Investor Update - January 2026

Investment Observations — 4 February 2026

The ASX 200 rose +1.8% in January, led by strong performances from commodity stocks. Both portfolios benefited from overweight positions in the Energy and Materials sectors, with the Blended portfolio up +4.6% and the Income portfolio up +3.4%.

Commodities Regain Leadership

Investment sentiment has turned progressively more bullish toward the commodities sector. The primary driver of this improvement has been higher commodity prices.

A confluence of supportive factors has underpinned the resurgence in interest in commodities, namely: the energy transition requiring both fossil fuels and renewables; growing demand from data centres and AI applications; geopolitical uncertainties driving the re-nationalisation of resources and supply chains; and persistent constraints (cost inflation and regulation) on new commodity supply.

Each of these factors has contributed to a markedly improved earnings outlook. The uplift in earnings expectations has been breathtaking in both speed and magnitude. At the time of the August 2025 reporting season, expectations were for commodity stocks to endure another year of earnings declines of ~5% over the following year — their third consecutive year of contraction. In contrast, expectations have now shifted materially toward earnings growth of approximately +20%.

Source: MST Marquee.

Market Rotation Underway

This earnings turnaround has driven a pronounced rotation into commodity stocks and away from the previous market leaders of the past three years — notably technology, discretionary retail and, financials. Growth stocks have de-rated significantly, while shifting interest-rate expectations have dampened the appeal of the consumer discretionary sector. Elevated bank valuations have also moderated.

The re-rating of the commodities sector further supports our proposition of tilting portfolios toward hard infrastructure-like assets that are in structural demand while supply remains constrained. It is encouraging — albeit later than anticipated — that equity markets are recognising when sectors reach unsustainably high valuation levels and pivot toward areas offering better value and improving earnings support. The portfolios have clearly benefited from this shift in market sentiment through their overweight exposure to commodity stocks.

The final component of the recovery required for portfolio performance lies in high-quality stalwart companies such as CSL, Cleanaway and Ramsay. Each of these industry leaders should benefit from infrastructure-like assets with significant strategic value over time.

Portfolio Contributors and Detractors

At a portfolio level, January returns reflected these sector dynamics. In the Blended Portfolio, positive contributors included BlueScope, BHP and South32, while Xero, Cleanaway and Vicinity detracted from performance. In the Income Portfolio, BHP, South32 and BlueScope contributed positively, while CBA, Cleanaway and Medibank were the key detractors.

Staying Disciplined in a Volatile Environment

Overall, equity market valuations remain elevated relative to historical levels, while the list of global geopolitical uncertainties continues to expand. Heightened volatility — particularly around company earnings — remains a defining feature of the current environment. Against this backdrop, we remain disciplined in our focus on owning industry-leading companies with proven track records of navigating economic and political cycles.