Portfolio highlights

As at 30 September 2026: The portfolio returned 0.02% over the quarter as global and Australian share markets produced modest returns at a time when AI-driven investment continued to support markets. Inflation remained especially sticky following the reignition of the US / Iran conflict, which caused already high energy prices to skyrocket and forced central banks to continue raising rates.

The Arrowstreet Global Equity Fund (Hedged) returned 2.3% over the September quarter, outperforming its benchmark by 0.9%, as a handful of high-conviction positions delivered earnings-driven gains. Microsoft (+1.59%) rallied 37%, its best quarter since 1998, after Azure growth accelerated to 43% and commercial backlog surged 84%, easing concerns over AI spending. Apple (+0.56%) gained 15% following record June-quarter revenue, up 16%, and the September launch of its first foldable iPhone. Medtronic (+0.22%), a sizeable overweight, rose 11% as revenue grew 14% on surging demand for its cardiac ablation devices. Kioxia (-0.63%) was the key detractor, falling 38% as a US patent verdict and a rival's capacity expansion deflated an overheated memory rally, while an underweight to NVIDIA weighed on relative returns.

The Life Cycle Concentrated Global Share Fund returned 4.5% over the September quarter, outperforming its benchmark by 3.1%. Microsoft (+1.22%) led, rallying 37% after Azure growth accelerated to 43% and commercial backlog surged 84% to US$678 billion. NVIDIA (+0.86%) gained 14% as quarterly revenue more than doubled to US$96 billion, Vera Rubin entered full production, and guidance was lifted to US$108 billion. Shell (+0.57%) rose 22% after adjusted earnings more than doubled to US$9.8 billion, funding a further US$3 billion buyback. Delta Air Lines (-0.37%) fell 11% as record fuel costs squeezed margins. Alphabet (-0.22%) slipped 4% as investors baulked at capex guidance of US$195–205 billion, despite cloud revenue growing 82%.

Global shares (unhedged) returned 1.2% over the quarter, supported by continued optimism around AI and corporate profitability. However, escalating Middle East tensions generated renewed volatility. The Iran-US ceasefire collapsed in July, with military strikes resuming and the Strait of Hormuz again closing as a shipping route. US shares reached historic highs in August before drifting lower, while European markets followed a similar pattern. Chinese shares were subdued amid weak consumer spending and ongoing property sector concerns.

Global bonds (hedged) returned -2.4% as rising energy prices, inflation concerns and persistent government deficits pushed bond yields higher. Australian bonds also struggled, returning -1.5%.

Australian shares returned a modest 1.3% over the quarter, although sector performance varied significantly. Healthcare rebounded strongly, returning +25.4%, while Energy benefited from higher oil and gas prices stemming from the Middle East conflict, and Resources gained from stronger metal prices. In contrast, Consumer Discretionary fell 10% and Real Estate declined 8.7% as higher interest rates and weaker consumer prospects weighed on sentiment.

Domestically, persistent inflation and rising interest rates continued to pressure households and consumer spending. The RBA raised interest rates for the fourth time this year in September, with the cash rate now at 4.6%. Housing costs rose 5.7% over the year to August, with electricity prices rising 13.2%, new dwelling costs 5.4% and rents 3.6%. Healthcare and education costs increased 3.9% and 4.7% respectively, while higher mortgage rates also weighed on housing prices.

Looking ahead, escalating geopolitical conflicts, higher energy costs and persistent inflation remain key risks. Major central banks face the challenge of containing inflation without pushing interest rates too high and materially weakening economic growth and global share markets.