In its recently released Q1 2026 investor letter, the Meridian Hedged Equity Fund, managed by ArrowMark Partners, provided deep insights into its portfolio positioning amid a highly volatile market landscape. The first quarter of 2026 has presented challenging conditions for investors, characterized by geopolitical escalations—including the late-February strike on Iran—which triggered a sharp surge in oil prices and triggered a widespread risk-off sentiment. Additionally, waning expectations for a Federal Reserve rate cut have forced a valuation recalibration across large-cap growth stocks, leading investors to rotate toward defensive value plays and smaller companies.
Outperforming the Benchmark with Hedged Strategies
The Meridian Hedged Equity Fund returned 0.08% (net) for the quarter. While this return appears modest on absolute terms, it represents significant relative outperformance compared to the broader market. During the same period, the benchmark S&P 500 Index declined by 4.33%, and the CBOE S&P 500 BuyWrite Index fell by 0.92%. The fund achieves risk mitigation primarily by investing in high-quality growth businesses and selectively writing covered call options. At the end of Q1 2026, 43% of the fund’s portfolio remained unhedged, while the rest was protected via call options to buffer against downward volatility.
Microsoft Corp. (MSFT): Holding Firm on a Tech Giant
A focal point of the fund’s Q1 commentary was its high-conviction holding in Microsoft Corporation (NASDAQ:MSFT). As a leading global software and cloud infrastructure provider, Microsoft enjoys massive structural advantages in the generative AI era. Meridian’s investment thesis rests heavily on Azure’s consistent market share gains and the deep integration of artificial intelligence across Microsoft’s legacy enterprise ecosystem, most notably through the deployment of Microsoft 365 Copilot and higher-tier enterprise subscriptions.
Despite delivering robust fundamental results, Microsoft’s stock faced short-term pressure. On June 26, 2026, Microsoft Corporation (NASDAQ:MSFT) closed at $372.97 per share. The company recorded a one-month return of -19.01% and saw its shares decline by 25.02% over the preceding 52 weeks. Microsoft’s market capitalization stood at $2.77 trillion at the close of the period. This downward trend was largely driven by macroeconomic factors and sector rotation rather than company-specific failures. Investors expressed caution regarding persistent AI compute-capacity constraints and the high capital expenditures required to scale global AI infrastructure.
Hedge Fund Allocation and Earnings Momentum
Despite the macro headwinds, Microsoft’s earnings engine remains highly productive. In the third quarter of fiscal 2026, the tech giant reported revenue of $82.9 billion, representing an 18% increase (15% in constant currency). However, institutional positioning showed some consolidation; 282 hedge funds in the database held MSFT at the end of the first quarter, down from 312 in the prior quarter. Nonetheless, Microsoft remains the second most popular stock among hedge funds, reflecting its solid defensive characteristics and long-term upside potential.
