June 2026 Market Review: A Month of Tests

Furthermore, even a fully durable agreement will not quickly reverse the inflation it produced. UK CPI held at 2.8% in May. US headline PCE came in at 4.1% year-on-year, its highest reading in three years, and that was before the Strait closure had fully fed through. European household energy bills lag wholesale gas prices by three to six months. The UK's energy price-cap cycle is similar. These numbers will take time to fall back regardless of what Brent does over the summer.

What Broadcom told the market

Broadcom, the US semiconductor and infrastructure software group with sizeable exposure to AI infrastructure, reported record third-quarter revenue in early June. The stock fell roughly 13% the next day and a further 8% the day after, because AI revenue guidance for the following quarter came in fractionally below analyst expectations. A miss on a record quarter was treated as a failure.

As covered in our 8 June weekly update, the earnings growth underpinning AI valuations has been generated by its own capital expenditure cycle, rather than by proven end-user demand. The cycle has been validating itself through the earnings of the very companies it is paying. A circular arrangement that will eventually assert itself.

Micron provided some counterpoint later in the month, reporting record third-quarter revenues of approximately US$41.5 billion, more than four times the level a year earlier, on AI-driven memory demand. The infrastructure build is delivering real results for specific companies. What the cycle must now prove is whether end customers will generate sufficient returns to justify the capital spend already committed. Broadcom's guidance hesitation suggests the expansion may be approaching a limit before output-side revenues are large enough to take over as the primary engine.

The AI theme has gone a long way in a short space of time. Our primary exposure is through the Polar Capital Artificial Intelligence Fund which returned approximately 5.6% in June, a fair reflection of a theme that now faces harder questions. Its twelve-month return of 91.4% and three-year return of 177.3% are the results of a disciplined approach that has become increasingly tilted towards companies with tangible earnings leverage as beneficiaries of AI technology and away from pure infrastructure plays.

Gold repriced

For the better part of a year, gold rallied on a coherent thesis of persistent US fiscal deficits, a politically pressured Federal Reserve, and a tolerance for above-target inflation eroding the US dollar's real value. The price of gold climbed from around US$3,000 a year ago to an all-time high of almost US$5,400 by the end of January and revisited that level at US$5,300 on 2 March, the first trading session after the outbreak of the US-Iran conflict, when the safe-haven bid peaked. It has given ground since, and the decline continued in June following Warsh's appointment as Chair of the US Federal Reserve in May and first FOMC meeting. He has a documented record of prioritising price stability over accommodation, and markets stopped assuming the Fed would sit back. Gold fell approximately 10.6% over the month and finished at around $4,000.

Nonetheless, the underlying conditions have not changed. US deficits are large and growing. The US federal interest bill is rising and overseas demand for US Treasuries is not becoming more reliable. What changed was the market's expectation of how the Fed will behave, not the conditions that gave the gold trade its rationale - merely a revision of a single assumption rather than the resolution of an underlying cause. Our trimming of gold in October 2025 and again in February 2026 within the T. Bailey multi-asset funds reduced participation in the correction and gold now sits between 4% and 5% of the multi-asset funds as a strategic diversifier rather than a dominant macro call. The structural arguments that gave rise to the position remain, but the path, as always, is not straight.

Central banks: decision time

The middle of June saw a concentrated sequence of major central bank decisions. The ECB raised its deposit rate to 2.25%, its first hike since 2023, citing the risk of energy costs feeding into longer-term expectations. The Bank of Japan raised to 1.0%, its highest rate since 1995, on domestic wage and price pressures that predate the Iranian crisis entirely. Warsh held the Fed at 3.5% to 3.75%, but the “dot plot” guidance saw nine of eighteen officials project at least one more hike before year-end. The Bank of England held at 3.75% on a 7-2 vote, with two members calling for an immediate rise and the majority offering no guidance on cuts.

