The Australian Shares Portfolio (the ‘Portfolio’) decreased 5.7% for the quarter ended 31 March 2025, compared to its benchmark which declined 2.8%.

The March quarter was the worst quarterly performance for the Australian equity market in nearly 3 years. Equity markets dropped to 7-month lows, as global uncertainty and a tepid domestic earnings season rattled investor confidence. Trump tariffs dominated the headlines and accentuated share market swings, creating opportunities for our active stock picking style of investing. Reflecting this, the Portfolio made new investments into CSL, Macquarie, and Nuix.

The top contributor to performance in the March quarter was the Real Estate sector. Portfolio holdings in Mirvac and Dexus re-rated positively as half yearly results releases suggested that valuations have found a floor, while a cut in the RBA cash rate during the quarter bolstered expectations of improvement going forward. Not owning Goodman Group was also a positive contributor as the company raised equity to support development of data centres over the coming years.   

Detracting from performance were the Information Technology and Materials sectors. The Technology sector was the worst performing sector in the market during the March quarter as growth stocks came under pressure, with the portfolio’s holdings in Pexa and Nuix declining. The Materials sector was a modest natural headwind for the portfolio as the sector outperformed during the quarter, while the portfolio’s holdings in Orora and Pilbara Minerals underperformed.

Looking ahead, we expect equity markets to remain volatile as inflation and geopolitical issues remain front of mind. Volatility provides more opportunities for stockpickers like us to invest, and in this environment, we continue to focus on attractively valued companies within key long-term growth sectors like healthcare and technology.

Australian Shares SMA Portfolio Performance

As at 31 March 2025^*

Source: Praemium portal.

^Benchmark: S&P/ASX 200 Accumulation Index. Past performance is not a reliable indicator of future performance.

Inception date: 16/04/2020.

Contributors

• NIB Holdings (NHF) was a strong performer in the March quarter after it was oversold in 2024 on concerns of faster than expected margin decline due to increased claims costs. At the 1H25 result in February, NHF experienced a moderation in claims inflation and guided to full year margins at the top end of its 6-7% target range. The government approved premium increases of 5.8% for NHF from 1 April 2025, which has alleviated concerns of claims inflation for the upcoming year.

• Mirvac (MGR) performed well in the March quarter, as it reiterated that the low margin Queensland apartment projects which had been impacted by construction problems in the industry, will be sold in 2H25. Earnings are expected to improve by greater than 15% in FY25 as residential development margins return to normal. MGR is in a good position to increase residential lot sales if interest rate cuts stimulate demand and improve affordability.

• Suncorp (SUN) had a strong 1H25 result with insurance margins at 11.8%, at the top-end of the through the cycle range of 10-12%. Guidance is for full year margins to remain at the top end of the range. Capital returns from the sale of the bank were completed by way of a special dividend and return of capital. We continue to monitor the insurance cycle given the top of the range margins, including the moderation of investment income if interest rates continue to ease.

Detractors

• Nuix (NXL) shares retreated during the quarter as they softened growth expectations in annualised contract value (ACV) for FY25 to 11-16% (from 15%) which implies a 2H25 weighting due to the slippage of some larger enterprise deals. We note that there are some larger sized deals in the pipeline, of which the timing of their closure will be a key factor to where the ACV growth lands for FY25. We have taken the opportunity to gradually re-add to our holdings on valuation grounds as the company continues to scale its new product offering.

• Orora (ORA)'s share price during the quarter was impacted by cost over-runs at the G3 furnace build and weaker outlook for the Australian Gawler operations. In addition, the outlook for Saverglass in the near term remains uncertain due to patchy consumer demand, de-stocking and uncertainty around US tariffs.  On a longer-term view, we expect a cyclical recovery in volumes to emerge, and the strong balance sheet, accretive on-market share buy-back, and attractive valuation remain supportive factors.

• Bendigo and Adelaide Bank (BEN) underperformed in the quarter due to reporting a lower-than-expected net interest margin (NIM) at the 1st half result. BEN’s new mortgage lending system rollout in August to brokers exceeded volume expectations. Deposit growth was insufficient to match lending growth and BEN used more expensive wholesale funding to fill the gap. BEN increased lending rates in October and November to slow growth. BEN continues to invest in its deposit gathering franchise. As a point of differentiation, its community banks provide significant funding to the group.

The Real Estate sector was a top contributor to performance, with both Mirvac and Dexus re-rating positively following half yearly results, with an RBA cash rate cut in the quarter helping sentiment going forward.

Portfolio changes

Additions to the Portfolio

• CSL Limited (CSL) – CSL is a global biotech company that develops and manufactures blood therapies, vaccines and other pharmaceutical drugs. CSL has typically traded on lofty multiples in the past and we have remained cautious on valuation. Recent uncertainty provided an opportunity to enter CSL at below average historical valuation levels and we found the opportunity compelling.

• Macquarie Group, Ltd (MQG) – MQG is a diversified financials business with a long-term track record of earnings growth. Macquarie’s operating divisions include Funds Management with private markets assets under management over $210 billion; Commodities and financial markets hedging and risk management; Principal investments and advisory, including a private credit book of $26 billion; and a domestic bank and platforms administration business.

• Nuix Ltd (NXL) – Nuix is an investigative analytics and intelligence software business undergoing a significant transformation. Its shares retreated during the quarter as they softened growth expectations in annualised contract value (ACV) for FY25 to 11-16% (from 15%) which implies a 2H25 weighting due to the slippage of some larger enterprise deals. We note that there are some larger sized deals in the pipeline, of which the timing of their closure will be a key factor to where the ACV growth lands for FY25. We have taken the opportunity to add to our holdings on valuation grounds as the company continues to scale its new product offering.

Divestments from the Portfolio

• Domain Holdings Australia Ltd. (DHG) – With the company struggling to make inroads into the leadership position held by competitor REA Group, the Portfolio divested its holding in Domain to focus on other more attractive opportunities within the Portfolio.

• Medibank Private Ltd. (MPL) – Medibank Private was divested when its listed peer competitor NIB Holdings (NHF) was oversold on claims inflation and margin decline concerns. After the FY24 result in August, NHF traded at lows representing a PE of 12-13x, well below its historical average, compared to MPL’s PE multiple of 17x. This represented the opportunity to deploy funds in the relatively defensive private health insurance sector, for greater upside on an oversold position.

Suncorp was among the top contributors to the fund on the back of a strong 1H25 result with insurance margins at the top end of the range.

Equity markets dropped to 7-month lows, as global uncertainty and a tepid domestic earnings season rattled investor confidence.

Sector allocation

Sector overweights
Health care, Industrials, Information Technology, Utilities (Renewables)

Sector underweights
Communication Services, Consumer Discretionary, Energy, Materials