Tycho CapeView European Long Short Fund

Overview

Tycho CapeView European Long Short Fund seeks to deliver consistent, risk-adjusted returns by taking long and short positions in European equities. The fund combines fundamental, bottom-up stock selection with disciplined portfolio construction and active risk management to generate positive alpha, while maintaining low net market exposure.

Strategy & Manager

Performance

Commentary

Investment Manager’s Commentary – March 2026

The Tycho CapeView European Long Short Fund returned -5.8% (Class F USD) in March compared to European markets which fell significantly due to the conflict in Iran. The Stoxx 600 Index fell -7.5% and Stoxx 50 Index fell -9%.

“Play what you see” has always been our mantra. What made the month so challenging was that we couldn’t trust the market signals. Armed with the Ukrainian war playbook, we felt that we had to accept some potential downside volatility in our core names. We also knew, especially after the AI carnage in late Feb, that there would be risk of unwind within the pod shops. In the short term this meant that alpha would be highly unpredictable, as it was in the immediate aftermath of the Russian invasion of Ukraine, but that some names would eventually prove to be antifragile and ultimately come out stronger from the conflict. We therefore decided the best course of action was to reduce overall risk in the portfolio by slightly reducing the number of names (but nothing like to the same degree as we did around the Russia/Ukraine war) and to actively trade the hedges to limit the downside, but also opportunistically increase sizes in some of our core names.

A key source of weakness came from our long book, where the fund lost money in a number of rate sensitive shares (airlines, UK housebuilders, UK REITS) where the market was concerned that an energy spike would lead to rate hikes; a fear which many central banks did little to discourage which seems totally ridiculous to us. The last inflation shock was a supply chain shock. An energy price shock is theoretically temporary and would be a tax on demand and highly likely to be recessionary, therefore in this scenario one would expect rates to fall in the future and not rise. We therefore expect the rate sensitive names to bounce back either way, but we decided to refocus our exposure there around asset-owning companies rather than operating companies (i.e. we rotated out of housebuilders and into more infrastructure and real estate plays).

The only other major change to the portfolio was in the banks. Having exited banks and in fact entered the month net short with a hedge, we exited the hedge and used the 20% correction in the sector to reinitiate longs at the expense of some of the cap goods longs where we think there is elevated risk of short-term earnings hits (in contrast to the banks which sailed through the Russia/Ukraine war outbreak).

In amongst the volatility, it was still encouraging to see some of our conviction ideas perform as hoped. For example, the fund’s top winner was our long position in IG Index, a global leading trading platform, which delivered +56bp. This was driven by further confirmation of the turnaround being produced by the new management team. We continue to believe there is further value to be created in the company and have maintained the position. And in the short book, there was a noticeable contribution from a pulp & paper contractor which delivered +51bp. The company reported a weaker-than-expected outlook for 2026. As the provision releases keep boosting results, we are concerned about project accounting and remain short.

Our view is that this recent conflict, together with the war in Ukraine and even the trade tariffs, are signs of the emerging new world order. They are a slow-moving tax on corporate profits, government deficits and consumers which will at some point usher an authentic bear market. In the background, prior to the conflict beginning, concerns around AI disruption and private credit were growing. We think these concerns are only likely to grow in the coming year.

At the time of writing, the crisis is not over, although it seems clear that all sides are seeking to contain it. We are likely therefore to start buying dips soon if volatility comes down and allows us to hedge the tails at an acceptable price. At the gross level the next move is likely up now that it feels that the lion’s share of de-grossing across the market has taken place, allowing at least on a relative basis the merits of our investments and shorts to play out.

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