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Innovative technology and small cap opportunity equities navigated a volatile third quarter in 2026,
as renewed US-Iran hostilities, a sharp rise in bond yields and the Federal Reserve’s first interest
rate hike in three years drove abrupt rotations beneath a modestly positive headline market. Over the
third quarter of 2026, the LOM Innovation and Opportunity Fund gained +3.16%, lifting the year-todate
return to 31.35%. The Innovation and Opportunity Fund has increased 36.50% over the past
year and has delivered 27.15% over the past 3 years annualised.
The quarter was characterised by a sharp reversal in market leadership. July brought an abrupt
rotation away from AI infrastructure, as profit taking and forced selling by leveraged investors pushed
semiconductors briefly into bear market territory following their record Q2 advance. Software, which
had lagged through the first half of the year, rebounded in August as investors moved into sector
laggards. Geopolitical risk returned in late August as renewed US-Iran strikes and disruption in the
Strait of Hormuz drove oil prices sharply higher, reigniting inflation concerns and lifting long-term
yields to their highest levels since 2007. The Federal Reserve responded with a 25 basis point hike
at its September meeting, its first increase since 2023. Higher rates weighed heavily on smaller
companies, with small caps recording one of their weakest quarters relative to large caps on record,
while mega cap technology regained leadership. In September, the release of OpenAI’s GPT-6 helped
revive investor enthusiasm for chipmakers, and the Nasdaq reached a new all-time high.
Within the fund, our semiconductor and hardware holdings were volatile throughout the quarter,
retreating sharply in the July sell-off before recovering in September as confidence in AI compute
demand was renewed. Advanced Micro Devices, Dell Technologies, Micron Technology and Marvell
Technology remain the fund’s largest contributors year to date. The principal detractor was our
small cap value allocation, which gave back a portion of its first-half gains as rising yields and Fed
tightening weighed on smaller, more rate-sensitive businesses, although small cap value continued
to hold up considerably better than small cap growth.
We continue to favor innovative companies offering attractive growth prospects, specifically within
AI infrastructure buildout, cybersecurity, and cloud migration. Simultaneously, our small cap value
selection process continues to find overlooked and underappreciated opportunities across several
key market sectors. With the Fed now tightening and geopolitical risk elevated, we expect volatility
to persist, but we believe our dual approach combining high conviction innovation exposure with a
disciplined small cap value process positions the fund well for the quarters ahead.
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.
