Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
This article is featured in the Q3 2026 Future Strategist newsletter, you can read the rest of the newsletter here.
Equity markets ran on pause during the third quarter of 2026 having run hard during the first half driven by the AI trade. In fact, the strongest trades of H1 saw clear consolidation with, for example, the SOX Semiconductor index falling 5.3% in Q3 while still tacking on an impressive +7% for the year to date in 2026.
Major indices were little moved with returns of +2.5% for the S&P 500, +1.9% for the MSCI World ACWI and -4.7% for the Japan Nikkei while Europe and emerging markets were basically flat. Yet again, it felt like AI was in the driving seat; but in Q3 it was driving a pause while markets waited to see if monetisation would start to catch up with investment spending. There were clear cases of this as the quarter progressed and this showed up most clearly in the performance of software as it became increasingly clear that they were not wholesale losers. The iShares Expanded Tech-Software basket rose 14.6% in Q3 with favoured names like Palantir +49% and CrowdStrike +37%. Among the large caps core software names, Microsoft bounced back sharply as well by +33.5%, ServiceNow by +27% and Salesforce by +41%. The narrative changed from everything being an AI loser to clearer differentiation and the value of strong enterprise accredited names as, in fact, being AI Winners.
Elsewhere, alternative assets regained some ground in the quarter but remained down year to date. Bitcoin, in particular, had a 39% bounce in Q3 but remains slightly negative for the year. China (measured by the KWEB ETF) also continued to struggle, falling -2.4% in the quarter and down -32% for the year, as a real outlier in the emerging markets space. However, homegrown tech hardware has done significantly better in the Chinese market as the domestic AI trade plays out locally with the same vigour as the trade globally.
Highlighting the emergence of monetisation in AI, the biggest Magnificent 7 (M7) gainer in the quarter was Meta up 18.4% as it launched its Muse AI agent. While only available for download in the US at the time of writing, it hints at the huge opportunity to come in this area. Indeed, another extremely nascent personal agent, Instinct, was registered in April 2026, raised money in August at a valuation of $2.5 billion and is following this with a further $1 billion raise at a valuation of $10 billion. Clearly, the market sees enough to believe the revenue generation will be real and if Instinct can raise at $10 billion for a rumoured 100,000 users, what worth Muse with a possible multi-billion user base pool and the deepest and widest personal data set on the planet.
Anthropic continues to provide the evidence for AI revenue run rates with an annualised $44-47 billion at the end of Q2 2026 to a latest number of $65 billion annualised during July 2026. Again, in looking at the volatility of markets, it is easy to go all in bull or bear! These growth rates are amazing, but, in its IPO prospectus, Anthropic published that the last financial year’s revenue was $4.6 billion, operating loss was $8 billion and net loss was $42 billion – oh and they want us to pay $2 trillion for that at IPO. I am not saying it is right or wrong but the spread of outcomes is clearly huge and goes a long way to explain the single stock volatility that has been evident in the market this year.
Set against this rapidly changing landscape for AI, the macro backdrop also remains cloudy. Inflation has been edging higher and remains persistent, interest rates have reached multi-decade highs and debt continues to build both at the country and corporate level. There is a clear tension between structural economic headwinds and the great AI trade as a persistent tailwind. Time will tell how this ends but it is making life for a diversified investor difficult. If you didn’t have the AI trade in 2026 to date, you struggled.
Read, watch and listen to more insights from Liontrust fund managers here >
Key risks
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Global Equities Team:
-
May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
-
May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
-
May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares.
-
May have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio.
-
May invest in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of a fund over the short term.
-
Certain countries have a higher risk of the imposition of financial and economic sanctions on them which may have a significant economic impact on any company operating, or based, in these countries and their ability to trade as normal. Any such sanctions may cause the value of the investments in the fund to fall significantly and may result in liquidity issues which could prevent the fund from meeting redemptions.
-
May invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
-
May hold Bonds. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay.
-
May, in certain circumstances, invest in derivatives but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead.
The risks detailed above are reflective of the full range of Funds managed by the Global Equities Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
Disclaimer
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
