--- title: "Midyear Portfolio Review: The Rotation Worked. Europe Didn't." description: "Midyear review of the 2026 CHF portfolio: EM, small-cap and Japan paid off; the Europe overweight underperformed; CAPE rose to 42; the dollar didn't fall." date: 2026-05-15 updated: 2026-05-09 author: "Philipp D. Dubach" categories: - "Investing" keywords: - "midyear portfolio review 2026" - "Shiller CAPE 42" - "S\u0026P 500 Shiller CAPE 2026" - "European equity valuation discount" - "Europe overweight underperform 2026" - "USD CHF outlook 2026" - "S\u0026P 500 concentration NVIDIA" - "NVIDIA 8% S\u0026P 500 weight" - "60/40 portfolio benchmark CHF" - "AI capex hyperscaler 2026" - "JPM S\u0026P 500 7600 target" - "Mike Wilson 7800 target" - "Germany fiscal pivot equities" - "emerging markets rotation 2026" - "US Treasury safety premium" - "IMF Fiscal Monitor April 2026" - "Bitcoin allocation portfolio 2026" - "small cap rotation 2026" - "gold UBS 5900 target 2026" type: "Analysis" canonical_url: "http://philippdubach.com/posts/midyear-portfolio-review-the-rotation-worked-europe-didnt/" source_url: "http://philippdubach.com/posts/midyear-portfolio-review-the-rotation-worked-europe-didnt/index.md" content_signal: search=yes, ai-input=yes, ai-train=yes --- # Midyear Portfolio Review: The Rotation Worked. Europe Didn't. *Philipp D. Dubach · Published May 15, 2026 · Updated May 9, 2026* ## Key Takeaways - The portfolio returned +3.7% in CHF through May 8, matching a global 60/40 (+3.8%) but trailing the S&P 500 in CHF (+5.8%); the 2025 dollar tailwind has nearly disappeared. - The Shiller CAPE rose from 39.8 in December to 42.0 in May 2026, the highest reading since the December 1999 dot-com peak of 44.2. - Three of four rotation calls paid off (Emerging Markets +19.0%, US Small Cap +12.5%, Japan +11.7% in CHF), but the Europe overweight underdelivered at +3.3%. - NVIDIA's S&P 500 weight grew from 7.2% to 8.17% while Microsoft slipped from 5.9% to 5.0%, making the concentration risk a single-name story rather than a Mag-7 story. --- ![Editorial cover illustration for the 2026 midyear portfolio review: a figure on a Swiss alpine balcony looking across a valley at a stylized financial skyline dominated by one disproportionately tall tower](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/midyear-cover.jpg) In December I rebalanced my portfolio around [five theses for 2026](/posts/how-ai-is-shaping-my-investment-portfolio-for-2026/). Five months in, this (early; well just too much happened) midyear review puts four of them ahead of where I expected and one well behind. The one I had the most conviction in, an overweight in European equities by five percentage points, has trailed every other rotation it was meant to beat. ## Portfolio performance so far Through May, the portfolio is up **+3.7%** in CHF on a time-weighted basis. A fairly-constructed 60/40 benchmark (60% MSCI ACWI in CHF, 40% global aggregate bonds CHF-hedged) is up **+3.8%**. The S&P 500 in CHF, total return: **+5.8%**. ![2026 H1 portfolio performance chart comparing CHF time-weighted return (+3.7%) to S&P 500 total return in CHF (+5.8%) and a global 60/40 benchmark (+3.8%) from January 2 to May 8, 2026](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/portfolio_performance_2026h1.png) The 2025 outperformance, when this same approach beat the S&P 500 by a wide margin in CHF terms, was driven by the dollar's collapse against the franc. USDCHF fell 11.5% last year. So far in 2026 it has fallen 1.5%. The FX tailwind that made the CHF-hedged strategy look brilliant is gone, and the portfolio is doing what it should in a year when the diversifier isn't needed yet: matching the global benchmark and trailing pure US exposure. ## What worked, what didn't ![2026 H1 thesis scorecard showing year-to-date returns by sleeve in CHF: Emerging Markets +19.0%, US Small Cap +12.5%, Japan +11.7%, US Large Cap +6.7%, Gold +4.3%, Europe +3.3%, bonds near flat, Listed PE −10.6%, Bitcoin −12.2%](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/thesis_scorecard_2026h1.png) Emerging Markets returned **+19.0%**, the single biggest contributor relative to weight. US Small Cap **+12.5%**, Japan **+11.7%**. The rotation thesis, that valuation differentials between US large-cap and almost everything else were too wide to ignore, paid off in three of the four sleeves where I increased exposure. The fourth was Europe. Up **+3.3%** in CHF, trailing US large-cap by 3.4 points and trailing every other rotation alternative by 8 to 16 points. Germany's fiscal pivot is real (€500bn infrastructure fund, €400bn defense, €600bn private commitments). [Citi's European equity strategy team kept its overweight call](https://www.citigroup.com/global/insights/european-equity-strategy-european-fiscal-stimulus-revisited) and projects German EPS growth at a 13% CAGR through 2029. BofA's February investor survey showed 89% of investors expecting European upside. None of that has shown up in equity prices yet. Bitcoin and Listed PE were the worst calls, both down roughly 11 to 12 points in CHF. Crypto was always sized as a 4.5% allocation precisely because of this kind of move. Listed PE I'm watching more carefully, since the discount-to-NAV widening that drove the drawdown isn't a thesis call gone wrong so much as the trade getting more crowded going into a year of higher dispersion. ## Valuations got more extreme The CAPE was the spine of the December argument. The S&P 500 traded at 40.5x cyclically-adjusted earnings, twice the long-run mean of 17.3, and the gap had to compress one way or another, through multiple contraction or earnings growth. ![S&P 500 Shiller CAPE ratio chart from 1871 to May 2026 showing the current value at 42.0, up from 39.8 in December 2025, with annotations marking historical peaks at the 1929 Black Tuesday (32.6) and December 1999 dot-com peak (44.2)](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/cape_ratio_2026h1.png) It compressed in neither direction. The [CAPE is now **42.0**](https://www.multpl.com/shiller-pe), up from 39.8 in December. That puts US large-cap closer to the dot-com peak (44.2 in December 1999) than at any point since. The compression I expected didn't happen, and the multiple expanded modestly while the rest of the world kept its mouth open. Concentration is messier. The December article said "approximately 45%" for the top 10. The actual figure today, from iShares' IVV holdings file, is **39.1%**. Either December's number was overstated or it has drifted down. NVIDIA, however, grew from 7.2% to **8.17%**. Microsoft slipped from 5.9% to 5.0%. Apple is flat. The concentration risk is now a single-name risk, not a Mag-7 risk. ![Horizontal bar chart of S&P 500 top 10 holdings as of May 7, 2026, with NVIDIA at 8.17% (up from 7.2% in December), Apple at 6.70%, Microsoft at 4.96% (down from 5.9%), and the top 10 totaling 39.1% of the index](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/sp500_concentration_2026h1.png) ## The Europe trade is alive but not paying The European valuation discount the December piece flagged was 22% on a forward-earnings basis (US 23x, Europe 14x, per UBS's Year Ahead 2026). On a trailing basis today, US trades at **27.7x** and Europe at **18.1x**, a 34% discount. ![Regional valuation comparison bar chart showing trailing price-to-earnings ratios as of May 2026: United States 27.7×, Europe 18.1× (34% discount vs US), Japan 18.6× (33% discount), Emerging Markets 17.4× (37% discount)](https://static.philippdubach.com/cdn-cgi/image/width=1600,quality=85,format=auto/regional_pe_2026h1.png) The cushion has mattered less to performance than I expected. Two quarters of strong US earnings ([Q1 2026 net margin hit 13.4%, a record per FactSet](https://insight.factset.com/sp-500-earnings-season-update-may-1-2026)) made the multiple expensive without making the index look fragile. [JPM's Lakos-Bujas raised the S&P 500 year-end