When new information comes to market unexpectantly, markets have a habit of behaving erratically. As a result of the US tariff announcements our models and markets generally had a challenging quarter. Whilst it can be unnerving, it is important to consider that it is completely normal for markets to behave in this way, and on average we see movements like this every eighteen months.

Even with this volatility, performance for the year to 31 March 2025 for our models and most client portfolios remains positive, and long-term returns are in lz

Our models are diversified across asset classes, investment types and styles, and are built with a consideration for downside protection in volatiles times. Investors have benefited because of our allocations to Australian and global investments with a focus on value, low cost smart beta strategies and fixed income (generally), which softened the losses in the other sectors and demonstrated the value of diversification. 

Tariffs and trade have been the primary issues for governments, businesses and investors since the start of the year. The quantum of the proposed tariffs, along with the changes to the rates and dates of implementation have created uncertainty. We do expect that over the next few months, as trade deals are announced, volatility will lessen and could well lead to a rally post the upcoming US budget in the lead up to the midterms. 

To recap, whilst the quarter was a challenging one, long term numbers remain in line, or above expectations.   

All AAN models other than the AAN Australian model had a positive quarter. Australian equities were negative for the quarter, as were both International and Australian fixed interest. International equities were a significant contributor to all AAN models that had exposure to the asset class.

Australia’s economy continues its resilient and adaptive stance, continuing the RBA’s hold pattern on interest rates. Seasonally adjusted unemployment increased, and in Q3 2024 wage growth continues to increase.

For the year to 31 December, most markets were positive. However, for Q4 2024, global property, global bonds, and the ASX200, were negative for the quarter.

Globally, inflation continues to decline, with quarterly contributing factors being stabilisation in energy markets and easing supply chain pressure. However, wage growth remains sticky and is holding core inflation higher.

All AAN Models have benefited from having no detracting asset classes over the 12 months to 30 September. This is also the case for the third quarter of 2024. All AAN models were positive for the quarter. Any detracting securities caused very small losses, compared to the gains produced by top contributing securities.

Australia’s economy continues to display resilience, causing the RBA to continue its hold pattern on interest rates. Unemployment has started to increase and wage growth is softening.  

For the year and quarter to 30 September, most markets have been positive contributors. However, this is not the case for the Commodities index which detracted from overall market returns. The Nasdaq underperformed the S&P500, and Property and Infrastructure have rallied strongly, from a poor 2023.

The US has joined the list of countries that have started to reduce their interest rates, with a 0.50% rate cut announced in September.

The AAN Models have had a mixed quarter, with models dominated by active fund managers slightly underperforming, while the index-based models had small outperformance over the June quarter. Details for each mode are available below. The figures for the active and index models are all before fees.   

The Australian economy weakened further in the June quarter, growing by only 0.1%. On a per capita basis, it remained in recession, contracting for the fourth quarter in a row (by 0.4%), with output also likely to have been weak in more recent months. The key factor driving this slowdown has been rate rises by the Reserve Bank since 2022. While remaining flat in the second quarter, there is potential for further increases. These have weighed on household spending, with discretionary spending up only 0.1% for the year. In May, the annual inflation rate came in above economist expectations at 4.0% (and 1.0% for the quarter).

Most share markets have been on a broadly upwards trend since October 2023 on the assumption that interest rates had peaked and would soon begin to be reduced. This has been particularly supportive of the more interest rate sensitive sectors of the market, including the technology and property sectors.

Despite Australia‘s economic challenges, sectors and factors like technology, financials, and quality performed strongly in June, supported by the prospect of lower local interest rates and a stronger housing market, although concerns about China continue to impact resource stocks.

Global growth is anticipated to be moderate, with the year-average GDP growth for Australia’s major trading partners expected to slow down in 2024, affecting demand for Australian exports. Inflation in advanced economies is projected to align with central bank targets within the next year, amidst softer economic growth and a slight easing in labour markets, suggesting policy rates may have reached their peak.