Japan is tightening because its economy is recovering from thirty years of stagnation. Europe is tightening to anchor expectations before an energy shock becomes embedded. The US is preparing to tighten further in response to strong growth, firm hiring and core PCE running above inflation. The UK can neither tighten nor ease without making something worse, and its next prime minister will inherit that bind.

How the portfolios fared

June was a positive month for each of the T. Bailey funds and within them the standout performer was the Polar Capital Global Insurance Fund which returned 10.9%. Forward price-to-earnings multiples in this area have barely moved despite returns on equity running well above their long-run averages with non-life insurers generating investment income on float assets of around 4% to 5% and contributing roughly ten percentage points to book value growth annually before even considering any underwriting margin. The Zurich acquisition of Beazley, agreed in March at a near-60% premium to its undisturbed share price and at more than twice tangible book value, provides an example of a well-capitalised strategic buyer recognising value faster than public markets have been willing to - a dynamic we explored in our 15 June weekly update. That case has not weakened and, if anything, the month's price action merely began to close a gap that has been historically wide.

The Polar Capital Healthcare Opportunities Fund was another strong performer, delivering 7.0% in June and taking twelve-month returns to over 34%. Nonetheless, the valuation gap between global healthcare and technology sectors is close to its widest since the dot-com peak in 1999. These are not struggling businesses. They are producing genuine medical breakthroughs, growing revenues steadily, and operating in the most active pharmaceutical M&A environment in years. But capital to fund the AI revolution has had to come from somewhere and healthcare has been among the most notable donors. June was the first month the market began to close that gap in a material way. Whether it is the beginning of a rerating or simply a tactical rotation out of AI uncertainty, the case for holding the sector remains the same either way.

The JK Japan Fund, positioned towards growth and technology names, returned 2.4% in June and approximately 37.1% over twelve months. WS Zennor Japan Equity Income detracted 3.2%, its value and income orientation not built for a month driven by those same names - though its twelve-month return of approximately 25.1% still reflects what the portfolio is built to achieve. The Merlin Fidelis Emerging Markets Fund detracted 4.7%, its deliberate underweight of the AI hardware names concentrated at the top of the EM index a headwind in June, as it has been an advantage in other months.

Gold fell approximately 10.6% in June, the largest single negative contributor across the portfolios, though prior trims on strength in October 2025 and February 2026 had already reduced the funds' exposure ahead of the correction. The iShares Physical Gold ETC held in the T. Bailey multi-asset funds has still returned approximately 26.6% over twelve months and approximately 100.7% over three years. A correction, in part driven by a revised view of the Fed's reaction function and in a position that had attracted crowded inflows, is not an argument for abandoning the holding. However, it is a reminder that every asset has an entry point and a size beyond which it stops behaving the way it was bought for.

Exposure to debt within the multi-asset funds is biased to the shorter end of the curve and continued to add steady returns. The UK gilt position returned approximately 0.4%; Man High Yield Opportunities 0.8%; Barings Emerging Market Debt Blended Total Return 1.6%; the iShares $ Treasury Bond 7-10yr UCITS ETF 0.4%.

Where we stand

The US-Iran deal, the AI capex story, the US dollar debasement trade and the UK's fiscal arithmetic are each posing tests for markets. Portfolios built around any one of these resolving cleanly are more exposed than they may appear. The equity allocations across the T. Bailey funds carry meaningful weights to businesses whose revenues do not depend on any of these assumptions holding. Pharmaceutical revenues, treated water volumes and insurance premiums are the proceeds of services already delivered, not bets on what AI will eventually justify or whether the Strait stays open. The T. Bailey funds of funds hold AI exposure through a thematic fund and generalist managers that tilt towards companies already earning their valuations, with positions sized to contribute without dominating. The multi-asset funds hold short-to-intermediate duration bonds rather than reaching for term premium. Gold and copper remain in place as diversifiers, whilst a collection of absolute return strategies are held for conditions that equities and bonds will not navigate cleanly at the same time. The assumptions being tested will change, but the case for owning businesses with durable cash flows and modest dependence on them will not.