The Portfolio’s return for the June quarter was very strong, with the portfolio delivering an absolute return well above expectations. Markets overcame a spike in political and geopolitical risks, seeking solace and hope in potential central bank interest rate cuts ahead, US tariff extensions and renewed optimism in technology and A.I. related names.

Interestingly, individual asset classes all produced strong to very strong returns against a backdrop of weakening global economic growth and heightened trade tensions. Australian equities had one of their best quarters on record, driven by information technology and consumer discretionary sectors, with CBA’s stellar run continuing. Global equities performed strongly but were hampered by a rising Australian dollar, led by the US technology sector as investor focus shifted toward earnings resilience and long-term A.I. adoption. Listed property and infrastructure prices fared well but struggled to keep pace with the broader equity rally, with data centres the highlight in property and infrastructure names with defensive characteristics and structural growth drivers. Bonds posted more modest gains but were still strong in the quarter, with Australian bonds the highlight benefiting from falling bond yields on firming expectations of significant RBA rate cuts ahead.

Extremely strong returns from CBA and technology names meant that it was difficult for active managers to keep up, typically avoiding overweight exposure to expensive parts of the market. Allan Gray, with a strong value approach, resulted in an underweight to both banks (no holding in CBA) and technology, and an overweight to resource and energy stocks which lagged in the period. Allan Gray maintained a slight positive return for the quarter and around 10% for the year. Despite an underweight to banks, Greencape still provided a strong absolute return for the quarter of 5.51%. Australian Eagle largely kept pace with the surging Australian equity market, contributing with its short positions in April. Australian Eagle returned 9.60% and outperformed strongly for the year delivering 16.62%. Small companies had a strong quarter but lagged their larger company counterparts. Pleasingly, Macquarie outperformed broader small companies with 9.44% for the quarter, so the allocation here didn’t detract from overall returns. Macquarie finished the 1 year period posting a 17.90% return.

L1 Capital delivered a strong result for the quarter, outperforming both Australian and global equity markets, with contributors coming from a range of stocks across different sectors. The manager continued to reduce to their net exposure to markets, particular in Australia, preferring global mid-sized companies more broadly and the infrastructure sector.

It was a mixed quarter with some divergence across manager style and allocations. Artisan and Arrowstreet were the highlights in the period, with both outperforming their respective benchmarks whilst keeping pace with the strong returns from large company names. T. Rowe Price provided a positive return for the quarter but was behind its benchmark with detractors coming from their underweight to US stocks and their financial holdings in emerging markets. Barrow Hanley maintained a slight positive return for the quarter with their main detractors due to their underweight to US, technology, and Magnificent-7 names. Barrow finished the year with strong outperformance, delivering 21.64%. GQG was the only investment with a negative return for the quarter, driven by their underweight to technology names and their stock selection within financials and utilities sectors. However, GQG has maintained a strong track record of outperformance, commonly the best performer in the portfolio; we maintain conviction in GQG. Emerging markets held their own against developed markets in the period, Martin Currie delivered a positive return and 12.24% for the year.

Returns were also strong through they lagged broader equity markets outside of Australian listed property, where the dominance of Goodman Group in the index and data centre-exposed stocks ran hot. Global listed infrastructure outperformed global listed property, with the latter affected by no US rate cuts and political concerns in the UK. ATLAS was the highlight, with strong outperformance of the benchmark coming throughout the quarter where its significant European overweight paid dividends with returns in the region surging ahead boosted by their holdings in a UK diversified utility and satellite communications. Atlas (Hedged) delivered over 8% for the quarter. Quay also had a very strong quarter, significantly outperforming its benchmark, more than overcoming currency headwinds as the Australian dollar rose. Their positioning and selection in German residential and European storage assisted returns along with their Canadian names.

Central banks outside of the US cut rates in the quarter which saw bond yields fall (prices higher). US bond yields also fell on weaker than expected economic prints. Corporate credit yields remained healthy whilst spreads remained tight. All bond managers outperformed in the period against their respective benchmarks with Western and PIMCO benefiting from interest rate positioning whilst Yarra and AB benefited from strong credit selection. Western was the highlight in the period benefiting from the strong rally in Australian government bonds. For the year, Western and Yarra delivered 7.32% and 8.09% respectively which strongly assists a diversified portfolio.

Asset allocation settings and managers selected were also reviewed during the period with an adjustment to currency positioning with property and infrastructure. This included a switch from Quay and Atlas’s currency unhedged funds to their currency hedged funds in order to protect the allocation from rises in the Australian dollar.

We think the portfolio is well balanced for both the risks and opportunities ahead, and particularly well positioned to take advantage of uncrowded parts of the market as investors draw their attention back to both market and company fundamentals.