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The third quarter of 2026 brought heightened volatility, driven by the prolonged conflict in the Middle East, a hawkish Federal Reserve, and steadily rising interest rates, finishing the period close to flat primarily due to our small and mid-cap exposure. Over the 12 months to quarter end, however, the Fund gained 14.01%, supported by strong corporate earnings, and it has delivered average annual returns of more than 11% over the past decade.
The Middle East conflict again defined the quarter as hopes for a lasting U.S.-Iran agreement faded. Shipping through the Strait of Hormuz remained well below pre-conflict levels, and hostilities escalated in September as the United States and Iran exchanged strikes and Iran-aligned militants attacked Saudi energy facilities. The global economy has nonetheless proven resilient. In its September outlook, the OECD modestly raised its 2026 global growth forecast to 2.9%, with the United States at 2.2% and the eurozone at roughly 1%, reflecting the greater exposure of Europe and much of Asia to imported energy. Inflation, however, is expected to remain elevated, with G20 inflation projected at 4.1% this year, and the OECD cautioned that the buffers absorbing the shock are diminishing.
Equities posted modest gains following the strong second-quarter rebound. U.S. indices reached record highs over the summer before rising oil prices and bond yields triggered a pullback in September. For the quarter, the S&P 500 gained approximately 2%, the Nasdaq rose 2.5%, and the MSCI World Index advanced 1.6%. Corporate earnings remained the key source of support, with S&P 500 third-quarter earnings growth expected near 29% following a 52% increase in Q2. International markets were mixed, with Chinese equities declining more than 6%.
Market leadership narrowed further in Q3. Technology was the strongest sector and the only one to advance in September, led by semiconductor companies, whose earnings are projected to more than double year-over-year. Rate-sensitive and defensive sectors, including financials, real estate, utilities, and consumer staples, lagged as yields rose. Constraints on power supply and permitting are also emerging as a risk to the pace of AI data center construction.
Entering the final quarter of the year, we continue to pursue our quality growth objective, with meaningful exposure to AI infrastructure, semiconductors, and select financials. Although the Fund’s small- and mid-cap holdings lagged in the third quarter, they have delivered strong returns year-to-date, and we expect them to benefit from the typically favorable seasonal trends heading into next year.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
