Markets, like space exploration, are not defined by straight lines, but, instead, by cycles of ascent, recalibration, and return. This quarter, as the Verger team watched the awe-inspiring journey of Artemis II, we celebrated how a successful mission to the cosmos requires intense, long-term training, planning, and teamwork. The mission also showed us how a sometimes intangible or seemingly out-of-reach goal (like a future mission to Mars, or, in endowment investing, a perpetual time-horizon) can become the center of cultural conversation.
In last quarter’s commentary, we noted that the investment landscape in 2026 increasingly calls for forward-looking judgment rather than backward-looking confidence. While NASA relies on detailed data from previous missions to chart a flight path, the organization also empowers its astronauts to use fresh eyes to make new discoveries and forward-looking projections. At Verger we seek to do something similar.
While the path forward for markets in 2026 and beyond likely remains volatile, we continue to ground ourselves in the fundamentals and stay true to our long-term focused investment discipline. Like the Artemis II mission, which used the gravity of the Earth and Moon to guide the crew home, financial markets tend to move in cycles and respond to established forces. We can use this understanding to our advantage as we sift through the short-term noise to focus on a successful, long-term mission.
Many equity markets made a strong start during the first two months of 2026. However, after the attack on Iran, markets quickly reversed course to end the quarter in the red. For the quarter, both U.S. (S&P 500) and global (MSCI ACWI) equities declined about 3 - 4%. Especially within U.S. large cap, growth stocks significantly underperformed value. Fixed income, both investment grade and high yield, had returns close to zero for the three months as investors considered higher energy prices and potentially higher inflation.
For the quarter, commodities were up 24%, led by oil (+60%), which had a huge rally given the attack on Iran. Precious metals had a very strong start to the year, but gave back a substantial portion of their gains during March as positioning became crowded and near-term interest rate expectations shifted, finishing the quarter up 9%.
Hedge funds were slightly negative for the quarter but performed similarly to fixed income.
Source: Bloomberg
As we look ahead, certain market segments appear to be in full “launch mode,” with enthusiasm and capital converging around a narrow set of themes. Early-stage artificial intelligence (AI) companies, infrastructure tied to data centers, and emerging areas like quantum computing have captured investor imagination, often reflecting valuations that seem to assume rapid and durable adoption. Companies and ventures associated with Elon Musk continue to command outsized attention, reflecting a broader willingness to underwrite ambitious, long-duration narratives. In many cases, capital is being deployed more on potential than on proven cash flows, with investors extrapolating recent breakthroughs far into the future. In our opinion, these areas may well prove transformative over time, but history suggests that periods of technological excitement are often accompanied by overinvestment, misallocated capital, and ultimately, a more uneven path to realized returns.
In contrast, other parts of the market are currently weighed down by skepticism and fatigue. Software companies, once the clear beneficiaries of low rates and digital transformation, are now being repriced as competitive pressures from AI intensify and growth expectations moderate. Businesses tied to economically sensitive sectors, such as airlines, also continue to face questions around cost structures and demand cyclicality. Broadly, investors are wondering if these challenges can negatively impact U.S. employment and consumer health.
In another corner of the market suffering from skepticism, private credit is now facing closer scrutiny around underwriting standards, credit quality, valuations, and liquidity after years of significant inflows and steady returns. Publicly traded business development companies (BDCs) of many private credit funds are now trading at notable discounts to their net asset value (NAV) – reflecting investor concerns around credit quality, valuation, and the durability of income streams. Souring sentiment around private credit has led to elevated redemption requests for many funds, as the following chart demonstrates.
Sources: Financial Times, Company filings, FT research
While it’s true that private capital sponsors are contending with slower exit activity, reduced distributions, and a more challenging fundraising environment, we believe that, in some cases, pessimism may be approaching extremes.
Overall, we feel the divergence between euphoria and despair on display across markets creates an environment where investors would do well to proceed with caution. Markets rarely reward consensus thinking indefinitely – and the most crowded trades, whether optimistic or pessimistic, often prove the most fragile. Periods like this call for a disciplined “mission trajectory” and a steady hand. Our strategy is to lean into areas where we feel resilience is under appreciated and investor expectations are undemanding, while maintaining caution where enthusiasm has potentially run ahead of fundamentals. In our view, the path forward is unlikely to be defined by a single dominant theme, but rather by a more selective environment where fundamentals, cash flows, and thoughtful underwriting once again take center stage.
A comment from one of our managers succinctly summarizes our thoughts: “The range of potential economic and market outcomes is as large as we can remember due to geopolitics and AI”. Especially in an environment like this, it is important to stay diversified and maintain liquidity to take advantage of market opportunities and dislocations.
We tend to lean in when sentiment gets stretched to extremes, because that is often where the best opportunities emerge. For example, following the recent, and, in our view indiscriminate, sell-off, our managers have found individual software companies at attractive valuations who boast “mission critical” applications for their customers that are unlikely to be substantially disrupted by AI.
Biotechnology is another area we are watching closely and continuing to find attractive opportunities. Not unlike space exploration, this highly specialized field requires deep scientific, regulatory, and clinical knowledge. Evaluating the probability of success for a drug candidate involves understanding complex trial design, competitive landscapes, and biological mechanisms – areas where generalist investors often lack the necessary expertise. Like lunar missions, biotech companies embark on high-stakes journeys which often lead to extreme outcomes. Success can lead to extraordinary value creation, while failure can result in permanent capital loss. For example, a single positive clinical trial or regulatory approval can propel a stock dramatically higher, while a disappointing result can erase years of progress overnight. This dynamic creates a landscape where outcomes are widely dispersed and anything but linear. We believe this combination of structural inefficiencies and inherent volatility creates an environment where active managers with domain expertise are better positioned to identify mispriced opportunities and avoid potential pitfalls.
Also of note, biotech returns are often driven by idiosyncratic catalysts that are largely independent of broader macroeconomic conditions. The outcome of a Phase 3 clinical trial, for example, is not directly influenced by interest rates, inflation, or geopolitical developments. As a result, biotech can provide good diversification benefits within a broader portfolio, with return drivers that differ meaningfully from traditional asset classes. In a market environment where many assets are increasingly correlated, this catalyst-driven profile is particularly valuable.
As illustrated in the chart below, biotech’s combination of higher volatility as well as lower broad market correlation, in conjunction with higher dispersion (more extreme winners and losers) discussed above, makes it a particularly attractive opportunity for active managers.
Sources: Bloomberg, FactSet, PortfolioLab. Data reflects long-term historical estimates (approx. 10+ years) using ETF proxies. XBI = Biotech; XLK = Technology; XLF = Financials; XLE = Energy; XLI = Industrials; XLP = Consumer Staples; XLU = Utilities; VNQ = Real Estate.
While the experience of watching the Artemis II mission left us in awe of technological and human capabilities, it also served as a reminder of just how small the Earth is within a vast universe. Beyond the pursuit of knowledge, a driving force of space exploration is the pursuit of economic expansion. Describing its long-term goals, the U.S. space agency states, “NASA is leading Artemis, humanity’s return to the Moon. With international partners and U.S. industry providers, the future at the Moon holds promise for a robust lunar marketplace.”
While we review current market volatility and digest geopolitical and macroeconomic uncertainty, we remain focused on the fundamental forces driving markets that can withstand emotional or irrational investor reactions and fit into a long-term trajectory of robust, risk-adjusted growth. Because we understand that the desired fight path for a perpetual, non-profit investor is a relatively smooth journey, we will continue to focus on a prudent balance of upside capture with downside protection.
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