Lloyd Capital Outlook

Last updated: 21st July 2026 | Author: Luigi Scirocco | Portfolio Manager, Lloyd Capital

Markets are exuberant – the scale of capital flowing into AI infrastructure has been extraordinary.[1] Since April, equity markets have been driven largely by businesses whose strong near-term earnings reflect supply bottlenecks rather than durable competitive advantages.[2]

Global semiconductor indexes have seen returns of 50% or more since April, with memory manufacturers among the strongest contributors.[3] Their earnings today are boosted by demand that has outstripped supply, driving prices sharply higher. The market is increasingly valuing these earnings as though current conditions were normal and sustainable.

None of this tells us when the market configuration will reverse. Timing is unknowable. What is observable is the behaviour driving it: aggressive risk-taking, capital chasing recent performance, and investment decisions increasingly motivated by fear of missing out rather than careful appraisal of long-term value.

Valuations across key indices are at historically elevated levels, while the market is enthusiastically embracing large IPOs with ambitious growth narratives and inflated expectations.[4] Historically, markets driven primarily by “FOMO” (fear of missing out) have experienced sharp corrections when the fundamentals eventually reassert themselves.[5]

In the Lloyd Focused Equity UCITS ETF (FEP) strategy, we are not participants in that dynamic. Our approach remains what it has always been: owning quality businesses with strong earning power at prices that offer a margin of safety. Long-term fundamentals are not what the market is rewarding today. Yet in the long term, the return earned by a shareholder is determined by the free cash flow generated by the business relative to the price paid for it.[6]

The market’s current preoccupation with AI has created opportunities in precisely the type of businesses we seek to own. Quality companies have lagged for an extended period as capital has chased more speculative narratives, allowing us to deploy capital into select software businesses that occupy deeply embedded positions within their customers’ operations. A few examples of businesses in the FEP strategy illustrate this approach. A company such as ServiceNow provides the workflow, governance, and orchestration infrastructure that allows enterprises to deploy and manage AI capabilities across their organisations.

We also deployed capital into Constellation Software, which acquires and operates Vertical Market Software. It has scaled at a remarkable pace over time, compounding both free cash flow and its share price at more than 25% annually on average since its 2006 IPO.[7] The company owns mission-critical software businesses serving niche industries, where deep workflow expertise and high switching costs create durable competitive advantages. As AI capabilities improve, these businesses are potentially well positioned to enhance productivity and deliver greater value to customers while reinforcing their competitive positions.

We also find investment opportunities where few care to look. H World, one of China’s largest hotel operators, with a room base comparable to Hilton’s globally, is an example of those. The company has a market capitalisation of approximately US$13 billion and generates around US$1 billion of annual free cash flow.[8] Through its asset-light model, management expects to roughly double the number of rooms over the coming decade. In our view, H World is building a critical part of China’s tourism infrastructure at a time when strengthening domestic consumption remains a key government priority. The combination of scale, growth potential, and attractive economics offers a potentially compelling long-term return profile.

We believe that maintaining a prudent, disciplined approach is the most effective way to protect and grow capital over the long term. Maintaining discipline requires patience and fortitude when short-term gains accrue to those taking risks we are unwilling to take. We accept that trade-off. We always have.

Past performance is not indicative of future performance.

“Long-term returns are driven not by market excitement, but by the cash flow a business generates relative to the price paid.”

About Lloyd Focused Equity UCITS ETF (FEP)

FEP aims to provide investors with exposure to companies that are of outstanding quality and underappreciated by the market.

Companies must have a long history of good financial performance and a strong balance sheet. They must maintain a high operating margin, consistently exhibit positive operating earnings, generate large free cash flow, and show robust returns on invested capital. The quality of the companies, the sustainability of their earnings power, and their development potential is also assessed through the analysis of 4 critical factors that Lloyd Capital defines as the 4 “M”s – Moat, Management, Market and Macro.

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Key Risks

Information technology companies are subject to specific risks such as rapid technological changes and short product lifespans.
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The value of equities and equity-related securities can be affected by daily stock and currency market movements.
When investing in ETFs your capital is at risk and you may not get back the amount originally invested.
For a complete overview of all the risks, please refer to the “Risk Factors” in the Prospectus.

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Past performance is not a reliable indicator of future performance. The price of the Products may vary and they do not offer a fixed income. This document may contain forward looking statements including statements regarding our belief or current expectations with regards to the performance of certain assets classes. Forward looking statements are subject to certain risks, uncertainties and assumptions. There can be no assurance that such statements will be accurate and actual results could differ materially from those anticipated in such statements. Therefore, readers are cautioned not to place undue reliance on these forward-looking statements. The content of this document is for information purposes and for your internal use only, and does not constitute an investment advice, recommendation, investment research or an offer for sale nor a solicitation of an offer to buy any Product or make any investment.

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[1] Fortune, 2026.

[2] MoneyWeek, 2026.

[3] Yahoo! Finance, 2026.

[4] BBC, 2026.

[5] Morningstar, 2025.

[6] Morgan Stanley, 2023.

[7] Yahoo! Finance, 2026.

[8] Stock Analysis, 2026.