The Investment Letter - May 2026

Equity Market

The months come and go, and they don’t always follow the same pattern.After a painful March for equity investors, April brought a smile back to theirfaces (MSCI Europe NR +5.2%, MSCI USA NR +10.5%).

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A fragile ceasefire in the Middle East conflict and strong quarterlyearnings reports were enough to ease fears, at least temporarily.

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Even as relief prevails, uncertainty remains near its peak. Europe,whose vulnerability to rising energy prices is evident, faces the threat of aless favourable cyclical environment. This is revealed by our cycle model,which signals a shift toward a countercyclical environment for the first timesince March 2023. In the United States, the cycle remains supportive, butvaluations appear high compared to historical standards, especially aslong-term rates remain at elevated levels.

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In this context, it would not be surprising to see the indices enter aless directional phase in the coming months.

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Fixed Income Market

The macro backdrop in May was defined by a widening divergence in central bank trajectories against a common inflationary shock. In the United States, the Iran war-driven energy pass-through continued to re-accelerate price pressures: April CPI printed at 3.8% year-on-year while the PCE deflator rose to 3.8% YoY (core PCE: 3.3%), its highest reading since 2023. FOMC minutes released mid-month indicated that a majority of members viewed a rate hike as likely warranted should inflation persist. In the euro area, headline CPI re-accelerated above 3%, prompting a decisive hawkish pivot from the ECB. The Bank of Japan, meanwhile, is widely expected to raise rates at its June 16 meeting.

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Against this policy divergence, sovereign rates markets moved in conflicting directions, reflecting the asymmetric inflation and safe-haven dynamics at play. US Treasury yields moved higher in May, with the curve bear-flattening as short-end rates repriced more aggressively to the hawkish inflation data. The 2-year UST yield rose 13bps to 4.01%, while the 10-year yield added 7bps to close at 4.44%, compressing the 2s10s spread from approximately 50bps to 43bps. In contrast, the 10-year Bund yield fell 10bps to 2.94%, reflecting a divergent dynamic whereby ECB hiking expectations were already more fully priced into the front end, and safe-haven demand from European investors amid the Iran conflict provided a partial offset at the long end. The US-Germany 10-year spread consequently widened to approximately 150bps. The Iran war's disruption to the Strait of Hormuz through which roughly half of pre-war transit volumes are currently passing sustained elevated energy prices, with Brent crude trading near $93 per barrel at month-end, introducing a persistent stagflationary risk premium across global fixed income markets.

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Despite the stagflationary headwinds, risk assets staged a powerful rally, driven overwhelmingly by the artificial intelligence investment theme. Global equities delivered a strong month, with the S&P 500 advancing 5.1% and the MSCI World returning 4.9%. Chip stocks were the dominant driver with SK Hynix surged 63.4% on the back of tightening HBM supply dynamics, AMD advanced 43.1% as data centre GPU demand accelerated. Asian tech-heavy benchmarks outperformed, with the MSCI Asia Pacific Index reaching all-time highs; South Korean and Taiwanese markets led regional gains, underpinned by AI memory chip demand and record export growth.

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Equity Funds:

Chahine Equity Europe Acc posted a +4.7% return in May, vs. +3.2% for the MSCI Europe NR. The fund has gained +16.0% year-to-date, vs. +7.5% for its benchmark.

Even if the fund’s shift to a contracyclical mode has significantly reduced its exposure to the most cyclical stocks, these have continued to perform very well this month, contributing significantly to the fund’s outperformance relative to the market. The picture is similar for small and mid-caps. Among the main contributors are stocks from the industrial sector (Huber+Suhner, HOCHTIEF), consumer discretionary (Salvatore Ferragamo, Asmodee) and financials (IG Group, ABN Amro Bank).

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It was primarily the continuation of the contracyclical shift that influenced the fund’s asset allocation this month. Chahine Equity Europe is now overweight consumer discretionary and telecommunications, and is underweight industry, consumer staples and energy.

