The first quarter of 2026 proved challenging for global equity markets. Ironically, what has been the core strength of many internationally diversified portfolios became their primary weakness: a heavy reliance on US technology stocks. As concerns over artificial intelligence rattled the software sector, the limitations of a market-cap-weighted global approach were suddenly exposed.

A Shifting Macroeconomic Landscape Clouds the Outlook

The broader investment environment grew more complex during the period. The introduction of a blanket 10% US import tariff, coupled with a roughly 45% surge in oil prices driven by geopolitical conflict, rekindled inflation fears. In response, the European Central Bank has signaled potential interest rate hikes for the current year, projecting an inflation rate of 3.1% for the second quarter.

Against this backdrop, a significant rotation occurred within US markets. Investors grew increasingly concerned that emerging AI capabilities could disrupt traditional Software-as-a-Service (SaaS) business models. This sent American software stocks tumbling, with losses reaching 23% by the end of February. The sell-off prompted a broad shift out of highly valued growth equities and into more reasonably priced value stocks.

Extreme Index Concentration Amplifies Volatility

This rotation hit the fund's underlying benchmark particularly hard. Despite tracking over 4,200 companies across 48 countries, US equities now constitute nearly two-thirds of the index's weight. Concentration is even more extreme at the top. A full quarter of the entire index is allocated to just ten holdings. Given that these are almost exclusively American tech behemoths, along with the Taiwanese chip manufacturer TSMC, the five-week period of weakness on Wall Street directly dragged down the fund's performance.

The $56.8 billion Vanguard FTSE All-World UCITS ETF (USD Accumulating) had delivered a one-year return exceeding 24% through February. Its long-term fundamentals remain sound. Analysts suggest that if earnings growth broadens beyond the technology sector in the coming months as anticipated, the fund's wide dispersion will become a tangible advantage. The true defensive mechanism of a global portfolio would reassert itself, particularly if the US market underperforms Europe or Asia as it did in 2025.

Emerging Markets and Cyclical Sectors Provide a Buffer

Some resilience was found outside the dominant US market. Emerging economies, ironically, offered a degree of protection, recording only minimal losses and significantly outperforming developed nations. Japan's TOPIX index, for instance, gained 3.6%, supported by a weak yen and expectations of post-election fiscal stimulus in February.

International stocks outside the US also benefited from their greater exposure to cyclical industries. The materials and commodities sector, in particular, has attracted substantial investor inflows since the start of the year, cushioning the overall impact of the tech-led decline.

Ad

Fresh Vanguard FTSE All-World UCITS ETF USD Accumulation information released. What's the impact for investors? Our latest independent report examines recent figures and market trends.