Top Performing Investments May 2026 - July 2026: Three-Month Analysis

Financials was the best-performing sector in the three months to 31 July 2026, returning 11.8% - more than double the MSCI World's 5.4% - driven by bumper bank trading revenues and rising rate expectations. Technology stayed volatile as the AI trade wobbled, while healthcare and defence-focused industrials also outperformed amid Middle East tensions.

What Happened in Markets May - July: Key Investment Trends

📌The Israel-Iran conflict and swings in enthusiasm for the AI trade dominated the last three months. Oil spiked from $68 to $93 a barrel as the Strait of Hormuz closed and reopened. US inflation stayed above target, pushing bond yields higher. Despite the volatility, the MSCI World still rose 5.4% overall.

The three months to 31 July were dominated by two key themes in global stock markets: the on/off war with Iran and investors’ variable enthusiasm for the AI trade. Both created significant volatility

in certain parts of the market over the period. Nevertheless, markets ended higher than where they started, with a rise of 5.4% in the MSCI World.

The war in the Middle East looked like it might come to an end in June as the US and Iran agreed a memorandum of understanding committing both sides to further talks and to reopening the Strait of Hormuz. The memorandum always looked fragile, and by July, both sides had started bombing again and the crucial Strait of Hormuz had closed. By the end of July, peace talks appeared to be back on, but the shipping route remained unnavigable.

This had a giddy effect on the oil price. Having dropped as low as $68 (Brent Crude) in early July, it spiked back to $93 as hostilities resumed. The cushion of strategic oil reserves appears to have been eroded and oil prices look more vulnerable from here. Any lasting peace deal still looks elusive.

This continues to have an impact on inflation

expectations. US CPI ran at 2.8% and 2.9% in April and May, ahead of analysts’ forecasts. It dipped to 2.6% for June, but it was enough to lift expectations of interest rate rises. The US 2-year bond yield started May at 3.9% and had reached as high as 4.4% in late July.

The problem of rising bond yields was compounded by a new approach from the Federal Reserve’s

incoming chair Kevin Warsh. Warsh has sought to give the market less guidance on Federal Reserve policy and thinking, but this left markets bewildered and worried that inflation would not be tackled effectively. Long-dated bond yields ticked higher and there was a discernible gap between the US and other developed markets.

The other major source of volatility across global markets was the AI trade. It had been an astonishing start to the year for AI Infrastructure stocks such as semiconductors and memory. However, this trade started to wobble, as investors fretted about the sustainability of spending and how it was impacting the cash flows of the US’s largest technology companies. The fear was that it would be more cyclical than investors had assumed. It also became clear that there was some ‘hot’ money in the AI trade.

Against this backdrop, the top-performing sectors were healthcare, technology and financials. The financials sector was buoyed by a very strong second quarter earnings season, with trading and investment banking revenues rising on the back of financial market volatility. Banking and insurance groups also benefited from higher interest rate expectations.

Healthcare stocks benefited from a desire for more defensive exposure from investors. Many of the problems that had plagued healthcare companies had been resolved, with agreements with the US government on pricing and greater stability in some of the major US health agencies. They had also reached historically low valuations and were due a reappraisal, particularly in light of a more volatile technology sector.

The technology sector was volatile. While the sector generally saw a strong earnings season – the aggregate earnings for the Semiconductors & Semiconductor Equipment segment rose 77%, according to Factset – investors started to worry that earnings may have peaked, and that the hyperscalers may not be able to sustain their spending in the wake of damage to their cash flow, higher debt and rising interest rates.

There was some revival in other parts of the technology sector. Software companies, for example, saw some improvement after being on the wrong side of the ‘AI loser’ trade at the start of the year.

The energy sector was mixed. It saw periods of significant strength as tensions in Iran resumed, followed by periods of relative weakness. There was some revival in the electrification theme, as governments sought to direct greater spending to alternative power options as they sought to address a second fossil fuel crisis in four years.

Monthly sector performance vs MSCI World, May - July 2026

Hover on the bars below to zoom in on performance

3 and 5 year sector performance vs MSCI World

Performance is calculated at the end of the month. Data provided by FE fundInfo, correct as at 31st July 2026.

Which investments performed best between May and July 2026?

Key observations

Top performing investments by sector

FundInfo, correct as at 31st July 2026.

Sector Performance May 2026 - July 2026

🏦Which financial sector fund performed best May - July 2026?

Data provided by FE FundInfo, correct as at 31st July 2026.

