Multi-Asset Funds
The second half of calendar year 2025 has proven more positive than markets had generally expected. The US tariffs announced in the middle of the first half of the year – including subsequent carve outs, postponements and occasional aggressive increases – have not resulted in a slowdown to the degree anticipated.
Geopolitical conflict remains an ongoing concern, but from an economic point of view, has not become appreciably worse over this period. There has been some further degradation in the political situation of developed markets, which has had implications for not only European and Japanese monetary policy, but the ability of governments to deploy stimulus to counter any possible slowdown.
Defensive-focused funds like the Conservative Fund (Wholesale) and Moderate Fund (Wholesale) performed slightly better and in line with bemarks respectively, while growth-focused funds slightly underperformed. This was in large part due to the relative outperformance of defensive asset classes, like International Fixed Income against its benchmark, compared to underperformance from Domestic and International Equities allocations against their benchmark.
In local currency terms, global equity markets delivered another impressive quarter (MSCI ACWI +8.0%). US markets performed well thanks to somewhat resilient macroeconomic data, and a September rate cut (S&P 500 +8.0%). Artificial intelligence optimism drove gains in not only in the US but Asia as well, with the likes of Alibaba more than doubling in share price (CSI 300 +19%). The United Kingdom recorded solid gains across various sectors like Financials, Healthcare, and Materials, while broader European markets trailed (FTSE 100 +7.5%, MSCI Europe +3.9%), due to fiscal concerns causing European yields to spike e.g. 30-year German and Italian government bond yields hit their highest in more than a decade. The Funds’ own active tilt to Asian equities was a beneficiary of the broader rally in Asia, however this was offset by the Funds’ positioning in Information Technology and its lack of exposure to the Energy and Materials sector which also posted significant gains.
Domestically, the local equity market followed a similar theme, with Materials (and to a lesser extent Energy) being a detractor to relative performance (S&P ASX 300 +5.0%). Gold miners continued their run, with the price of gold continuing to break new records. Mitigating this, however, was renewed interest in small cap companies which benefited the Funds’ active domestic equities strategies in the quarter. Small caps broadly outperformed their large cap peers as investors began to refocus on areas of the market where valuations remain attractive.
Central banks globally are now over a year into their cutting cycles and as such the last quarter saw more muted monetary policy activity. Europe was largely unchanged (apart from the UK with one cut), while dollar economies like US, Australia and Canada all pushed out one rate cut. In tandem with equities, corporate bonds performed well, outperforming government bonds, while medium-term bonds (5-10yr) outperformed longer-term bonds (+10yrs), due to both fiscal and political uncertainty globally. The Funds’ overweight international corporate bonds as well as active duration positioning all added relative value over the quarter.
Outlook for the funds
We remain in an environment with many potential risks, but these risks are failing to crystallise. Equity valuations remain at expensive, and with an increasing degree of concentration, the mega caps continue to outperform smaller names globally. This set-up has potential for a disruptive unwind, but we remain aware that historically, valuations such as these have been able to be sustained for long periods of time; and as we noted last quarter, markets are proving to be more resilient in the post-pandemic world than in the past.
The recent release of the National Adaption Plan – the action plan that followed the government’s sobering National Climate Risk Assessment – shows the need for firms to incorporate climate change risks into their strategies. It also provides further impetus for efforts to reduce the impact of climate change and foster renewables and other technology to reduce emissions. This highlights the importance of individual asset selection in our private markets and active equities building blocks, which is key to accessing growth in this area in a risk-controlled manner. Additions to our portfolio in the last quarter reflect the opportunity we see as the world continues to move towards a lower carbon future, including in the Macquarie Green Energy and Climate Opportunities Fund, Climate Tech Partners Fund I, and a co-investment in Vertelo, a fleet electrification solutions platform focused on decarbonising transport in India with financing support from the United Nations Green Climate Fund.
More broadly, we continue to seek out areas where growth assets have more of a valuation buffer, such as Asian equities within our ethical universe. We also are inclined to see credit assets as providing a more attractive risk-return profile for the funds’ marginal dollar than developed market equities, and continue to take advantage of opportunities to add downside protection where it can be accessed cheaply.
