Investor Update - September 2025

Market Update

The Australian equity market experienced a modest pullback in September, with the ASX 200 declining 0.8%, marking its first monthly loss in five months. The Reserve Bank of Australia (RBA) kept interest rates on hold, balancing resilient economic activity with lingering inflation pressures. Inflation remains stubbornly near 3%, at the top of the RBA’s target band, while the labour market continues to display tightness despite early signs of a rebound in consumer spending.

After three rate cuts earlier in the cycle, financial markets are now adjusting to the reality that further policy easing may be more limited than previously assumed. This shift in expectations—combined with upward pressure on prices—has led to renewed volatility across interest rate–sensitive sectors.

Sector performance was mixed. Gold miners led the market, buoyed by the U.S. Federal Reserve’s 25 basis-point rate cut, which sparked a rally in precious metals. Materials was the only major sector to post meaningful gains. In contrast, Energy underperformed (–9%) as the withdrawal of the Santos takeover bid and softer oil prices weighed on the sector.

Within Financials, investors rotated out of CBA into the other major banks, particularly NAB, which continued its relative strength. Despite this, the major banks’ 1-year forward P/E multiple (~20×) remains well above its long-term average, supported by strong balance sheets and stable credit conditions.

Portfolio Update

Portfolio performance during the quarter reflected the cross-currents between momentum-driven sectors and areas of undervaluation. Equity allocations to Materials benefited from exposure to gold producers, while Energy detracted following weakness in oil prices and the Santos bid withdrawal. Financials continued to perform solidly, albeit with valuations now appearing extended relative to long-term averages.

Within Healthcare, holdings such as CSL and Ramsay Health Care weighed on portfolio performance. The sector has faced persistent headwinds, including elevated labour costs—particularly in nursing—and a slower-than-expected recovery in patient volumes post-COVID. In the U.S., pharmaceutical producers have also contended with tariff uncertainty.

However, both CSL and Ramsay have outlined renewed strategic priorities aimed at improving execution and shareholder returns. Following their August full-year results, each company identified tangible catalysts—cost rationalisation, operational efficiency, and capital discipline—that should support a gradual earnings recovery. Valuations across healthcare now sit at significant discounts to long-term averages, offering attractive risk-reward potential as fundamentals stabilise.

Strongest and Weakest Contributors

• Strongest performers: Gold-related exposures and selected industrials—particularly those with pricing power and balance-sheet strength—benefited from market rotation into quality defensive assets.

• Weakest performers: Healthcare (CSL, Ramsay) and Energy (Santos) detracted from quarterly returns due to sector-specific pressures.

  
  

Portfolio Adjustments and Rationale

During the quarter, portfolio positioning remained disciplined, with a continued focus on quality, resilience, and valuation support. Incremental rebalancing favoured companies demonstrating durable earnings visibility and improving fundamentals.

The portfolios maintained exposure to long-term compounders such as Car Group, Cleanaway Waste Management, Premier Investments, Ramsay Health Care, CSL, and Santos—all businesses trading below intrinsic value with identifiable catalysts for recovery. No major structural changes were made; however, relative weights were fine-tuned to manage concentration risk in sectors exhibiting stretched valuations, particularly the large banks and select retail leaders.

Market Outlook

Momentum has been a defining characteristic of this market cycle, with returns heavily concentrated in a narrow cohort of large-cap leaders—namely, the major banks, Wesfarmers, and select technology names. This has driven the ASX 200’s forward multiple to ~20×, well above its 14.8× long-term average, even as earnings growth has been subdued for three consecutive years.

History suggests that such momentum phases tend to evolve either through a broadening of market leadership—as undervalued sectors regain favour—or through a valuation reset as earnings expectations are reassessed. In the current environment, the latter risk appears elevated given extended valuations and modest FY26 earnings forecasts (3–4% growth).

Looking ahead, opportunities are likely to emerge in high-quality, undervalued companies positioned to deliver sustainable earnings growth irrespective of macro noise. The portfolios remain selectively positioned toward businesses with structural tailwinds, resilient balance sheets, and visible cash-flow generation.

While near-term volatility is expected as markets recalibrate around interest-rate expectations and sector leadership rotates, the medium-term outlook favours disciplined investors who remain anchored to fundamentals rather than momentum.