How the portfolios performed in Q2 2025

The June quarter proved challenging for global markets. Despite sharp volatility—including a 12% drop in U.S. markets following the Liberation Day tariff announcement and Middle East tensions that briefly saw a surge in oil prices— diversified multi-asset portfolios delivered positive returns across all risk profiles.

Top contributors

·         International equities led performance, with this asset class returning +3.1%. The iShares S&P 500 Hedged ETF was the strongest performer, capitalising on the U.S. market's remarkable resilience as hints of lower-for-longer interest rates helped the S&P 500 post modest gains by quarter-end.

·         Emerging markets exposure captured the risk-on sentiment that returned in June, with the Vanguard Emerging Markets Shares Index Fund returning +4.0% as Middle East tensions eased and investors regained confidence.

·         Select Australian equities delivered strong gains. Collins Foods (+19.7%), James Hardie Industries (+17.7%), and Metcash (+15.7%) all benefited from the RBA's supportive rate cuts and moderating domestic inflation.

Top detractors

·         Gold struggled in the volatile environment, as investors favoured more traditional assets during periods of uncertainty.

·         Consumer-facing stocks faced pressure. Domino's Pizza Enterprises fell -17.8% as rising costs and changing consumer habits pressured margins, while Nanosonics (-8.8%) also detracted from performance.

Changes made to the portfolios

During the quarter, we made several strategic adjustments to position the portfolios for the evolving market environment.

• Added currency hedging to U.S. equity exposure by switching to the iShares S&P 500 (AUD Hedged) ETF in April. With the Australian dollar weakening to around 0.60 USD—largely due to China tariff concerns—we locked in the currency benefit at attractive levels.

• Added Reece Limited (REH) after its valuation dropped from over 40x to around 25x earnings. This dominant plumbing distributor offers steady demand even if the economy slows down and U.S. growth potential at a reasonable entry point.

• Added Goodman Group (GMG) to increase property exposure ahead of anticipated rate cuts. The logistics and data centre developer offers structural growth from AI demand and expects around 10% earnings growth.

• Exited IDP Education (IEL) due to mounting visa restrictions and increasingly bipartisan policies limiting international student mobility, creating significant pressure for the business model.

• Exited Infomedia (IFM) given persistent North American growth challenges and uncertainty in the automotive sector amid the electric vehicle transition and trade disruptions.

These changes reflect our focus on maintaining defensive positioning while selectively adding quality businesses at reasonable valuations during continued market uncertainty.

Looking ahead

As we enter the third quarter, investors are getting better at ignoring overtly alarming news headlines and instead focusing on what really matters: how much money companies are making and what central banks are doing with interest rates. Key themes we're monitoring include:

·         The evolving interest rate environment, particularly as central banks balance growth concerns with inflation management

·         Corporate earnings resilience in the face of ongoing trade uncertainties

·         Continued opportunities in regions and sectors best positioned for the current policy mix

The portfolios remain well-positioned through broad diversification and a focus on quality investments that can navigate both volatility and opportunity. The varying allocations across the risk profiles allowed each portfolio to benefit from the market recovery while maintaining appropriate risk levels for different investor needs.