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The UK remains the fund's top country weight with 18.3%, ahead of Switzerland at 11.3% and Italy at 11.1% (largest country overweight). Germany and France are the two most underweight countries.

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Chahine Equity Continental Europe Acc ended May at +5.2%, ahead of for the MSCI Europe ex UK NR at +4.0%. The fund has gained +14.9% year-to-date, vs. +7.4% for its index.

The fund’s shift to a contracyclical mode has significantly reduced its exposure to the most cyclical stocks (particularly small and mid-caps), but these have continued to perform very well this month, contributing significantly to the fund’s outperformance relative to the market. Among the main contributors are stocks from the industrial sector (Huber+Suhner, Hexatronic), materials (Umicore) and IT (Technoprobe, Bittium, AT&S).

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It was primarily the continuation of the contracyclical shift that influenced the fund’s asset allocation this month. Chahine Equity Continental Europe is now overweight in consumer discretionary and telecommunications. The fund is now mainly underweight in industry.

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Switzerland becomes the fund’s largest country with a 14.4% weight, ahead of France at 14.1% and Italy at 13.1%. Italy is the most overweight country, and Germany and France the two most underweight.

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Chahine Equity Eurozone Acc posted a +5.5% return in May, vs. +4.1% for the MSCI EMU NR. The fund is up +16.2% year-to-date, ahead of its index at +8.0%.

In May, the fund benefited from its strong sector positioning, with an overweight exposure to IT and an underweight exposure to energy and industry. This was complemented by strong stock selection, particularly within the IT sector (AT&S, Jenoptik, Infineon).

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The portfolio review carried out in May was heavily influenced by the shift to a counter-cyclical strategy, reducing the overweight positions in technology and utilities, and increasing exposure to property and consumer discretionary. The real estate sector becomes the fund's main overweight, ahead of finance and consumer discretionary. The fund remains underweight in the industry, energy and materials sectors.

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Italy remains the fund's largest weighting at 22.6%, followed by France at 21.8% and the Netherlands at 13.9%. Italy is the most overweight country, and Germany the most underweight.

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Chahine Equity Europe Smaller Companies Acc ended May up +5.5%, vs. +4.0% for the MSCI Europe Small Cap NR. The fund is up +16.5% YTD, vs. +8.7% for its index.

In May, the fund benefited from its favourable positioning, with an overweight exposure to the IT sector and an underweight exposure to real estate and energy. Furthermore, the fund benefited from a strong stock selection, particularly in the IT sector (Technoprobe, AT&S, 2CRSI, etc.), the industry sector (Tesmec, OHB, Koninklijke Heijmans, etc.) and the metals/mining sector (Sotkamo Silver, Salzgitter, Viohalco, etc.).

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In May, the portfolio reviews increased positions in real estate, industry and consumer staple sectors, and reduced those in finance, energy and materials. The fund remains significantly overweight in finance and IT, and is underweight in healthcare and real estate.

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The United Kingdom remains the portfolio's main exposure at 26.0%, ahead of Sweden at 13.7% and Switzerland at 12.5%. Italy is the most overweight country, and France the most underweight.

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Chahine Equity US Acc USD ended May at +8.4%, vs. +5.2% for the MSCI USA NR and +3.7% for the MSCI USA Small Cap NR. The YTD return of the fund is +43.9% vs. +10.9% for its index.

In the United States, it was once again the IT sector, driven by AI-related stocks, that led the markets during May. The sector posted a return of +16.1% this month. The fund therefore naturally benefited from its overweight position in this sector, but also from its underweight positions in the energy and communications services sectors, as well as from its sound stock selection, particularly in the industrial sector (Sterling Infrastructures, Heartland Express, Proto Labs, etc.).

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The portfolio review carried out in May was fairly diversified. It increased exposure to the real estate sector and reduced exposure to the consumer discretionary and healthcare sectors.

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The fund remains significantly overweight in IT and finance, as well as in industry. The most underweighted sectors remain media, consumer discretionary and consumer staples.

