands ready to act as necessary to return inflation to the 2% target". The Bank had held its benchmark rate at 3.75% at both its February and March meetings. US Treasuries proved more resilient, with yields rising by a smaller amount. The Federal Reserve left the Fed funds rate unchanged at its March meeting, maintaining its guidance for one rate cut during 2026.

Precious metals experienced an extraordinarily volatile quarter. Gold rallied sharply at the start of the year. However, it subsequently sold off heavily during March as the US dollar strengthened in a risk-off environment, and the direct inflation impulse from higher energy prices reduced the relative appeal of gold as an inflation hedge in a higher-yielding environment. The Bloomberg Commodity Index rose 23.3% over the quarter, largely driven by the surge in energy prices.

Attribution commentary

The Trust delivered a share price return of -0.5% in the first quarter with the NAV rising 0.8%, underperforming the FTSE All-Share Index, which delivered +2.4%. The primary contributors to performance were the Energy sector and Centrica, which benefited materially from surging oil and gas prices driven by the sharp escalation of geopolitical tensions in the Middle East. Conversely, the Financials, Consumer Discretionary, and Communication Services sectors were the principal detractors, each weighed down by a combination of stock-specific headwinds and broader macroeconomic pressures.

The Energy sector was the strongest contributor to the Trust’s return, adding +3.8%, with BP, Shell and TotalEnergies all delivering total returns of over 30%. The catalyst was a sharp rise in Brent crude prices following the escalating military tensions in the Persian Gulf and concerns over the continued disruption to the Strait of Hormuz. Centrica rose by 25% in the quarter despite reporting a weaker performance in 2025.

The Consumer Discretionary sector was the largest detractor, costing 1.5%. Portfolio holdings in the sector were weighed down by significant company-specific headwinds, including historic one-off charges at Stellantis related to its Electric Vehicle strategic reset.

Top five single-stock contributors

Energy companies BP, Shell, and TotalEnergies all saw their share prices rise in response to sharp rise in Brent crude prices following the Strait of Hormuz crisis. We value the Energy companies at $70 Brent.

British Gas owner Centrica is a UK based integrated energy company serving residential and business customers across its British Gas Services & Solutions, British Gas Energy, and Energy Marketing & Trading divisions. Accordingly, the company is a beneficiary of higher energy prices. Again, the shares are being valued at a little more than 10x the company’s mid-term profitability targets.

BT is the UK's largest telecommunications company, owning the Openreach broadband network and mobile and consumer businesses operating under the EE brand. BT shares rose strongly in the quarter, buoyed by growing investor confidence that the company is attracting enough customers on to its fibre to the home network to earn an attractive return on the significant capital investment that it is making in this area. Network capital expenditure is now approaching its peak, setting the stage for a material improvement in free cash flow generation in coming years. The company targets £3bn annual free cash flow in 2030, placing the shares on a potential free cash flow yield of around 14%.

Bottom five single-stock contributors

WPP is the world's largest advertising and marketing services group, providing creative, media, and technology services to major global brands. The company reported a difficult 2025, with full-year revenues falling by 5% on a like-for-like basis to £13.6bn and profit before tax declining 26% to £1.1bn, alongside a dividend cut. New Chief Executive Cindy Rose recently unveiled a strategy to reposition WPP as an AI-driven platform, targeting £500m of annual savings and 9,000 job cuts but executing a transformation of this scale carries execution risk against a backdrop of secular change in the industry. Despite the recent challenges at the company, its competitors, Publicis and Omnicom, continue to prosper. If WPP’s profits can be stabilized at last year’s level, then today the company trades on a valuation multiple of less than 5x earnings.

Stellantis is one of the world's largest automobile manufacturers, with brands including Jeep, Peugeot, Fiat, and Citroën. The shares fell sharply as the company absorbed material charges related to revised battery-electric vehicle projections and faced a 15% US tariff on EU-built vehicles, estimated to cost the company approximately €1.6bn in 2026. Conditions in the auto industry are extremely challenging as manufacturers attempt to navigate tariffs, a changing regulatory backdrop and a downturn in demand however, at an industry standard 5% operating margin, Stellantis is valued at just 3x earnings.

Macy’s is one of America's largest retailers and department stores. The company’s share price underperformed in the first quarter, with the decline reflecting multi headwinds. Tariffs negatively impacted gross margin rate by roughly 40 basis points to 60 basis points, while weakened consumer discretionary spending dampened sales. Winter storms in late January further impacted quarterly results. 

Barclays is a major UK-listed universal bank with operations spanning retail and corporate banking, investment banking, and US consumer credit cards. NatWest is the largest business and commercial bank in the UK, with a leading retail business. After a strong 2025, in which Barclays shares returned over 80% and NatWest shares over 70%, the shares retreated as investor caution grew around the outlook for net interest margins in a falling interest rate environment.

Stock additions

During the quarter the Trust established positions in B&M European Value Retail, Comcast, Kraft Heinz, Land Securities and Swire Pacific. The purchases were partially funded through the sale of Aumovio and Continental which had performed well and where we felt that the current valuation more fairly reflects the prospects for the business.