target to 7,600 in April](https://www.cnbc.com/2026/04/21/jpmorgan-raises-sp-500-target-as-mythos-model-bolsters-ai-trade.html), lifting 2026 EPS to $330 (+22% YoY). [Morgan Stanley's Mike Wilson is at 7,800](https://www.cnbc.com/video/2026/04/14/sp500-lows-are-in-for-the-year-for-the-sp-500-says-morgan-stanley-cio-mike-wilson.html) with explicit "early cycle" framing. The bear is [BofA's Subramanian at 7,100](https://www.cnbc.com/2025/12/15/bofas-savita-subramanian-says-sp-500-will-rise-to-just-7100-in-2026.html); Hartnett's Bull/Bear indicator hit 9.6 (extreme sell) in February before falling to 6.6 in April as positioning unwound. Consensus has converged at the higher end of S&P 500 targets, not the lower. For the Europe overweight, if discounts that wide can persist for years (and the 25-year history of the gap says they can), then the cheap-versus-expensive case isn't enough on its own. You need a catalyst. Germany's fiscal pivot was supposed to be it. The pivot is happening; the multiple isn't expanding. ## Dollar, AI, bonds **Dollar.** December's call was for 4% to 10% USD depreciation through 2026. So far it's down 1.5% against CHF, a stall rather than a fail. Goldman, UBS, Pictet, ABN AMRO, and MUFG all kept their dollar-weakness calls but pushed the bulk of the move into H2. The fundamentals (twin deficits, declining rate differential, fiscal sustainability concerns flagged by the IMF in April) haven't gone anywhere. **AI capex.** Hyperscaler capex was forecast at $571bn for 2026 in December's piece. Q1 confirmed actuals plus guidance now point to **$660-725bn** at the conservative end, with Morgan Stanley as high as $805bn. No major house has trimmed. The Anthropic Mythos release on April 7, [which JPM credits as the catalyst for the late-April rebound](https://www.cnbc.com/2026/04/21/jpmorgan-raises-sp-500-target-as-mythos-model-bolsters-ai-trade.html), made the model-improvement curve look steeper rather than flatter. My own view that AI may end up as a competitive commodity rather than a winner-take-all hyperscaler windfall is unchanged, but the capex cycle has clearly not topped. **Fixed income.** The "best fixed-income setup since GFC" thesis has held up unevenly. CHF Corporate Bonds returned **−0.0%**, Euro Govt CHF-Hedged **−0.4%**, US Treasuries 7-10Y **−1.4%** in CHF (the FX drag wiping out a flat USD return). Carry has been fine. The duration call was whipsawed by April's oil shock ([Brent traded in a $118-126 range after the Iran flare-up](https://www.cnbc.com/2026/04/08/dated-brent-oil-price-iran-war-ceasefire-strait-hormuz.html)) and a futures-priced "no Fed cuts" episode that has only partially mean-reverted. Two cuts is still the consensus baseline, but conviction is lower. *Related: [AI Capex Arms Race: Who Blinks First?](http://philippdubach.com/posts/ai-capex-arms-race-who-blinks-first/)* ## H2 Outlook Three themes that weren't on my radar in December. **Sovereign debt sustainability.** The [IMF April 2026 Fiscal Monitor](https://www.imf.org/en/publications/fm/issues/2026/04/15/fiscal-monitor-april-2026) warned that the US Treasury "safety premium" is being compressed. [CBO projects a $1.9 trillion FY26 deficit](https://www.cbo.gov/publication/61882) and $2.4T average for FY27-36. Goldman now publishes notes on fiscal contagion to bonds, currencies, and stocks. This was barely mentioned in the December outlook cycle and is now treated as a primary risk. **Tariffs as a live variable.** The [February SCOTUS IEEPA ruling and the Section 122 substitute](https://www.cov.com/en/news-and-insights/insights/2026/02/ieepa-tariffs-terminated-replacement-section-122-tariffs-take-effect) (10% global escalating to 15%) make tariffs [the largest US tax increase as a share of GDP since 1993, per the Tax Foundation](https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/), and roughly $1,300-$1,500 per household. The IMF's April WEO cut its 2026 US and global growth forecasts citing both tariffs and the Middle East shock. **Gold's continued ascent.