Hindsight is 20:20, but, even looking back on the first half of the year, I feel like my eyesight is poor.
The list of top-performing Investment Association sectors makes sense with a backwards-looking narrative, but the logic is inconsistent.
For example, if investors at the start of the year were told the IA Technology & Technology Innovation sector was going to top the list, it would be assumed that the large-cap US juggernauts making up the ‘Magnificent Seven’ (Alphabet, Apple, Amazon, Microsoft, Meta, Nvidia and Tesla) had continued on their meteoric rise.
In reality, these stocks have gone nowhere. Instead, it has been the Asian and emerging market funds that have benefited, with the IA Asia Pacific Excluding Japan and IA Global Emerging Markets peer groups in second and third place at the end of June.
Asked why, it could be assumed that this was driven by the rise of Chinese competitors in the AI space, as was the case at the start of 2025.
But this would be wrong too. Instead, it has been the semiconductor giants in South Korea and Taiwan that have benefited. In fact, anyone who knew that tech would do well and the US would struggle who that chose to backed Chinese stocks would (probably) have had a terrible year, with the average IA China/Greater China fund up just 2.5% so far in 2026.
I say probably, because there is huge disparity in the sector. The best performers are up 61.6% at the half-year mark, while 15 funds have made double-digit losses.
Staying with emerging markets (EM), it is an example of how you could have been half right, yet totally wrong. Say, for example, you expected an EM resurgence but did not think it would come from China. The next logical step would have been India, which had a dire 2025, so there were hopes it could rebound.
In reality, the IA India/Indian Subcontinent sector was the worst-performing of all, with the average fund down 6.9%.
Yet, I shall remind you, despite China and India funds doing very little (or losing heavily in some cases), emerging market funds are second on the list.
But technology and the rise of emerging markets are just two examples. Another is small-caps. If the US has performed relatively poorly when compared with other equity regions, then surely small-caps will have done even worse?
Again this is not the case. In fact, after years of underperformance, IA North American Smaller Ccompanies were the fourth-best sector in the first half of the year, up 23.9%, more than double the 10.7% from the average fund in the broader IA North America peer group.
But if you thought it was part of a small-cap resurgence, you would be mistaken. IA European Smaller Companies and IA UK Smaller Companies – the other two dedicated small-cap peer groups – have lagged the equivalent broader sectors materially.
So narratives are all over the place at the halfway stage. Tech has done well, but not the technology stocks you would expect. US smaller companies are resurgent, but it is not part of a small-cap renaissance. Emerging markets are back in favour, but it is two relatively unheralded markets that have led the way, not the two main markets that have dominated the index for years.
The same rationale that makes sense in some regions has flatly failed elsewhere.
My crystal ball is far worse than my hindsight glasses, so I dare not predict what will happen in the second half of the year. But without 20:20 vision of the future, it is better to be far-sighted than near-sighted. In investment parlance, that means being long term rather than trying to predict events over six months.
At least that way, it won’t make you cross-eyed trying to weave together narratives that may or may not exist.
Jonathan Jones is editor of Trustnet. The views expressed above should not be taken as investment advice.