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Bond Funds:

Dynasty Global Convertibles Fund

May 2026 was an exceptionally active month for global convertible bond issuance, with totalling in excess of $10 billion in USD-equivalent notional. The dominant theme was the convergence of two structural drivers: rising conventional borrowing costs pushing corporate treasurers toward zero-coupon equity-linked structures, and investor appetite for convertibles offering asymmetric exposure to the AI-driven equity rally.

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Asia-Pacific accounted for the largest share of supply. In China, Midea Group priced the largest convertible deal with a dual-tranche, zero-coupon offering totalling $2.2 billion (HK$17.2 billion), upsized from an initial $2 billion target after the book was reportedly covered five to six times by more than 100 investors. The 2027 tranche priced at a 15% conversion premium and the 2033 tranche at 37.5%, reflecting the market's willingness to absorb longer-dated optionality at tighter premiums than historical norms. WuXi AppTec followed with a CNY 6.78 billion ($1 billion) zero-coupon offering due 2027, settled in USD, with proceeds earmarked for global capacity expansion. China Hongqiao completed a CNY 10.2 billion zero-coupon deal earlier in the month. In Japan, JX Advanced Metals raised ¥250 billion ($1.6 billion) across two equal tranches due 2029 and 2031, pricing at the top of the marketed range after the book was reportedly subscribed more than eight times with one-third of the allocation going to global outright convertible funds. The deal underscored the structural shift in Japan, where surging conventional bond yields are systematically redirecting corporate issuers toward equity-linked financing.

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In the US, the AI infrastructure theme drove two landmark transactions. IREN Ltd, an AI data centre operator with a Microsoft supply agreement, raised $2 billion of 1%–1.5% coupon convertible notes due 2033 with a 27.5%–32.5% conversion premium, part of a broader $3.6 billion financing package to fund Nvidia GPU procurement. Akamai Technologies priced an upsized $3 billion dual-tranche zero-coupon offering 2030 and 2032, increased from an initial $2.6 billion, to fund cloud infrastructure expansion with conversion premiums of 37.5%–42.5% on the 2030 tranche and 30%–35% on the 2032 tranche. Advanced Energy Industries filed to sell $1 billion of convertible notes due 2031. In Europe, Rexel launched a €400 million offering due 2031 with a 1.25%–1.75% coupon for general corporate purposes.

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On the liability management side, Strategy (formerly MicroStrategy) repurchased $1.5 billion of its 0% convertible notes due 2029 at approximately $1.38 billion in cash reducing its convertible debt outstanding to $6.7 billion. IAG launched a reverse bookbuild to repurchase its €825 million 1.125% convertible notes due 2028.

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Secondary market performance in May was broadly constructive, driven by the sharp rally in technology and AI-related equities, which provided strong positive delta contribution to in-the-money and near-the-money convertibles in those sectors. Underlying equities of several May issuers moved materially: IREN gained +39.2% and Akamai +44.0% over the month, illustrating the convex upside capture available to holders of recently issued AI-infrastructure convertibles.

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The credit component of convertible valuations remained well-supported. Corporate credit spreads stayed near historically tight levels throughout the month with investment-grade spreads barely moved despite the Iran war-driven rates volatility, as investors focused on corporate fundamentals rather than sovereign risk. This spread resilience provided a firm floor for the bond floor component of the convertible structure, preserving the asymmetric return profile even as rates moved modestly higher (10Y UST +7bps to 4.44%, 2Y UST +13bps to 4.01%).

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During the month, we reinforced high-conviction positions in Akamai, CoreWeave and Bloom Energy to capture AI-driven momentum across infrastructure and decentralised energy themes. Conversely, we reduced equity sensitivity in Western Digital and Snowflake to lock in gains and exited our SK Hynix position following the company convertible recall .

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Portfolio construction remained focused on maintaining equity sensitivity below 40%, while preserving credit quality, keeping duration short, and sustaining exposure to long-term structural growth themes with notably artificial intelligence infrastructure and decentralised energy generation.

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At month-end, the fund's equity sensitivity stood at 39.97%, average credit sensitivity at 1.39, and the portfolio's average rating at BBB.