VIP Growth Portfolio Performance Overview
The VIP Growth Portfolio continued its strong performance amid evolving economic challenges during the September 2024 quarter. Over the past three months, the portfolio achieved a return of 4.58%, bringing its year-to-date returns to 11.51%, outperforming its Benchmark YTD return of 11.10%. Despite global and domestic uncertainties, the portfolio exhibited resilience, driven by strategic investments in key sectors.
Leading contributors to the portfolio’s returns for the September Quarter included WiseTech Global (+0.40%), Scentre Group (+0.36%), and Orbis (+0.36%), all of which benefitted from technological advancements and the ongoing global demand for automation. However, Betashares Global Uranium (-0.28%) and GQG Partners Global Equities (-0.19%) detracted from overall performance, reflecting headwinds in the energy sectors due to fluctuating commodity prices and rising interest rates amid a mixed economic landscape.
Australia’s Labour Market
During the September 2024 quarter, the Australian economy exhibited mixed signals. Employment remained robust, with an unemployment rate of 4.1% and an increase of 44,400 jobs, bringing total employment to 14.5 million. The participation rate rose to 67.2%, indicating a resilient labour market. Notably, full-time employment surged, adding 51,600 jobs in September alone, which helped mitigate pressures from high inflation and increased mortgage costs—conditions that continue to challenge consumer spending and housing-related sectors.
Despite this positive employment outlook, underemployment remained at 6.4%, suggesting that while more Australians were employed, many were not working their desired hours. This situation could impact sectors reliant on discretionary spending, posing risks to companies in areas such as retail. Members of the Reserve Bank of Australia noted that weak productivity growth was constraining the economy’s potential growth rate, which could further complicate the recovery of consumer confidence.
Resource and Energy Sector Developments
The broader outlook for Australia’s resource and energy exports has weakened in 2024, affecting the portfolio’s exposure to companies in these sectors. After reaching a record peak in 2022-23, Australian resource and energy exports are forecasted to decline to $372 billion in 2024-25, down from $415 billion in 2023-24. Factors contributing to this decline include lower commodity prices and a rising AUD/USD exchange rate.
Commodity prices have softened, particularly for iron ore, amid a sluggish Chinese property market, while nickel and lithium prices have also remained subdued. These trends have weighed on the portfolio’s energy holdings, including Woodside Energy. Conversely, the gold price reached a record high, benefiting some of the portfolio’s mining positions, such as Sandfire Resources and its GOLD ETF holdings.
Looking ahead, while the near-term outlook for resource exports appears weak, the RBA Observes that global economic growth is expected to improve in 2025 and 2026, which could provide upside for Australian exporters. This anticipated rebound in commodity demand will likely support the portfolio’s resource holdings over the longer term, however VIP remains underweight in the Metals & Mining sector.
Strategic Adjustments and Outlook
In light of these market conditions, the Growth Portfolio has maintained a conservative allocation strategy (33% defensive assets), balancing exposure to growth sectors like technology while adopting a defensive posture in response to inflationary pressures and global economic uncertainties. The rising AUD/USD exchange rate and softening commodity prices, especially in iron ore and lithium, have been key considerations in the portfolio’s adjustments.
Despite the near-term challenges, the portfolio is well-positioned to capitalize on expected improvements in global economic growth from 2025 onward. By focusing on defensive sectors and strategic resource allocations, the portfolio aims to navigate economic volatility effectively while delivering long-term returns aligned with its capital preservation and growth philosophy.
Sources Referred and Data Collected From: Morningstar, RBA, ABS