All 31 of Umbra's standardised MPS models finished ahead of their respective ARC benchmark indices in May and all remain ahead of benchmark on a year-to-date basis. Performance was supported by Umbra's international equity bias, particularly towards Asia and emerging markets, as well as the fixed income positioning in higher carry and spread-related areas, which continued to outperform G7 sovereign bond markets. Attribution from underlying active managers was also strong, with all three active fixed income managers outperforming their respective benchmarks during the month.

Global equity markets extended their year-to-date advance in May, with growth materially outperforming value as AI-related enthusiasm continued to drive capital allocation. The US market led the way, with a strong earnings season — blended Q1 2026 earnings growth for the S&P 500 reaching levels last seen in late 2021 — providing fundamental validation for elevated technology valuations. However, the breadth of the rally remains notably narrow, with only a small proportion of S&P 500 constituents outperforming year-to-date, and market structure signals including elevated retail participation in AI-linked products and investor confidence readings not seen since the turn of the millennium, warrant caution.

Emerging markets were among the strongest performers globally, led by Korea and Taiwan, both of which benefit from their critical positioning within the global semiconductor supply chain. First-quarter earnings growth across Asia was exceptional and heavily concentrated in technology and semiconductors. Japanese equities also continued to advance, supported by encouraging domestic economic data and the new administration's expansionary fiscal stance. European equities lagged materially, with the eurozone composite PMI falling to its lowest level since late 2023, while China presented a mixed picture — onshore indices held up better than offshore, though consumer spending and industrial output both disappointed, pointing to continued subdued domestic growth momentum.

The dominant macro narrative of the month was tentative progress in US-Iran negotiations, with hopes for a Strait of Hormuz resolution weighing on oil prices throughout May. Although no deal was reached, the risk of a disorderly outcome has not dissipated — global oil inventories are expected to reach critically low levels by end of June, which will intensify pressure on both parties. Inflation data presented a mixed picture across regions: US CPI remained elevated, reinforcing the Federal Reserve's decision to remain on hold with rate cuts now deferred to late 2026 or early 2027. UK rate hike expectations moderated considerably over the month, whilst the ECB is still anticipated to deliver further tightening given the relatively accommodative level of eurozone rates.

Fixed income delivered a modestly positive return in May, supported by falling energy prices, though intra-month volatility persisted given ongoing uncertainty around the geopolitical situation in the Middle East. UK gilts were a notable outperformer within the government bond complex, as softer-than-expected inflation and deteriorating labour market conditions prompted a significant repricing of Bank of England rate expectations. Credit markets performed solidly, supported by resilient corporate fundamentals, with euro high yield and emerging market bonds both delivering positive returns. However, spreads remain near historically tight levels across investment grade and high yield, leaving limited valuation cushion in the event of a deterioration in the macro environment.

Within alternatives, the fall in oil prices weighed on energy-related assets, though the near-term outlook remains highly uncertain given the potential for a sharp reversal should US-Iran negotiations fail to reach agreement before global oil inventories reach critical levels. Gold held up well despite the risk-on backdrop, with persistent inflation concerns, geopolitical uncertainty and continued central bank demand underpinning the medium-term investment case. Looking ahead, Umbra's near-term view remains one of moderate caution. While portfolios continue to be skewed towards secular growth themes — most notably the global demand for compute and the AI-driven semiconductor build-out — the defensive components of portfolios are expected to serve as a counterbalance should the current cyclical narrative driving markets begin to turn.

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