Dear investor,
With the first quarter of 2026 now concluded, I am writing to share our view of the markets at a particularly complex moment. The geopolitical landscape has been shaken once again by the escalation of the conflict in Iran, which is adding pressure to energy prices and reshaping growth and inflation expectations. At the same time, divergence between the United States and its European partners is becoming more pronounced, increasing uncertainty in an already fragmented and challenging global environment.
By their very nature, financial markets often react excessively to short‑term headlines, and it is therefore incumbent upon investors to ensure that decision‑making remains firmly grounded in rationality and a long‑term perspective.
THE RISK OF A MINI STAGFLATION
The emergence of the Iranian conflict on the global agenda has introduced a source of uncertainty that simultaneously points to weaker growth and higher inflation. If sustained, higher energy prices act as a tax on global economic activity, while also limiting central banks’ ability to cut interest rates in an environment of slowing growth.
So far, markets have completely reversed the expectations they held at the beginning of the year and now anticipate that both the Federal Reserve and the ECB will keep interest rates unchanged, or even raise them in the European case, driven by fears of a renewed pickup in headline inflation.
In fixed income markets, the rise in yields has initially been concentrated at the short end of the curve, with some upward movement also in longer maturities. The key indicator to monitor at present is not oil, equities or the dollar, but rather the yield on the 10‑year U.S. Treasury bond. Our stance remains one of caution, prioritising short durations, issuers of the highest credit quality, and a preference for the private credit segment.
THE DOLLAR AND GEOGRAPHICAL DIVERSIFICATION
The armed conflict has supported a partial recovery of the dollar from its recent lows, but it is still premature to conclude that the cycle of weakness has come to an end. U.S. fiscal tensions, the gradual erosion of confidence in its institutions and the reconfiguration of a multipolar world order all suggest that geographical diversification in portfolio construction is not a passing trend, but a structural necessity for any investment portfolio.
For euro‑based investors, this reinforces the case for maintaining significant exposure to assets denominated in other currencies, accepting currency volatility as an inherent feature of a well‑diversified portfolio, as we have consistently argued.
Part of the breathing room enjoyed by the dollar has come from the pause in the gold rally, with prices correcting by nearly 15% from their highs. Over the long term, gold continues to fulfil a structural role as a portfolio diversifier and a refuge against declining confidence in fiat currencies and in governments’ fiscal discipline.
EUROPE: THE IMPERATIVE OF COHESION
The differences between the United States and European countries in the areas of defence, trade and foreign policy appear to have acted as a catalyst for a process that was already urgent: the need for renewed momentum to strengthen the European Union in terms of joint strategic action. Paradoxically, external pressure is accelerating discussions on strategic autonomy, capital markets integration and joint financing capacity—topics that seemed deadlocked just two years ago.
This realignment has direct investment implications. Valuations in European equities, both large caps and small caps, are particularly attractive by historical standards. Our conviction is that the European market currently offers a long‑term opportunity that complements exposure to U.S. equities, which continue to trade at elevated multiples (P/E ratios) due to higher expected growth, albeit with greater volatility.
EQUITIES: SOLID EARNINGS IN HIGH‑QUALITY COMPANIES
Long‑term investors should not allow themselves to be swayed by the geopolitical backdrop. Geopolitical noise should not distract us from what is truly fundamental: the evolution of earnings at the companies in which our funds invest. Our earnings per share growth forecasts have not undergone any significant changes, and the fundamentals of the high‑quality companies in which EDM invests remain robust.
As a result, the current disconnect between earnings performance and share prices, in many cases, represents in our view a clear opportunity for long‑term investors. In its nervousness, and as happens from time to time, the market is failing to distinguish between those companies that may be more vulnerable to these risks and those whose business models are more resilient.
One particular case deserves special mention: the impact of artificial intelligence (AI) on software companies has been assessed indiscriminately by the market. In many instances, the correction in share prices has been unjustified, as AI does not necessarily erode these companies’ value propositions, and in some cases actually reinforces them. Situations such as these, where price diverges from value, are precisely those that EDM has been identifying and capitalising on for decades.
In short, the first quarter of 2026 has brought volatility and uncertainty, but it has not altered the foundations on which our investment philosophy rests:
- High‑quality companies at reasonable valuations.
- Short‑term, high‑quality fixed income.
- eographical diversification.
These principles have proven their robustness in previous cycles and, in our view, will continue to do so.
As always, I would like to sincerely thank you for the trust you place in EDM.
Yours sincerely,
Carlos Llamas
CEO
LEGAL NOTICE
1) The preceding information is provided for promotional and information purposes only. It is not, and is not to be taken as, investment or legal advice; is not intended to take the place of necessary investment advice; and is neither an offer to sell nor solicitation of an offer to buy.
2) All the views and forecasts expressed are based on what are believed to be reliable sources. Nevertheless, EDM Gestión, SAU, SGIIC cannot guarantee their accuracy or completeness and takes no liability for any direct or indirect losses ensuing from using the information provided here.
3) This information includes data that refer to the past performance of the products discussed. EDM Gestión, SAU, SGIIC cautions that past performance is not a reliable indicator of future performance.
4) Investors should be aware that the products included in this document may not be suitable for their specific investment objectives, their financial or asset position, or their risk profile. Investors should therefore take their own investment decisions with these circumstances taken into account, and should seek specialised tax, legal, financial, regulatory and accounting advice, along with any other advice they may need.
5) It should be noted that the instruments covered by this information are subject to possible effects due to various common causes such as:
- Market disruptions due to unforeseeable circumstances.
- Liquidity and other risks that may alter investment their performance.
6) This documentation may contain data based on currencies other than those used by the recipients of the documentation. Therefore, consideration should be given to the possibility of any upward or downward change in the value of the currency and its impact on the performance of the proposed products or instruments.
7) For each Fund of EDM Gestión, SAU, SGIIC, the public may access the full prospectus, the key investor information document (KIID), periodical reports and that last audited notes to the financial statements, which may be requested free of charge from the Management Company’s registered office or at www.edm.es.
8) EDM Gestión, SAU, SGIIC is a Spanish public limited company with tax identification number A58217175, registered on the Spanish National Securities Market Commission's Special Register of Collective Investment Scheme Management Companies under number 49 and at the Companies Registry of Madrid in volume 36739, page 52, sheet M-658326 and tax identification number: A-58217175. Its activities include discretionary portfolio management and representing, managing, and administering funds and investment companies incorporated and located in Spain.
