The missile and drone launches have quieted, the Strait of Hormuz isn’t really open unless you want to be boarded by either Iranians or Americans, the talks are on or off depending on which headline you read. Fortunately, Mr. Market has largely moved on, with most indices making some fresh new highs. This could change at any moment, but we will take this relative pause as an opportunity to switch topics for this Ethos: what are the most recurring questions we receive from advisors and investors?
Whether from individual advisor meetings, questions fielded during investor events or conversations from the many investment committee meetings in which we participate, here are some of the most common questions from the past quarter— and, of course, our thoughts.
What is going on with gold?
Gold has a very long and successful history of providing crisis alpha, a stabilizer for portfolios when the world goes wonky. If you were asked what gold would do if hostilities broke out between the U.S. and Iran, spiking geopolitical risk higher, most would be in the camp that gold should go up in price. Surprising most, gold is down 12% since hostilities began and at one point was down nearly 18%. Meanwhile gold miners, as measured by the XGD ETF, are down 18%.
The challenge for gold during this conflict is twofold – it had already run really hard to the upside and was not all about flow momentum. Investors are well aware that gold has experienced some very outsized gains during the past couple years. Rising +27% in 2024 and +65% in 2025, and rising a further +23% through the end of February of this year, before the conflict began. And during this strong bull run, there really hasn’t been any great crisis.
Central banks diversifying their reserves, mildly bearish sentiment towards the U.S. dollar, or other factors, probably got this bull run going. But like anything, once the performance started shining the floodgates opened with more investors piling in. How many investors started asking, ”Do I have any gold in my portfolio?” As a result, since mid-2025, gold has moved in lockstep with financial flows. With flows as the dominant price driver, rising or falling geopolitical risk simply hasn’t been as strong an influence on the price as it usually is. Nor are real yields, the U.S. dollar or other historical gold price influencing factors.
When the conflict in Iran started, investors sold some gold ETFs, dropping holdings from 3,139 tons to 3,050 by the end of March. That is when holdings bottomed and so did the price of gold. At some point other factors will rise back up in prominence for driving gold, but for now it’s all flows.
That isn’t a bad thing. Trust in the system is certainly not high—for too many reasons to list—and investors have returned to gold. That could easily continue and have a big influence on bullion prices, but it will cut both ways. Gold is not so much a provider of crisis alpha these days, but more just pure alpha [it is worth nothing that we continue to hold gold].
AI disruption / software selloff: Opportunity or value trap?
Technology has always moved pretty quickly and given the dramatic proliferation of artificial intelligence (AI) tools, it sure is moving even faster today. Up until last fall, it was based on broad excitement, with any AI related news causing share prices to rise. This started to change in late 2025 as investors began to question the returns on these massive capex spending plans by the hyperscalers. And in 2026 it changed again as investors started worrying about the impact of AI on various industries, in particular if those existing business models will be disrupted.
While this disruption fear has popped up in many industries ranging from law, credit rating, stock exchanges and trucking, it has been most acute in software. This fear helped push the S&P 500 Software index down more than 30% in a few months while the broader market has generally moved higher. The price-to-earnings multiple for software contracted from nosebleed levels of 35 times down to the low 20 times, roughly in line with the broader market. Prices have imploded while earnings estimates for 2026 and 2027 have continued to rise during this selloff.
Markets often overreact in the short-term and under react to long-term changes. This does appear to be the short-term overreaction phase. Over the past more than 30 years, there have been very few occasions when software traded at or below the market multiple. In our view, the market reaction may be overdone, though the narrative around software remains negative and this is a narrative-driven market.
Narrative driven market?
Markets have always had a story telling aspect, perhaps because most content created in the investment world is really trying to put recent events into context. However, more recently the speed of narratives and their resultant impact have become faster and larger.
There are many contributing factors to this trend. It has been a long time since we have had a real bear market, so investor fear is minimal these days. News headlines have increasingly become more polarized at one end of the spectrum or the other. A good example of this is whether AI will create a limitless society or destroy the world. One reason the news has become more extreme is that in order to get attention of the algos, the news has to capture attention. This can easily amplify a narrative to drive investor behaviour.
Borrowing an example from a Morgan Stanley conference, the chart below shows the oscillating narratives around Alphabet (Google). Periods of angst are created when the market narrative that AI will replace search makes the rounds. This is countered by AI product launches, from the poorly received Bard to the well received Gemini 2.0. We get a build from excitement that Gemini is closing the market share gap with ChatGPT, followed by the excitement that Alphabet is starting to sell their TPU chips to other providers. Meanwhile, earnings estimates continue to move in a steady line up and to the right. Earnings are what matter long term; narratives drive the short term.
We will be diving deeper into this topic in future Ethos, as we believe the dynamics of the market has changed. In the meantime, just keep in mind that narratives have become more powerful than before while fundamentals are being somewhat pushed to the back.
— Craig Basinger and Spencer Morgan, Purpose Investments.
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