Multi-Asset Funds (Wholesale): Performance vs benchmark*
| Fund | Inception date | Since inception (% p.a.) | 5 years (% p.a.) | 3 years (% p.a.) | 1 year (%) | 3 months (%) |
|---|---|---|---|---|---|---|
|
Balanced
|
28/03/2018 |
8.0
|
8.2
|
11.0
|
10.3
|
3.1
|
|
High Growth SAA Weighted Benchmark^ |
13/01/2012 |
11.7
|
12.2
|
14.8
|
12.5
|
3.9
|
|
Moderate
|
30/10/2023 |
12.5
|
N/A
|
N/A
|
8.7
|
2.6
|
|
Conservative
|
20/11/2023 |
7.7
|
N/A
|
N/A
|
6.2
|
1.8
|
*All returns are net of fees for the Wholesale option. Find more information on these funds via the managed funds page including Retail performance. Past performance is not a reliable indicator of future performance.
^ Benchmark: SAA Weighted Index.
- Balanced Fund SAA Weighted Benchmark changed from Morningstar Multi-sector Balanced to SAA Weighted Benchmark from 1 Sep 2012. The historical benchmark returns are calculated by linking indices.
- High Growth SAA Weighted Benchmark changed from 75% S&P/ASX 200/25% MSCI World ex Australia to SAA Weighted Benchmark from 1 October 2021. Previously, benchmark changed from S&P ASX 200 to 75% S&P/ASX 200 Industrials/25% MSCI Global Climate from 29 August 2013, then to 75% S&P/ASX 200 Industrials/25% MSCI World ex Australia from 1 July 2016, then to 75% S&P/ASX 200/25% MSCI World ex Australia from 13 August 2019. The historical benchmark returns are calculated by linking indices.
Multi-Asset Funds (Retail): Performance vs benchmark*
| Fund | Inception date | Since inception (% p.a.) | 5 years (% p.a.) | 3 years (% p.a.) | 1 year (%) | 3 months (%) |
|---|---|---|---|---|---|---|
|
Balanced
|
16/10/1989 |
6.8
|
7.5
|
10.3
|
9.6
|
2.9
|
|
High Growth SAA Weighted Benchmark^ |
18/02/2010 |
9.4
|
11.6
|
14.2
|
11.9
|
3.7
|
*All returns are net of fees for the Wholesale option. Find more information on these funds via the managed funds page including Retail performance. Past performance is not a reliable indicator of future performance.
^ Benchmark: SAA Weighted Index.
- Balanced Fund SAA Weighted Benchmark changed from Morningstar Multi-sector Balanced to SAA Weighted Benchmark from 1 Sep 2012. The historical benchmark returns are calculated by linking indices.
- High Growth SAA Weighted Benchmark changed from 75% S&P/ASX 200/25% MSCI World ex Australia to SAA Weighted Benchmark from 1 October 2021. Previously, benchmark changed from S&P ASX 200 to 75% S&P/ASX 200 Industrials/25% MSCI Global Climate from 29 August 2013, then to 75% S&P/ASX 200 Industrials/25% MSCI World ex Australia from 1 July 2016, then to 75% S&P/ASX 200/25% MSCI World ex Australia from 13 August 2019. The historical benchmark returns are calculated by linking indices.
Contributors and detractors
Top 3 asset classes
+5.2%
Global Equities
+3.8%
Domestic Equities
+1.5%
Global Fixed Income
Bottom 3 asset classes
+1.0%
Cash
+0.4%
Domestic Fixed Income
+1.5%
Defensive AlternativesContributors
- Global Equities - The Funds’ stock selection in Communication Services with an overweight to Alphabet adding value, thanks to a positive anti-trust ruling in early September benefited the funds international equities holdings. In addition, holdings in Asian stocks like battery maker CATL, and semi-conductor ASMPT also added value. While Information Technology was the best performing sector in the benchmark, the Fund’s positioning in the Software industry detracted from returns, with underweights to top performers like Oracle and AppLovin’ and overweights to weaker performing stocks like Accenture and Atlassian. In addition, our exclusion of oil and gas companies subtracted value over the quarter, as the energy sector rallied.
