L1 Capital International Fund misses benchmark as AI capex rally leaves portfolio behind
Taiwan Semiconductor Manufacturing Company and Nvidia benefited from market exuberance, but L1 Capital’s focus on quality and valuation resulted in significant underperformance.
L1 Capital International Fund reported a net return of 2.6 per cent for the June 2026 quarter, falling significantly short of its benchmark’s 12.5 per cent return. In its second-quarter investor letter, the fund attributed the performance gap to a market environment that heavily favoured artificial intelligence capital expenditure beneficiaries, specifically Taiwan Semiconductor Manufacturing Company and Nvidia.
The fund described the current investment landscape as a ‘two-speed’ but resilient global economy characterised by an uncertain future. L1 Capital noted a ‘narrow’ market dynamic marked by high exuberance in technology sectors and pronounced over-pessimism elsewhere. While the fund had more positive contributors than negative detractors to returns, the overall quarterly performance was mixed due to sector rotation that benefited AI capex winners.
Taiwan Semiconductor Manufacturing Company, the world’s leading contract chip manufacturer, contributed more than 2.0 per cent to the fund’s returns. The stock closed at $398.37 on July 17, 2026, with a market capitalisation of $2.07 trillion. Despite a one-month return of -12.50 per cent, the share price had gained 71.32 per cent over the past 52 weeks.
In the first quarter of 2026, Taiwan Semiconductor Manufacturing Company’s revenue increased 6.4 per cent sequentially to $35.9 billion in US dollar terms, exceeding guidance. Hedge fund interest in the stock also rose, with 234 portfolios holding the stock at the end of Q1 2026, up from 224 in the previous quarter.
L1 Capital stated that while Taiwan Semiconductor Manufacturing Company offers investment merit, the firm believes certain other artificial intelligence stocks present greater upside potential with less downside risk. Nvidia and Taiwan Semiconductor Manufacturing Company remain top-five holdings in the fund, with the firm citing strong fundamentals for both businesses.
The fund emphasised its continued focus on quality, valuation and the avoidance of permanent capital loss. L1 Capital believes the portfolio is positioned to deliver attractive risk-adjusted returns for patient investors, distinguishing between strong fundamentals and speculative momentum in the broader market.
