Responding to a Shifting Global Policy Landscape

The ASX 200 fell 3.4% in March as valuation multiples continued to decline from record high levels. As at the end of March, the index was down 9% from its February high, with the ASX 200 price-to-earnings multiple adjusting lower to ~16.9 times, led by the sharp de-rating of technology stocks.

The likelihood of weaker growth and rising inflation emanating from a new regime of global tariffs has been heralded by a period of incalculable uncertainty. Naturally, there has been a notable chilling in sentiment, leading to a dramatic reassessment by investors of their exposure to risk assets. This was evident in the continued sell-off in growth stocks during March.

We have recently added Aurizon Holdings (AZJ) and Orica (ORI) to the portfolio—two industrial businesses with distinct exposures but a shared focus on capital discipline, shareholder aligned frameworks, and undemanding valuations. Both businesses have shifted their focus toward returns on capital, supported by conservative balance sheets and active capital return programs through buybacks and dividends.

Each business operates in asset-intensive sectors where operating leverage, capital efficiency, and disciplined reinvestment are key to long-term value creation. Trading at 10–15% discounts to their historical valuation ranges, both offer attractive entry points into essential service providers leveraged to production and infrastructure activity rather than commodity price cycles. With clearer capital frameworks and improving earnings quality, we see scope for valuation recovery as their repositioning continues.

We also initiated a position in Vicinity Centres (VCX) that owns a $15.1bn retail portfolio anchored by the Chadstone Shopping Centre, Direct Factory Outlets (DFO’s), and strategic CBD shopping centres. VCX benefits from high occupancy levels ~99 per cent and constrained competition due to planning restrictions and minimal new retail supply. VCX’s investment fundamentals are attractive trading at a ~0.85x its Net Tangible Asset (NTA) and a distribution yield of ~5.4 per cent. Gearing levels are conservative at 26.4 per cent.

Responding to a Shifting Global Policy Landscape

Markets remain skittish as investors grapple with the dramatic and unpredictable policy shifts under the Trump administration. These developments have triggered widespread volatility and heightened macroeconomic uncertainty.

In response, we have made targeted portfolio adjustments in April - reducing exposure to areas most vulnerable to tariffs and slower global growth, while tilting towards more domestically-oriented, resilient earnings streams.

Equity Market Context

• Equity markets have quickly priced in significant downside risks. While earnings impacts are yet to materialize, valuations have come down meaningfully (S&P 500: from 22x to ~19x; ASX 200: from 18.5x to ~17x).

• The greatest impact has been felt by companies directly exposed to tariffs or cyclical global demand. By contrast, defensives and more domestically-oriented businesses have shown relative resilience.

Portfolio Adjustments

• In response to the new US tariff regime and rising macro uncertainty, we’ve reduced exposure to sectors most directly impacted by global trade and cyclical risk.

• The portfolio is now more aligned with domestic-facing companies that offer stable earnings and minimal first-order tariff exposure.

• This shift is supported by Australia’s current policy backdrop: strong government spending, record employment, and the RBA’s capacity to ease if needed.

Stock-Level Changes

• Our portfolios continue to favour industry leaders, companies with higher-quality earnings, and resilient balance sheets.

• We remain overweight Industrials, Healthcare, Utilities, and Consumer Staples.

• We hold a neutral position in Materials (overweight Gold) and have reduced our underweight to Financials, adding to Insurance stocks AUB and Suncorp.

• In Healthcare, we’ve added to Ramsay (hospitals) and reduced the overweight to US-exposed names like CSL and ResMed.

• We’ve added to REITs, primarily through Vicinity Centres.

• We’ve reduced exposure to Energy due to its sensitivity to global growth concerns.

• We were early sellers of both Goodman and Wisetech, both of which have fallen substantially since our exit.

Cash & Outlook

• We’ve retained higher cash weightings, allowing flexibility to buy as opportunities present themselves.

• While market turbulence may persist in the near term, volatility creates openings to invest in high-quality businesses.

• While we see selective opportunities, we remain mindful of the potential for further non-linear risks as the global policy landscape continues to evolve.