Investor Update - July 2025

The ASX 200 rose by +2.4% in July, as a rotation out of banks into the laggard sectors of healthcare and resources gained momentum. Equity market returns have been dominated by a concentrated group of companies that have benefited from the ‘momentum factor’, which has experienced one of its strongest performances in decades. After a strong run over the past 18 months, the financial sector—most notably CBA—saw a reversal of the momentum factor due to stretched positioning and record-high valuations. This momentum reversal in financials supported a rally in the underperforming sectors of FY25, where healthcare and resources continue to exhibit undemanding investor positioning and valuations.

In July, Healthcare (+8.7%) added the most value, boosted by a recovery in CSL’s share price as investors rotated away from the financial sector. Resources (+4.5%) were the second-best performer, supported by a rise in commodity prices. The largest detractor for the market was Gold (-6.9%), which continued to pull back from its record highs as trade and tariff tensions eased, reducing demand for safe-haven assets.

For the Blended portfolio, the positive contributors were CSL, BHP, and Orica, while the negative contributors were Northern Star, Macquarie Group, and Washington H. Soul Pattinson.

For the Income portfolio, the positive contributors were CSL, BHP, and Origin, while the negative contributors were Northern Star, Commonwealth Bank, and Macquarie Group.

While it has become abundantly clear that valuations are not a reliable timing tool for equity markets, they are notably stretched. The ASX 200 was trading at 18 times earnings at the start of 2025 and has now reached approximately 19.2 times—well above its long-term average of 14.8 times. Yet, the current period for company earnings remains subdued, with the ASX 200 on track to deliver its third consecutive year of negative growth. Earnings are forecast to contract by 2–3% for the 12 months to June 2025, primarily driven by weaker commodity prices.

Source: MST Marquee, July 2025

Equity markets appear increasingly detached from investment fundamentals, as momentum—rather than earnings—has driven valuations higher. As we enter the seasonally volatile August earnings reporting period, there will be heightened attention on companies’ ability to deliver results that not only meet investor expectations but also provide insights into the outlook for FY26.

Source: MST Marquee, July 2025

The portfolio is tilted toward stocks and industries that have been the ASX 200 ‘laggards’ in recent years, notably in the sectors of consumer staples, energy, and healthcare. We expect to see a further recovery in these sectors, as valuations are trading at a discount to historical levels and operating conditions remain sound.