Out of all the Multi-Asset Funds (the “Funds”), the top performing for the quarter was the Conservative Fund (+0.7%), due to having the lowest allocation to listed equities/ highest allocation to fixed income.  The remaining Funds performed negatively given their higher allocation to equity markets (Moderate -0.3%, Balanced -1.2%, High Growth -2.2%) 

Over the quarter (in local currency terms), US equities (which dominate global equity markets) was one of the weakest (S&P500 -4.4%).  The 2024 narratives of US exceptionalism and technology sector resilience gave way to US isolationism, and the flashpoint that was DeepSeek at the start of the year.  Partially offsetting this was European equities which had a long overdue catch up (MSCI Europe +6.2%), with stronger economic data, a potential end to the Ukraine-Russia conflict and the need to increase government spending, in light of a growing riff with the US.  The Funds have also trimmed exposure to US equities in favour of other markets, given historically high valuation multiples. The Funds’ active allocation into Hong Kong equities proved beneficial during this period (MSCI Hong Kong +4.6%). 

Domestically, equity markets were subdued (S&P/ASX 300 -2.9%) as global uncertainty and a tepid domestic earnings season rattled investor confidence.  As a result, the market shifted towards assets less exposed to economic growth, including gold miners (S&P/ASX All Ordinaries Gold Index +31.2%), and away from growth assets like technology stocks (S&P/ASX All Technology Index -12.4%). This led to the Funds’ Domestic Equities allocation to underperform the broader market, with zero exposure to gold miners and an overweight to technology stocks. With that said, these market conditions have created opportunities to increase allocations to quality companies at more reasonable valuations than may have existed previously. 

Amidst the market volatility, fixed income investments offered much needed protection to investors during the risk-off environment (Bloomberg Ausbond Composite +1.3%, Bloomberg Global Aggregate +1.1%).  Domestic and global government bonds rallied.  The exception to this was Japan and Europe, as the Bank of Japan continued to increase interest rates, and Europe’s increasing government spending resulted in higher bond yields.  Going into the quarter, the Funds’ government bond portfolio was actively underweight Europe resulting in outperformance, while the Funds’ quantitative approach to global investment grade credit underperformed its benchmark slightly, though at a consolidated level, our domestic and global fixed income allocation outperformed their benchmarks. 

Outlook 

After a subdued quarter, the start of April began with volatility typical of a major market correction. The sudden imposition of high tariff barriers globally saw fears of recession increase to become a likely outcome. While headlines more recently have seen this abate, the continued uncertainty has already impacted consumer confidence and is hampering corporate's’ ability to execute growth plans. While the impact on equity markets has been significant, the dislocation in bond markets has dominated market headlines and brings sharply into focus the significant allocations to US equites and bonds prevalent in a majority of diversified portfolios.  

A signature feature of the recent equity downturn has been the failure of the long-end of the US treasury curve to fall in yield. Normally, an equity fall of this magnitude would be met by a large drop in government bond yields, and the failure of this to occur has challenged many participants. There are likely a variety of explanations for this – market positioning, the unwillingness of the FOMC to flag cuts, hedge funds unwinding large leveraged trades in the bond market etc. In addition, it seems likely that global reserve managers – those who buy offshore assets for other central banks and sovereign funds – may have become more reluctant to add to US treasury holdings. The obvious candidate here is China, which holds a large amount of sovereign US debt, in no small part due to reserves accumulated for exchange rate management purposes. In addition to the geopolitical tensions currently in play, there is also the fact that China’s need for US treasuries is largely a function of its desire to control its currency trading range while exporting substantial amounts of goods offshore. If China’s exports drop aggressively because of tariffs, its accumulation of foreign reserves – in the form of US treasuries – will likely also reduce. It is likely that in anticipation of this dynamic, investors are demanding a higher yield to fund the US government deficit, something which itself is likely to increase. Over time, we still expect sovereign bonds to remain a safe-haven asset, but it may take some time for a new equilibrium to be found. 

This volatility has offered opportunities to acquire assets at more attractive valuations, and as we have deployed capital, we have favoured active exposures, but we remain defensively positioned, preferring assets like credit which offer better downside protection and steady income to global equities. Longer term, we continue to see long-term thematic’s like climate transition as a tailwind, as current uncertainty gives way to the necessity to address sustainability issues broadly.   

