Monthly commentary - Mackenzie Greenchip funds

Macroeconomic recap

Asset markets began the year’s second half by following through on the hints of a turn in AI and semiconductor-related momentum from June, leading to volatile – and mostly downward – trading in July. Memory, semiconductor, and electrical equipment companies that had added hundreds of billions of dollars of market value year to date in 2026 lost 20% - 40% over a period of less than six weeks. At one point, the entire stock market of South Korea sported one-month losses of 30%, while SpaceX also dropped more than 30% and traded well below the price set in its high-profile IPO in May. The selling culminated in the distressed sale of AI-related investments to Citadel by an upstart fund – founded and managed by a 24-year-old – of nearly $45 billion that had lost two-thirds of its value in July alone. News of this sale was treated as something of an ‘all clear’ and led to a dramatic rally in the last days of the month that carried into August, driving global indexes back to all-time highs. Even if markets seemed to have barely blinked, June/July still represented a potentially significant shift in leadership, and questions about AI capex and returns are likely to continue to build.

In geopolitics, the memorandum of understanding between Iran and the United States completely broke down, leading to renewed bombing and threats, but also still featuring conflicting claims of negotiations from both sides and non-stop bombast from the US President. The Strait of Hormuz remained almost completely closed to commercial traffic, while Yemen’s Houthis closed the Bab-el-Mandeb Strait in the Red Sea to Saudi shipping after a flare-up in the Yemeni-Saudi conflict. In Eastern Europe, after a 40-day Ukrainian campaign targeting Russian Black Sea shipping, commercial logistics and civilian infrastructure, Russia responded with increased aerial attacks of its own, the most significant result of which was to virtually close all Black Sea shipping to Ukraine, effectively landlocking the country. While markets continued to actively trade headlines – particularly President Trump social media posts,  which are now on offer with advanced notice for $100,000 per year – with oil somehow still contained below $100 and food commodity prices near multi-year lows, the risks to long-term global supply and trade in critical commodities grew significantly in July.

There were also noteworthy developments in fixed income with geopolitical overtones. With inflation stubbornly high – even according to official statistics – around the world, asset markets in a state of euphoria and questions about central bank policy in the US in particular, interest rates on most long-duration Western government bonds have been hitting multi-decade highs. Nowhere has the effect of these rising rates been more dramatic than in Japan, where more than 20 years of interest rates fluctuating around zero ended in 2024. Higher rates put pressure on the Japanese government budget and on its currency and led to Japan attempting a sale of approximately $50 billion out of its nearly $1 trillion holding of US treasury bonds to buy the Yen and defend its value. The stress this put on ‘safest and most liquid’ US treasuries and on FX markets overall was intolerable to the US, and Japan was told it could only use its treasuries as collateral for borrowing rather than attempt to sell them outright. The result was a complex sale of Euros to buy Yen, orchestrated by the US, leaving global financial markets even more unsure of what constitutes a ‘safe haven’ asset.

Current positioning and Outlook

Environmental indexes and the Greenchip strategies underperformed in July. For indexes, as is almost always the case, Tesla had a disproportionate effect, with the stock dropping more than 20% perhaps partly by association with SpaceX, but more due to a negative reaction to earnings and guidance that reflected an outlook for negative free cash flow for the foreseeable future. For Greenchip, while our power-management semiconductor positions have been significantly reduced, large declines still hurt overall performance, especially in ST Micro which also dropped more than 20%: in its case more due to the general industry sell-off than its specific earnings report, although the biggest leg down occurred in response to the latter. Agricultural equipment producer AGCO was down around 15% after its earnings report, where management described still-challenging inventories at dealerships and farmer demand remaining weak until 2027 as input costs rise and selling prices remain subdued (see comment about food prices above). On the brighter side, recent additions in engineering software - Bentley and Dassault - performed well with double-digit gains. Electric meter manufacturer Itron reported better margins and orders in its quarterly earnings update, leading to a gain of nearly 20%.

Given the large disparity in performance for the year to date and stretched valuations in certain sectors, we have been more active with higher-than-normal turnover in 2026 and expect this to continue in the coming months.

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