The financials sector delivered 11.8% over the period, more than double the return of the MSCI World. A significant share of the return came in July, responding to strong second quarter earnings from US, European and UK financial companies. Groups such as Goldman Sachs, Robinhood Markets, and JPMorgan Chase all reported earnings ahead of expectations.

While assets managers and insurance companies were strong, the stand-out performers over the last three months were funds linked to the banking sector, and the European banking sector in particular. Morningstar analysis showed European bank profits rising sharply in Q2 2026, with net profit up around 18% year on year across its sample [1]. It said European banks continue to benefit from “improved earnings diversification

, cost discipline, sound asset quality and robust capitalisation.”

The top performer was the WisdomTree EURO STOXX Banks 3x Daily Leveraged, which returned 62.5% over the last three months. Many of the other top performers were also based around the Eurostoxx Banks index, which delivered 18-20% depending on the currency and whether smaller companies were included.

The other top performers were based on the MSCI Europe Financials index - the iShares MSCI Europe Financials Sector UCITS ETF and the Xtrackers MSCI Europe Financials Screened UCITS ETF. This is heavily weighted to the banking sector (60%)[2], but with 23% in the insurance sector and 17% in financial services.

🤖How did technology stocks perform May - July 2026?

Data provided by FE FundInfo, correct as at 31st July 2026.

At the top was the First Trust Nasdaq Cybersecurity UCITS ETF. Cybersecurity has commanded more attention, with companies and governments needing to defend themselves against an increasingly sophisticated range of attacks as geopolitical tensions have risen. This is finally being reflected in share prices with the Nasdaq ETF up 39% over the last three months.

The other top performers were a mixed bag, but each with a distinct structural growth theme. First Trust Cloud Computing UCITS ETF, for example, surged 21.5%, while the iShares Digital Entertainment and Education UCITS ETF rose 15.8%. The Amundi MSCI Robotics & AI UCITS ETF also saw strong growth.

The HSBC Nasdaq Global Semiconductor UCITS ETF was the only semiconductor fund to make the top 10 this period. The ETF

was down over 20% in July, but significant strength in May and June helped lift its performance.

🩺Why did healthcare stocks outperform in mid-2026?

Data provided by FE FundInfo, correct as at 31st July 2026.

The strongest performers in the sector were all specialist funds, with the Intuitive Investments Group PLC top with 35.3%. This Investment Trust focuses on specialist life sciences and technology investments. Genomics was the other major area of strength, with the LS ARK Genomic Revolution Tracker ETP and IQ EQ Fund Management ARK Genomic Revolution UCITS ETF rising 30.2% and 28.2% respectively. The area has been a major source of healthcare innovation with advances in sequencing, precision medicine and biotechnology.

The generalist Polar Capital Global Healthcare Trust rose 17.1% over three months.

AXA Framlington Health was the other notable active fund among the top performers, rising 15.5%. The iShares Healthcare Innovation UCITS ETF has had a difficult run of performance, down -3.1% over five years, but it jumped 14% over this period.

🏭Which industrials funds benefited from rising defence spending?

Data provided by FE FundInfo, correct as at 31st July 2026.

Over the last three months, it was defence ETFs that stood apart from the pack. The sector benefited from the ongoing tensions in the Middle East and greater commitments from European governments to defence spending. These commitments are now filtering through into contracts and revenues for the sector. Weaker performance from some defence companies earlier in the year had also left valuations looking more attractive.

Six of the 10 top-performing funds had a focus on defence. The top performer was the WisdomTree Stoxx Europe Aerospace & Defence 3x Daily Leveraged ETF, which rose 29.4% over the period. Three Han funds - HAN Future Of Defence Screened UCITS ETF, HAN Yieldmax Future Of Defence Option Income UCITS ETF, and HAN Future of Defence UCITS ETF – were also among the top five performers.

Generalist industrials funds made up the remainder of the top-performers. The iShares DJ Industrial Average UCITS ETF rose 6.9% over 3 months, while the Invesco Industrials S&P US Select Scope UCITS ETF and the iShares S&P 500 Industrials Sector UCITS ETF both rose 4.1%. Both funds have significant weightings to US aerospace and defence giants such as GE Aerospace and Boeing.

🛒How did consumer staples funds perform amid inflation?

Data provided by FE FundInfo, correct as at 31st July 2026.

The SSGA State Street SPDR MSCI Europe Consumer Staples UCITS ETF was the top performing specialist consumer staples ETF. It delivered this performance in spite of the relative weakness of some of its largest holdings, including Unilever and British American Tobacco. For once, its relatively high weight in the UK was an advantage, with the UK market stronger over the quarter.