- Domestic Equities - The funds holdings in small to mid-cap Technology and Communication sector exposures, like Siteminder (+62.8%), Aussie Broadbank (+48.5%) and ERoad (+76.8%) performed particauly well, from a relative perspective however this was offset with the Funds’ underweight to the Materials sector the biggest detractor to relative returns, with the likes of BHP (which the Funds’ do not own) rallying due to positive investor sentiment around potential China stimulus.
- Global Fixed Income - Our active approach to our government bond portfolio saw positive outperformance, thanks to an underweight to duration in Europe, particularly the long end which sold off. Our overweight to corporate bonds at an asset class level also added value.
Detractors
All asset classes generated positive absolute return over the quarter.
We added a co-investment with Vertelo to the fund. Vertelo is a fleet electrification solution platform focused on decarbonising transport in India with financing support from the United Nations Green Climate Fund.
Portfolio changes
Additions to the Funds
-
Global Listed Infrastructure – As part of our regular Strategic Asset Allocation review, at the end of this quarter we have implemented an allocation to systematically managed, ethically screened listed infrastructure. This allocation adds further diversification to the overall portfolio and aids our investment in key areas such as energy and water.
-
Macquarie Green Energy and Climate Opportunities Fund (MGECO) – MGECO is a global, open-ended infrastructure fund that aims to take advantage of the substantial renewable and sustainable infrastructure build-out by investing in development platforms in renewable energy, storage and adjacent sustainable infrastructure.
-
Vertelo (co-investment) – Vertelo is a fleet electrification solutions platform focused on decarbonising transport in India with financing support from the United Nations Green Climate Fund via downside capital protection.
- Climate Tech Partners Fund I (CTP) – CTP is a close-ended venture capital fund that aims to invest in scalable technology companies that help transition the world toward a net-zero future. These technologies may be software, hardware and/or deep tech.
Reductions from the Funds
-
Domestic Fixed Income – We reduced exposure to Australian bonds as part of our regular Strategic Asset Allocation review, using this to fund our investment in Global Listed Infrastructure described above.
We continue to seek out areas where growth assets have more of a valuation buffer, such as Asian equities within our ethical universe
The recent release of the National Adaption Plan – the action plan that followed the government’s sobering National Climate Risk Assessment – provides further impetus for efforts to reduce the impact of climate change and foster renewables and other technology to reduce emissions.
Interests in Australian Ethical Managed Funds are issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949) the Responsible Entity of the Australian Ethical Managed Funds. The information is of a general nature and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances and read the Financial Services Guide, relevant product disclosure statement (PDS) and Target Market Determination (TMD) available on our website. You may wish to seek financial advice from an authorised tax or financial adviser before making an investment decision. Past performance is not a reliable indicator of future performance. .
*Total returns are calculated using the sell (exit) price, net of management fees and gross of tax as if distributions of income have been reinvested at the actual distribution reinvestment price. The actual returns received by an investor will depend on the timing, buy and exit prices of individual transactions. Return of capital and the performance of your investment in the fund are not guaranteed. Past performance is not a reliable indicator of future performance. Figures showing a period of less than one year have not been adjusted to show an annual total return. Figures for periods of greater than one year are on a per annum compound basis. The current benchmark may not have been the benchmark over all periods shown in the above chart and tables. The calculation of the benchmark performance links the performance of previous benchmarks and the current benchmark over the relevant time periods.
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Investing ethically and sustainably means that the investment universe will generally be more limited than non-ethical, non-sustainable portfolios in similar asset classes. This means that the portfolio(s) may not have exposure to specific assets which over or underperform over the investment cycle, and so the returns and volatility of the portfolio(s) may be higher or lower than non-ethical, non-sustainable portfolios over all investment time frames.
The information contained in this document is believed to be accurate at the time of compilation.