Cirilium Portfolios monthly commentary - Review of February 2026

In February, US equities returned 1.2% for sterling-based investors. However, this gain was due to the strength of the dollar vs sterling rather than market performance. In US dollar terms, US equities actually declined by 0.9% as investors reassessed valuations in large technology companies. Despite strong earnings results, concerns grew about whether heavy spending on AI will deliver sufficient long‑term returns. As a result, growth stocks lagged, while more defensive and value‑oriented sectors such as utilities, materials, and consumer staples held up better. US small caps performed relatively well, supported by improving domestic growth expectations and their lower exposure to mega‑cap technology names. Overall, investors favoured companies with more predictable earnings and cash flows.

European equities were up 4.9% in February, benefiting from improving economic data and a rotation away from US markets. Inflation continued to fall, reinforcing confidence that price pressures are under control and supporting expectations for a more stable interest‑rate environment. Energy and communication services stocks performed well, while healthcare and financials lagged. Elsewhere, business surveys pointed to gradually strengthening activity, particularly in manufacturing, and political uncertainty eased in France following agreement on the 2026 budget, which helped improve investor sentiment. Although technology stocks rose overall, software companies struggled as concerns grew about potential disruption from AI.

UK equities performed strongly, up 6.6%, supported by the value‑focused sector mix of the UK market. Healthcare, utilities, telecommunications, and basic materials were among the best‑performing areas, with large pharmaceutical companies benefiting from solid earnings and corporate activity. Large‑cap stocks outperformed smaller, more domestically focused companies, reflecting ongoing caution around the UK growth outlook. Inflation slowed meaningfully during the month, increasing expectations that interest rate cuts may be approaching, even as economic growth forecasts were revised lower. Overall, the defensive characteristics of the UK, and exposure to income‑generating sectors, continued to appeal to investors seeking stability amid global uncertainty.

Japanese equities were one of the strongest‑performing markets in February ending the month up by 10.8%. A decisive election result strengthened expectations for political stability and continued pro‑growth policies, boosting investor confidence. Market leadership broadened, with cyclical sectors and companies linked to domestic demand performing well. Businesses involved in AI infrastructure, such as semiconductor and optical component manufacturers, also delivered strong gains. In contrast, some software and IT companies lagged due to concerns about disruption from generative AI. Overall, optimism around economic momentum, policy support, and improving corporate governance underpinned strong performance.

Emerging markets were up 7.7% over the month, significantly outperforming developed markets. The gains were led by Asian markets, particularly Korea and Taiwan, where technology hardware and memory‑related stocks benefited from improving earnings expectations. Strength in precious metals supported markets such as South Africa, while political developments boosted confidence in Thailand. Elsewhere, performance was more mixed. Brazil lagged the broader emerging market index as economic data pointed to slowing growth, while China underperformed due to weakness in internet‑related stocks. India delivered positive returns but trailed the index, reflecting concerns over higher government borrowing.

Global government bonds were up 1.4% in February as investors became more cautious due to geopolitical risks, concerns about economic disruption from AI, and signs of labour market weakness in the US and UK. Falling inflation increased expectations of future interest rate cuts, particularly in the UK, where gilts performed strongly ending the month up 2.5%. US Treasury yields declined as markets priced in further policy easing later in the year. In contrast, corporate bond markets underperformed, with the gap between investment‑grade and high‑yield bond yields widening as investors demanded greater compensation for risk.