** UBS now models gold at **$5,900/oz** by late 2026, JPM at $6,300 by Q4 2026, Deutsche Bank at $6,000. [Q1 2026 central bank gold buying hit 244 tonnes per the World Gold Council](https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q1-2026/central-banks). December consensus was $3,200 to $3,800. My CHF-hedged gold position is up +4.3% in CHF, decent but well below what unhedged USD gold did. I held the hedge expecting the dollar to fall fast enough to offset; the dollar has not moved, and the hedge has cost me roughly 4 points of relative performance. ## Je ne regrette rien Modest tilts, not regime change. A small rotation from CHF Corporate Bonds (which yielded zero in CHF) into IG credit, where UBS is recommending "lock in rates" at the May House View. Marginally less Europe, not because the case is wrong but because at 13% I'm taking position-sizing risk on a multi-quarter call without enough catalyst proximity. A smaller US Treasury allocation, since the FX drag is doing all the work and I would rather take duration in CHF Govt or hedged USD. The crypto sleeve takes a 12-point drawdown in CHF and I keep it where it is. It was sized at 4.5% precisely because of this kind of move. The one I am undecided on is whether to thin gold. The hedge has been a cost. The unhedged version has done what gold should do in a year of fiscal stress. If I unwind the hedge mid-year, I am giving up the protection I bought it for; if I keep it and the dollar falls in H2 as the consensus still expects, the hedge starts paying again. I am leaving it as-is and adding the next gold dollar to the unhedged side. > **Disclaimer.** All opinions expressed are my own. This is not investment, financial, tax, or legal advice. Past performance does not indicate future results. Do your own research and consult qualified professionals before making financial decisions. No liability accepted for any losses. --- ## Frequently Asked Questions ### How did the 2026 portfolio perform at midyear? Through May 8, the portfolio returned +3.7% in CHF on a time-weighted basis, in line with a fairly-constructed global 60/40 benchmark (+3.8%) but trailing the S&P 500 total return in CHF (+5.8%). The 2025 USD-weakness tailwind that drove last year's outperformance has nearly evaporated, with USDCHF down only 1.5% YTD versus −11.5% across all of 2025. ### Which 2026 thesis calls worked and which didn't? Three of four rotation calls paid off: Emerging Markets +19.0%, US Small Cap +12.5%, Japan +11.7% in CHF terms. The fourth, the overweight in Europe, returned only +3.3%, trailing US large-cap by 3.4 percentage points and trailing every other rotation alternative by 8 to 16 points. ### Is the S&P 500 overvalued in May 2026? By the Shiller CAPE measure, yes, and more extremely than at the end of 2025. The CAPE rose from 39.8 in December to 42.0 in May 2026, the highest reading since the December 1999 dot-com peak of 44.2. That puts US large-cap at 2.4× the long-run mean of 17.4, and the European trailing P/E discount versus the US has widened from 22% (forward, December) to 34% (trailing, May). ### Is the dollar still expected to depreciate in 2026? Most major research houses (Goldman, UBS, J.P. Morgan, Pictet, ABN AMRO, MUFG) kept their dollar-weakness calls but pushed the bulk of the move into H2 2026. So far the dollar is down only 1.5% against CHF, a stall rather than a directional break. The IMF's April Fiscal Monitor flagged compressing US Treasury safety premium, supporting continued weakness, but the market has not acted yet. --- Canonical: http://philippdubach.com/posts/midyear-portfolio-review-the-rotation-worked-europe-didnt/ Content-Signal: search=yes, ai-input=yes, ai-train=yes This file is the canonical machine-readable variant of http://philippdubach.com/posts/midyear-portfolio-review-the-rotation-worked-europe-didnt/. Author: Philipp D. Dubach (http://philippdubach.com/).