Growth in advanced economies is set to decelerate significantly due to the impacts of tighter monetary policy, with G7 economies, excluding the United States, expecting below-average growth compared to pre-pandemic levels.

China’s growth is forecasted to slow, impacted by a weakening property sector and a decline in services consumption, although this may be partially mitigated by manufacturing investment and infrastructure policy support.

Global bond and equity markets ended the first quarter of 2024 on a positive note, achieving new heights with the MSCI global share index reaching record levels in March, propelled by changing expectations around U.S. Federal Reserve rate cuts.

Contrasting predictions about recession or expansion, inflation or deflation, and the direction of interest rates continues.  With this in mind, markets are likely to remain unpredictable. Liquidity is very important in this environment, providing easy access to funds and the ability to seize new opportunities, should they arise.

Central banks remain firm against inflation. However, with inflation above central bank comfort zones, this is expected to keep rates higher-for-longer and dampen the current market expectations for an early start to a developed market easing.

The market shows glimmers of optimism and equity markets maintain an optimistic stance, hoping for rate cuts to prevent an economic downturn. Notably, earnings growth and balance sheet strength will remain a key focus and geopolitical risks continue to weigh heavily on the outlook for stocks.

Looking ahead, bottom-up research and consistent engagement will be crucial in identifying the best opportunities.

In our May update we discussed some changes to underlying models. While making those changes we had to opportunity to discuss rate cards with new managers and our incumbents, especially given the growth in the holdings in our AAN Core And AAN Growth options.

Key considerations in the creation of the models have always been best of breed holdings and cost reductions through scale.  We use our proprietary ‘Four Pillars’ philosophy when structuring portfolios and then negotiate favourable terms with the successful solutions.

As a product of building scale we can now announce model fee reductions in three of our models including our two largest.

Central bank’s aggressive approach to combating inflation, characterised by significant rate hikes, did not stall the economy as anticipated by the markets. The market’s eagerness for a slowdown has been overtaken by its desire for expansionary monetary policy.

Despite signs that the central banks remain firm against inflation, equity markets maintained an optimistic stance, hoping for rate cuts to prevent an economic downturn. The recent earnings season showed positive results, but forward guidance from companies remained uncertain, hinting at potential economic slowdown concerns.

The market showed general optimism, with equities, especially in the UK and emerging markets, outperforming. Gold prices remained relatively stable, supported by central bank buying and looming recession concerns. China, on the other hand, has been underperforming, facing concerns of a potential crisis and the impact of its policy rates compared to the US.

Markets remain unpredictable, in this environment liquidity, easy access to funds and the ability to seize new opportunities, should remain front of mind. Emphasis should also be on company balance sheets and cash flows. Asset allocation is crucial.

Global central banks hike rates amidst rising core inflation. Investors brace as economy cools. Equities soar despite the turbulence.

Unruly ride in US equity markets driven by mega cap tech stocks (Apple, Microsoft, Amazon, Nvidia, Alphabet), boosting S&P 500, Nasdaq to a record 37% 6-month return, and Apple’s $3 trillion market capitalisation triumph. Artificial intelligence hype soars, but investors should tread carefully with overpriced stocks.

The material change to select portfolios this quarter was the addition of the DNR Capital Australian Equities High Conviction Strategy to replace the Bennelong Australian Equities portfolio in the Core, Growth, and Australian models. Other changes were limited to adjustments to benchmark allocations.

After a challenging year in 2022, diversified portfolios experienced favourable returns. Despite ongoing uncertainty and further tightening from central banks, risk asset markets across the world saw substantial positive returns during the first quarter of 2023.

The major catalyst for volatility over the quarter stemmed from the banking sector, with the collapse of Silicon Valley Bank and Signature Bank in the US. Credit Suisse in Europe also collapsed, though this followed years of scandals, losses, and changes to the management team.

The material change to select portfolios this quarter was the addition of the Perpetual Focus Australian Share Fund to the Core, Growth, and Australian models. Other changes were limited to adjustments to benchmark allocations.