European stocks were generally stronger than their US peers, with higher inflation data weighing on some US consumer companies. Nevertheless, the Xtrackers MSCI World Consumer Staples UCITS ETF rose 2.3% over this period, while the iShares S&P 500 Consumer Staples UCITS ETF was just in positive territory.

🚢Was consumer discretionary the weakest sector in 2026 so far?

Data provided by FE FundInfo, correct as at 31st July 2026.

The SSGA State Street SPDR MSCI Europe Consumer Discretionary UCITS ETF was the top performer over three months. The Trust has been supported by a robust three months for luxury goods group Richemont, which has seen strong growth in its jewellery business through brands such as Cartier and Van Cleef & Arpels [3].

The GAM Multistock Luxury Brands Equity also had a strong three months. Manager Flavio Cereda attributed the fund’s recent strength to its prioritising luxury experiences.

Elsewhere, funds were supported by exposure to Amazon.com, which delivered a strong set of Q2 results. It is 35% of the iShares S&P 500 Consumer Discretionary Sector UCITS ETF. [3] Amazon.com is less exposed to the fortunes of the global consumer, and more to trends such as cloud computing and AI.

📝 What should investors take away from May - July 2026?

It has been a volatile three months for investors with markets vacillating between risk on and risk off. May saw widespread enthusiasm for AI growth, boosting areas such as semiconductors and memory companies, but June took a more defensive turn as investors started to worry about inflation and geopolitical tensions. July saw further sell-offs in high profile technology companies, with only financials and energy companies seeing real strength.

1) Quarterly momentum vs Long-term trends

The latest earnings data over the last three months appeared to support the long-term strength of AI spending. Hyperscalers such as Alphabet and Microsoft continue to commit significant resources to building AI infrastructure, which should provide a boost for companies that provide the crucial parts, power and other resources. However, there is a concern that capital expenditure commitments are weakening balance sheets and cash flow among the US technology names. Equally, semiconductor and memory stocks are looking like a crowded trade. The market is becoming more nuanced in its appraisal of AI, and other areas – power generation, AI adopters – may start to come to the fore.

2) Sector rotation patterns this month

This month’s performance shows the indecision in markets. There are worries over the technology companies that have become so dominant in global and US indices. There are plenty of areas that look cheap, where growth appears robust. These tend to come to the fore during moments of weakness over the technology trade, but this diversification has yet to become an established trend. The next few quarters may determine whether areas such as healthcare, smaller companies, or consumer companies can build some momentum.

3) Seasonal vs structural performance drivers

The fall-out from the Iran crisis has created some short-term winners, particularly in the energy, materials and industrial sectors. However, energy has become a binary trade – it goes up as tensions rise and the oil price lifts and sells off when there is talk of peace. It is not clear that the current gains – 11.5% in July – can be sustained if the Strait of Hormuz reopens. Elsewhere, there is clearly substance to the AI trade, with widespread adoption. Here, the worries are more around valuation and sustainability.

4) Risk-on vs risk-off sentiment

Markets continue to be surprisingly defiant, given a range of mounting risks: the potential fall-out from the Iran crisis, rising bond yields and any weakness in the AI trend to name a few. However, gains appear fragile, and there have been significant wobbles along the way. Valuations in the technology sector are high and there are signs of leverage in the system. This could make for some jumpiness in the near-term.

🔮 Which sectors and themes should investors watch for the rest of 2026?

Based on the above performance trends and current market positioning, investors might consider:

• How they approach technology. The ‘Magnificent Seven

  Also known as the Mag 7, a group of seven major technology companies which have dominated the US stock market in recent years. The group comprises: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
  ’ companies that have led markets for a decade or more are flagging, as capital spending erodes their cash flow. Investors may need a more nuanced approach, looking to other, lower profile parts of the technology sector, such as cybersecurity or digitisation.

• ‘Quality’ sectors such as healthcare and consumer staples. These have been out of favour for some time. They have shown signs of life this period, particularly during periods of concern on the global economy starts to weaken. These ‘defensive’ areas may have more appeal for investors if the AI trade flags.

• Their level of Inflation protection. This remains important in portfolios. Inflationary pressures have been persistent in the US, even during periods when energy prices have fallen. There are fewer pressures in the UK and Europe, where labour markets are tighter.

• A closer look at commodities. The major bottlenecks for the AI trade are likely to come from power generation, access to commodities and the availability of key materials. At a time when supply chains are being re-engineered, and geopolitical tensions are high, companies that provide access to these vital areas may be highly prized by investors.

📆 Key Events to Watch

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[1] Morningstar

[2] MSCI Europe Financials Index (EUR)

[3] Financial Times

[4] GAM Investments

[5] iShares