Tycho Arete Macro Fund

Overview

Tycho Arete Macro Fund aims to deliver competitive risk-adjusted returns while maintaining a low correlation with all major asset classes. It strives to construct and update macro-analytical frameworks that incorporate the rapidly changing macroeconomic conditions around the world, as well as the significant idiosyncrasies of large global actors such as China and Japan.

Strategy & Manager

Performance

Commentary

Investment Manager’s Commentary – February 2026

February Review

The U.S. Q4 earnings season delivered another robust set of headline results, yet market attention was overwhelmingly diverted to the strategic and operational implications of AI, unfolding across three macro critical dimensions:

1. Adoption & Productivity: AI featured prominently in corporate disclosures, with 70% of S&P 500 management teams referencing the technology. Of these, 54% explicitly linked AI to productivity and efficiency improvements. However, tangible quantification remained scarce: only 10% detailed AI’s impact on specific use cases, and a mere 1% provided concrete earnings uplift estimates.

2. Labor & Hiring Dynamics: Companies that have discussed AI in the context of their workforce have cut job openings by 12% over the last year vs. 8% for all companies. This divergence hints at an incipient hesitation in hiring, as firms anticipate future efficiency gains from AI deployment.

3. Capital Expenditure: Hyperscaler capex guidance once again exceeded expectations. Analysts raised their 2026 forecast—a key proxy for corporate spending plans—by 24% from the start of earnings season, to $667 billion, representing 62% growth relative to 2025. Despite this aggressive expansion, market sentiment toward capex has turned distinctly cautious: since October 2025, investors have shifted from rewarding AI driven investment to penalizing spending amid unclear return profiles and pressure on free cash flow.

Against this volatile backdrop, our portfolios delivered a modest positive return, with performance dispersion across individual positions. Long exposures to Chinese innovation themes—especially large cap internet stocks—faced headwinds from negative beta spillover from U.S. hyperscalers and SaaS names. Conversely, defensive short hedges via H share and U.S. indices, paired with selective long positions in relatively insulated China A share indices, performed strongly, more than offsetting weakness in China focused tech.

Current Outlook

Regular readers will recognize our East West Rebalancing Framework, a structural investment thesis that has anchored our trade ideas and performance trajectory since 2023. As global economic and geopolitical alignments continue to evolve, this framework has only grown more relevant.

At its core, the framework captures a historic shift in global economic models:

Historically, the post globalization equilibrium split the world into two distinct ecosystems:

– East (primarily East Asian economies): Predominantly capital intensive and investment led; characterized by elevated leverage relative to GDP.

– West (North America and Europe): Largely capital light, consumption and services driven; more moderate leverage profile.

Today, this equilibrium is actively reversing. Deglobalization pressures are driving convergence: the West is embracing greater investment intensity and gradually increasing leverage, while China is pursuing a deliberate transition away from capital intensive growth toward deleveraging and a more capital light, innovation centric model.

Where does this lead us in today’s markets?

US: De-rating into the Capital-Intensive Transformation

First, in the US, there appears to be a clear shift away from the capital-light era of the 2010s toward a more capital-intensive regime. The top-down perspective is well appreciated by markets—evidenced by policy initiatives to re-industrialize the US economy and a tandem step-up in fiscal spending. However, the bottom-up perspective has only just begun to be priced in.

Notably, the outsized capex by hyperscalers is no longer a positive narrative cheered by the market. The AI revolution is inherently hardware-intensive. Unlike the early internet era, which leveraged existing telecommunications infrastructure, AI demands ground-up investment in hyperscale data centers, specialized cooling, dedicated power infrastructure, and next-generation semiconductor capacity—effectively transforming large technology companies into “digital utilities.“

Market scepticism toward elevated capex reflects more than short-term ROI concerns: it signals an awareness that a structural shift from capital-light to capital-intensive business models typically leads to sustainably lower valuation multiples. This dynamic aligns with year-to-date U.S. equity behaviour: positive earnings per share growth paired with persistent P/E compression.

China: A Nuanced Transition

China’s transition within this East-West rebalancing remains a nuanced narrative. The strategic direction is clear: a decisive move away from capital-intensive investment— epitomized by property and infrastructure—toward a more capital-light model focused on innovation, R&D, and intellectual property. However, the market implications of this shift are decidedly mixed.

On the one hand, the slowdown in capital-intensive investment will continue to weigh on domestic demand. Its sheer scale, combined with its lingering impact through fiscal channels and household wealth, creates a powerful headwind. On the other hand, the pivot toward innovation is a positive supply-side development with the potential to boost productivity and generate new demand. The crucial question is whether these supply-side gains can materialize against a persistent backdrop of demand-side weakness. This dynamic frames China’s own version of the capex-versus-ROI debate: can technological upgrades and innovation be effectively monetized in an environment plagued by price wars and intense competitive pressures—symptoms, ultimately, of insufficient demand?

Investment Conclusions

Against this backdrop, we hold two structural views:

1. Peaking of U.S. Exceptionalism: U.S. markets— especially those dominated by hyperscalers—face structural de rating pressure as they transition to capital intensive models. Their traditional software and services advantage is being challenged by the hardware demands of the AI era. We expect U.S. equities to relatively underperform.

2. Structural Security Selection within China: We favour long positions in beneficiaries of China’s economic transition—innovation and small caps—paired with caution toward structural losers: large cap, traditional, capital-intensive industries exposed to deleveraging and soft domestic demand.

Geopolitical risk remains the critical unpriced variable. In response to escalating tensions in the Middle East, we have adopted a defensive posture, reducing both gross and net exposures to preserve capital. We intend to rebuild directional positions as volatility eases; until then, we emphasize flexibility, caution, and tactical agility.

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