Difficulty
The Strait of Hormuz remained partially closed for the third month, which kept energy prices high and put pressure on both inflation and bond yields. Toward the end of the month, however, signs of a possible end to the conflict began to emerge, and the price of Brent crude has stayed below USD 100 per barrel since May 20.
Investor confidence in the equity markets was supported mainly by first-quarter corporate earnings. U.S. companies posted very strong results that were not limited to the technology sector. Earnings of companies in the U.S. S&P 500 index rose by more than 28% year-on-year.
This allowed investors to push aside geopolitical fears and focus on long-term growth. For example, the S&P 500 index of large U.S. companies gained 5.1% and recorded its ninth consecutive week of growth at the end of the month. In long-term investing, profit growth is precisely the important force that increases the value of companies and the equity market.
European equities grew at a more moderate pace, as Europe remains more sensitive to higher energy prices due to its limited resources. Emerging markets, on the other hand, had a very strong month and significantly outperformed developed markets.
They were driven mainly by South Korea and Taiwan, both tied to the AI sector and the semiconductor industry — the Korean market rose by roughly 28% and the Taiwanese market by 14%. South Korean companies are particularly interesting, as they are fully capitalizing on technological advances. For example, net profits of companies in the KOSPI index rose by 178% year-on-year in the first quarter.
Bond markets had a volatile month. Expectations of accelerating inflation due to higher energy prices initially pushed bond yields higher. In an environment of rising prices, investors demand a higher yield, since inflation reduces the value of their future earnings. However, rising yields on newly issued bonds mean a decline in the prices of existing ones. That is why, when yields rise, bond prices fall.
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Our investors also felt the strong growth, and the performance of our portfolios was once again influenced by a 0.6% stronger dollar. Finax holds U.S. equity positions without currency hedging — a stronger dollar against the euro increases our investors' returns, while a weaker dollar reduces them.
In our relevant currency markets, the euro weakened against the Czech koruna by 0.41%, weakened against the Hungarian forint by 2.58%, and weakened against the Polish zloty by 0.67%.
Among the ETFs included in our portfolios, the highest growth was recorded by the fund tracking emerging markets, which gained 8.5%. The lowest return came from the fund tracking developed-market government bonds, still posting growth of 0.5%.
Among our ETF Investing strategies, these events had the most favorable impact on the 100% equity portfolio, which grew by 5.6%. The weakest growth, at 0.5%, was recorded by the 100% bond strategy.
The Wallet grew by 0.3% and the Smart Deposit gained 0.1%. At the end of May, their gross annual yields to maturity stood at 2.0% for the Smart Deposit and 2.3% for the Wallet*.
In June, we can look forward to further developments in talks between the U.S. and Iran, the gigantic Space X IPO, and watching the first steps of Kevin Warsh, who was appointed in May as the new governor of the U.S. central bank. For the long-term investor, however, the main recommendation does not change: stick to the plan, do not speculate, and keep your assets broadly diversified.
May's developments remind us once again of a few fundamental things:
- Markets often manage to recover before all the scary headlines disappear from the media.
- Diversification makes it possible to capture growth opportunities even in regions that have been overlooked for years (for example, emerging markets).
- The bond component of a portfolio is important, but during inflationary shocks it can fluctuate in the short term alongside equities. A long-term horizon is therefore the key to every investor's success.
*This is the gross yield to maturity as of 31 May 2026 reported by the ETF product issuers. It is variable, tied to the ECB's main deposit rate and to interest rates on the euro bond markets, and does not include Finax's fee of 0.5%. This yield may change in line with the development of interest rates and is not a reliable indicator of future performance.
