Feb 2026 Performance Report
by
Damien Klassen
March 12, 2026
The story for February was the surging Australian dollar running into incredible profit growth forecasts. Profit forecasts got stronger throughout the month, helping share prices higher, but for Australian investors, the rising AUD offset all of those gains. The key question in March is whether the profit growth (15%+ forecast for each of the next two years) will stay incredible or if it will become not credible in the face of rising energy costs.
Q1 reporting by companies only highlighted the strength of company earnings underpinning the market. While there are economic problems in many countries, they are mostly affecting consumers and workers - companies are (were?) doing pretty well.
The Trump TACO: Why Markets are Betting on a Deal While Holding Their Breath
If you can ignore the plume of smoke rising from the Middle East for a moment, the fundamental backdrop for global equities is actually… great.A weak (ish) consumer and cooling inflation suggest a glide path to lower interest rates (except in Australia). At the same time, earnings are booming. AI-driven capital expenditure is making the dot-com capex boom blush. Toss in a deregulatory tailwind and massive government deficits, and you have a recipe for sustained high margins. But that "if" is doing a lot of heavy lifting.
Enter the "Trump TACO"
The market’s current base case is the Trump TACO (Trump Always Chickens Out).In this scenario, President Trump follows through on his "deal-maker" persona. He declares a symbolic victory, strikes a transactional deal—perhaps one that prioritises enriching specific power brokers or Iranian generals in exchange for reopening the Straits of Hormuz—and walks away from a full-scale Iranian war. If the TACO is served, the positive economic setup continues, and markets likely leg up.The Asymmetry of Hope
The problem? The distribution of outcomes is not a neat bell curve. It’s a cliff.- Upside: Limited. If a deal is struck, we mostly just get back the "normal" growth we already expected.
- Downside: Extreme. At the other end of the spectrum lies $200+ oil and a deep, structural global recession as energy supply chains are physically smashed.
The Minsky Trap: Why Stability is the Enemy of a Deal
However, there is a Minsky-esque irony at play here. Hyman Minsky’s core insight was that stability is destabilising. In this context, the more the market "prices in" a Trump pivot, the more stable the market remains. And the more stable the market remains, the less pressure there is on Trump to actually pivot.If the S&P 500 stays near record highs, Trump has "permission" to stay the course. To get the TACO, we likely need a catalyst of pain—a market disruption deep enough to threaten his narrative of economic dominance. Without a falling stock market or a sustained, voter-crushing spike in gasoline, he is more likely to keep doubling down. The very belief that he will save the market may be what prevents him from doing so.Why We Are Sitting on 20% Cash
Because of this "Minsky Trap," we have made the deliberate decision to hold roughly 20% more cash than our usual mandate. In a market with relatively high valuations and an asymmetric risk profile (limited upside vs. a $200 oil-clifftop), "discretion" is actually our most valuable asset.This cash serves two roles:- The Safety Net: If the "Trump TACO" fails to materialise and we descend into a deep regional war and global recession, this cash buffers our downside.
- The "Call Option": If Trump does eventually pivot—likely after a period of market-clearing volatility—we will have the dry powder to buy the wreckage and ride the TACO-fueled recovery.
Where is the Shelter?
In a world of high uncertainty, "obvious" hedges often carry hidden traps.- Oil & Gas: A Pyrrhic Victory? You’d think energy is the place to hide. But the start of the Ukraine war saw Europe and China sprint away from foreign fossil fuels. This crisis will redouble those efforts. You might get two months (or two years) of extraordinary profits, but you may also wipe 10 years off the industry’s terminal life as the transition to local renewables and nuclear goes into hyperdrive.
- The "America First" Export Trap: Do you want US oil shares? If oil hits $200, does a populist Trump administration continue to allow record exports while American voters suffer? A "national security" limit on exports would keep US prices lower for voters, but would gut the "jumbo" profits for the companies you bought to hedge the risk.
- Uranium: People talk about a nuclear renaissance, but buying fuel for plants that won't be online for 15 years is a "forever" bet with massive execution risk. It’s a tough trade to timing-match with a 2026 energy crisis.
Stock Focus: The Infrastructure of Change
We continue to favour the Electricity Services Sector. Whatever happens—whether China builds more coal/solar or Europe pivots to more nuclear/wind—the global grid needs to be rebuilt, plugged in, and overhauled.We’re buying the "plumbing" of the energy transition, which remains essential regardless of who controls the Straits of Hormuz. Schneider, ABB, Hitachi, Vestas Wind and Wartsila remain the staples of that part of our portfolio.
We also recently topped up on a number of healthcare shares (including GSK, Pfizer and IQVIA), topped up our defence shares, particularly in Europe, and have been rummaging through the bargain bin of software shares.
Deploying capital
In a market that is pricing in a TACO but staring at a potential $200 oil shock, cash isn't "trash"—it’s an option.- If the Trump TACO arrives: We deploy the cash into a relieved, surging market.
- If the conflict escalates: We have the dry powder to buy the wreckage.
Asset allocation
We spent the month a little underweight in shares overall, significantly underweight in Australian shares. In early March, we sold a lot of stocks. We are market-weight bonds, with a little foreign cash:
Performance Detail
Core International Performance
February saw stocks drift lower particularly in the US, with the more defensive stocks outperforming especially in Europe. Currency was a drag on performance across all currencies as the $A strengthened.
Core Australia Performance
Growth stocks lagged as Banks and Resource Stocks outperformed. 