Multi-Asset Funds: Performance vs benchmark^*

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*All returns are net of fees for the Wholesale option. Find more information on these funds via the managed funds page including Retail performance.

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^ Benchmark: SAA Weighted Index. Past performance is not a reliable indicator of future performance. .

Contributors

• Growth Alternatives – The Funds’ saw exposures in select domestic private equity and venture capital investments appreciate.  One such example is an agricultural asset which focuses on developing carbon farming projects to remove carbon dioxide from the atmosphere, while another is a re-usable packaging supplier and aggregator.

• Domestic Fixed Income – The Funds’ benchmark aware approach to domestic fixed income performed exactly as expected.  With the RBA lowering its cash target for the first time in Feb-2025, this saw mild outperformance of short-intermediate term bonds, while long-end bonds were largely unchanged.

• Global Fixed Income – Our active approach to our government bond portfolio saw positive outperformance, with an underweight to Europe and Japan and an overweight to dollar bloc countries such as Australia adding value.  And despite the volatility, investment grade corporate bonds continued to remain resilient, thanks to continued strong fundamentals, and minor spread widening.  However, our quantitative approach to the sector saw minor underperformance versus the benchmark, due to particular holdings in the telecommunications and technology industry.

Detractors

• Domestic Equities – Communication Services, and Financials sector both positively contributed to relative performance, with overweights to Domain (+69.5%), and NIB (+27.5%) largely responsible, thanks to a takeover offer in the case of the former, and moderation in claims inflation in the case of the latter.  However, this was overshadowed by a broader risk-off sentiment, and a move away from growth-oriented technology sector which the Funds had an overweight in, and to more defensive sectors like gold miners, which the Funds were underweight, predominantly due to our Ethical Charter.

• International Equities – The Funds’ overall allocation to International Equities slightly outperformed its benchmark but was still negative on an absolute return basis.  Information Technology led the sell-off, while the Funds’ overweight to the broad Financials sector, and security selection added both absolute and relative performance.

• Property – Negative returns in this asset class were predominantly driven by a revaluation lower of a commercial building in South Australia, following the state government’s decision not to purchase relevant equipment to support its tenancy.

We trimmed exposure to US equities given historically high valuation multiples in favour of other markets. Our active allocation into Hong Kong equities proved beneficial during this period. 

Portfolio changes

Additions to the Funds

• Active International Equities – The Funds reduced exposure to international systematic equites to fund an allocation to an international multi-thematic strategy. This strategy combines fundamental bottom stock picking across a dozen long-term thematics globally, including climate mitigation, medical innovation and education and learning. 

• The Funds added more exposure to Domestic Equities, and a basket of Hong Kong Equities, following concerns about overvaluation in US equities.   

• Aligned Data Centers (Growth Alternatives – Private Equity) – Aligned Data Centers is one of the largest and fastest growing hyperscale data center platforms in the Americas, with over 40 sites across 14 markets in the United States and Latin America.  The Fund has co-invested directly into the company, giving it access to an essential piece of infrastructure with utility-like cashflows. 

Reductions from the Fund

• US Equities – While US Equities have been at high valuations for some time, this has predominantly been driven by US tech which seemed unstoppable until the rise of DeepSeek toward the end of Jan-25.   With the continued outperformance of US tech looking less likely, the team decided to take some profit and tilt out of the region. 

• Resolve Social Benefit Bond Mar-2025 (Defensive Alternatives)  – Covering Western NSW and Nepean Blue and Mountains Local Health Districts, the Resolve Social Benefit Bond provided funding to Flourish Australia, who delivered a recovery-orientated community support program which combined a residential service for periodic crisis care integrated psychosocial, medical and mental health support; and a warm line for after-hours support from peers.  The Social Benefit Bond matured at the end of the quarter, with the NSW government paying back all initial principal plus interest to investors. 

Our active approach to our government bond portfolio saw positive outperformance, with an underweight to Europe and Japan and an overweight to dollar bloc countries such as Australia adding value.

Volatility has offered opportunities to acquire assets at more attractive valuations… but we remain defensively positioned, preferring assets like credit which offer better downside protection and steady income to global equities.