The Portfolio pleasingly delivered strong outperformance in the March quarter against a weaker market backdrop as volatility rose and investor sentiment soured on US tariff concerns, forcing a readjustment of expectations in the period ahead. The Portfolio’s more cautious settings assisted returns.

Investors sought out defensive asset classes like cash and bonds, more defensive sectors within equities such as property & infrastructure, consumer staples, telecommunications and somewhat surprisingly under-owned and frankly unloved emerging markets. Australian shares fell in line with global shares as the Australian dollar rose slightly in the quarter, with currency hedging thus assisting. Interestingly, Australian small companies outperformed their larger counterparts, whilst global emerging markets outperformed developed markets. Global listed property and global listed infrastructure both showed their resiliency and diversification benefits to the portfolio, in contrast to Australian listed property which fell sharply given the dominance of one stock in the index. Bonds also provided defence as investors sought out safety in both government bonds and high-grade corporate credit. A healthy cash rate and slowing inflation saw cash be additive to portfolio returns.

Investment selection contributed strongly to overall portfolio returns in the period. The highlight was Allan Gray, helped significantly by their value approach which meant underweight positions in expensive sectors such as technology and healthcare. Australian Eagle also provided significant downside protection, helped by their extensive use of shorting, whilst their positioning also assisted given an underweight to growth stocks.

It was a little more of a mixed bag of results but overall investment selection and positioning contributed to returns. Growth biased managers such as T. Rowe Price was challenged in the quarter. T. Rowe’s growth bias held them back as investors rotated into under-owned parts of the market – i.e. value and defensive names. GQG provided downside protection in the period. Contributors included their underweight to technology and consumer discretionary and overweight to Brazil. Barrow Hanley was the highlight for the period with significant outperformance. The fund was helped by their value bias and their approach to portfolio construction, with a significant weighting to defensive value names. Emerging markets outperformed developed markets in the period, with our position in Martin Currie attributing to the outperformance of the overall portfolio.

Both asset classes held up well against falls in broader equity markets, with the greater defensiveness of infrastructure seeing it outperform property. Pleasingly, both Quay and ATLAS outperformed their respective benchmarks. Quay outperformed due to underweights in more recession-sensitive sectors (office, industrial, hotel & retail) and their overweight to Europe. ATLAS produced an exceptionally strong absolute and relative return of +7.50% for the month of March vs a benchmark return of +1.93%. Here, what had hurt them previously (concentration, large overweight to Europe) contributed significantly. Pleasing to see the manager hold their nerve through this period and now reap the rewards.

It was a strong month for both with investment selection contributing strongly along with our overweight to this part of the portfolio. All managers outperformed their respective benchmarks in the period. PIMCO Global was the highlight with strong sector positioning. AB and Yarra were also notable mentions, with their healthy yields and defensive credit positioning assisting returns.

Asset allocation settings and managers selected were also reviewed during the period with one small change made.

As previously communicated, PIMCO Global Bond was reduced with the allocation to Greencape Broadcap increased.

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.