B&M European Value Retail is a fundamentally strong value‑retail franchise that has been undermined by recent self‑inflicted operational errors rather than structural decline. The business serves a resilient, price‑sensitive customer base through a proven model combining low‑priced branded FMCG to drive footfall and higher‑margin general merchandise to support profitability. A new CEO has clearly diagnosed the issues, set out credible operational fixes, and demonstrated alignment through share purchases. With retail discipline being restored, we believe the market materially undervalues B&M’s core earnings power, offering significant upside if execution improves. The shares trade today for around 180p, a multiple of around 7x our view of the company’s medium-term earnings potential.

We view Comcast as being materially undervalued, with market pessimism around secular decline in cable TV and competitive pressures in broadband and wireless being overstated. Despite these headwinds, the business remains cash generative, well capitalised, and investment grade, creating the potential for shareholder returns through dividends and buybacks. Management alignment is strong, reinforced by significant insider ownership. Importantly, Comcast is actively pursuing value unlocking actions, notably the planned spin out of weaker cable television assets into a separate entity (Versant). Together, we believe resilient cash flows, capital discipline, and corporate actions underpin an attractive risk reward profile at current valuations. The company’s shares are valued at around 8x earnings and offer a free cash flow yield of 12%.

Kraft Heinz is a legacy food business with depressed expectations following years of volume decline, market share losses and goodwill impairments driven by over payment and excessive cost cutting. However, it retains globally valuable brands, particularly Heinz, strong scale advantages and robust free cash flow conversion. A new CEO has paused a previously mooted break up and reset the strategy toward reinvestment in brands, marketing and R&D to stabilise volumes and rebuild relevance, accepting near term margin pressure. The investment case is asymmetric: modest execution success could arrest decline and drive a re-rating from the current 11x 2026 earnings, while cash generation provides some downside protection. The shares offer a dividend yield of close to 7%.

Land Securities offers defensive exposure to prime Central London real estate, with around half of net rental income coming from high quality London offices and another third from major retail assets. The portfolio is concentrated in the best locations, supporting resilient income and downside protection. London office valuations were hit hard during the pandemic, driving higher yields, while rents proved more resilient—creating scope for yield normalisation as conditions stabilise. The company is conservatively financed, enabling the payment of a generous 7% dividend. Through consistent rent increases, Land Securities targets steady earnings and dividend growth of 3% to 4% per annum, creating the potential for attractive long-term total returns.

Swire Pacific is a high quality but conservatively managed Asian conglomerate with stable, asset backed earnings across property, aviation (Cathay Pacific and HAECO) and beverages (Swire Coca Cola). The portfolio’s long-standing structure underpins resilient cash generation and dividends. Cathay is well run and a key earnings driver, albeit cyclical and geopolitically exposed. Property is mature, with capital recycling shifting exposure toward Mainland China retail, while beverages provide steady cash flow despite near term competitive pressures. Swire Pacific owns 83% of separately listed Swire Properties and 43% of Cathay Pacific yet the shares of Swire Pacific trade at a 30% discount to the stock market value of these stakes alone and a multiple of just ten times last year’s profits.

Outlook

Today, the economic outlook is particularly uncertain as it is impossible to know how long the war in the Middle East will last and its effect on consumer and business confidence, economic growth and ultimately corporate profitability. Away from the events of the Middle East, there are also some signs of stress in private credit, no doubt resulting from the fact that we have been through a period where there has been too much money chasing too few opportunities with the result that underwriting standards are likely to have dropped. If we do see an increase in loan impairments in this area it is unlikely to affect the banks too dramatically as in this instance the credit risk largely sits outside the banking system. However, even if the banks aren’t directly affected, we can’t know to what extent any credit losses could lead to a more general loss of confidence and a widening of credit spreads.

In an uncertain world, where it is all but impossible to predict short term movements in share prices, our approach is and has always been to think long term and invest in what we believe to be fundamentally sound businesses at a significant discount to their true economic worth, on the basis that eventually that economic worth will be reflected in a higher share price. This approach attempts to take advantage of the short termism and behavioural inconsistencies of other investors and has resulted in excess returns for our clients over the last 25 years. Whilst there is no investment approach that will outperform the stock market in each and every year, we feel confident that through the disciplined application of a well-diversified value investing strategy, we can continue to deliver excess investment returns into the future.

In this regard, the Fund continues to be invested in what we believe to be fundamentally sound businesses that should be capable, by virtue of their market positions and the industries in which they operate of growing their profits over time, but which continue to be modestly valued in the stock market. Stock market history has shown that ultimately, starting valuation is the best determinant of long-term investment return such that when valuations rise, the stock market is pricing in a greater portion of the company’s future profit growth and investors should therefore expect to receive a lower investment return. 

In aggregate, the portfolio is valued at around eleven times earnings, around half the valuation accorded to the wider global equity indices. Accordingly, the Fund is priced to deliver an excess return, in our view, and we believe that clients can look forward to the future with optimism.

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This article is issued by RWC Asset Management LLP (Redwheel), in its capacity as the appointed portfolio manager to the Temple Bar Investment Trust Plc. Redwheel is authorised and regulated by the UK Financial Conduct Authority and the US Securities and Exchange Commission.

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