Multi-Asset Funds

Performance across all Multi-Asset Funds (‘Funds’) was positive for the financial year on an absolute basis, and all but the Conservative Fund underperformed their respective benchmarks. International Equities was the main driver of absolute returns thanks to stand-out performance from the Information Technology (IT) sector (up 30%). Domestic Equities detracted value due to the Funds’ natural underweighting to the Materials sector (which outperformed the broader Australian equities index) and overweighting to IT and Healthcare sectors (which underperformed the index), in line with our Ethical Charter. The Funds all finished the financial year with a strong June quarter, all comfortably outperforming their benchmarks.

In local currency terms, Global Equity markets delivered their fourth straight year of double-digit growth (MSCI ACWI +25.5%). This was despite both a broad sell-off in the software sector in February, and the US-Iran conflict triggering a dip in markets over February and March, only to fully recover by mid-April and to finish the financial year at all-time highs. Much was to do with the continued enthusiasm for Artificial Intelligence (AI), which saw memory- and semiconductor-heavy equity markets, such as Korean and Taiwanese return triple-digit growth (MSCI Korea +260%, MSCI Taiwan +124%), alongside US IT companies such as Micron Technologies and Intel, up +787% and +490%, respectively. The Funds’ own International Equity holdings saw outperformance against its asset class benchmark – benefiting not only from AI related Technology Hardware names likes TSMC (+101%), but thanks to positioning in US Healthcare names, like Merck and Co (+57.2%), maker of prescription medicines, such as Keytuda (cancer treatment) and Gardasil (HPV vaccine), as well as the world largest battery manufacturer CATL (+105%).

Conversely, the Domestic Equities market lagged its international counterparts, with the S&P/ ASX 300 returning +6.2%. This was partially due to several blue-chip names falling out of favour with the market, such as CSL, CBA and Xero all printing negative absolute returns for the financial year. The Funds’ stock selection was able to avoid some of these underperformers, however, the defining thematic of the financial year was the rotation into the Materials sector. The raw materials needed to fuel the AI build-out, and the broader green electrification transformation saw commodities prices (and the share prices of those that extract it) rise over the year. The Funds did manage to benefit from some of this price rise through holdings in companies such as PLS Group and IGO, both of which extract the critical minerals, like lithium, needed to power electric vehicles and battery storage. However, the Funds typical underweight to Materials more broadly due to ethical considerations (with no investment in BHP and RIO, the largest Materials names), seeing its Domestic Equities portfolio return -3.75% for the financial year.

In Fixed Income markets, most central banks continued to loosen monetary policy in the first half of the financial year, only to be met with another supply-driven inflation episode in the second half, due to higher oil prices. For economies which still had lingering inflationary concerns or were highly dependent on imported oil, such as Australia, Japan, and Europe, the event catalyzed rate hikes, while other economies took a more wait-and-see approach. However, in general this saw most long end bond yields climb higher to end the year, though credit spreads continued to remain resilient and ended the year tighter than where they started. As a result, the Funds’ own Fixed Income portfolio was fairly in line with its asset class benchmark and delivered positive returns.

Outlook

While growth in AI has been a dominant theme for FY26, the key question for markets in the period ahead is whether the current level of business growth and capital expenditure by hyperscalers can be sustained. The ripple effects of this investment cycle have extended well beyond technology, supporting demand for semiconductors, data center infrastructure, power generation (including renewables), critical minerals and industrial supply chains. Should investment intentions moderate, we would expect the impact to be felt across a broad range of companies and sectors. At the same time, we remain mindful of the risk of becoming underexposed to a structural growth driver that continues to transform the global economy. We remain focused on maintaining appropriate exposure to this structural growth theme without compromising valuation discipline. Recent transactions in unlisted assets have provided opportunities to gain diversified exposure to a range of AI beneficiaries at attractive valuations relative to underlying asset values.

Risks remain abundant, and relatively high interest rates we observe globally are generally a headwind for risk assets, particularly if the exceptional earnings growth we have seen begins to moderate. In this environment, the Funds' increasingly diversified exposure across asset classes, active management of duration within fixed income, and allocation to CPI-linked infrastructure assets should help provide some resilience, with revenues that can adjust alongside inflation and cash flows that are typically less sensitive to economic cycles.

Multi-Asset Funds (Wholesale): Performance vs benchmark^*