VIP Growth Portfolio Performance Overview
The VIP Growth Portfolio continued its strong performance amid evolving economic challenges during the December 2024 quarter. Over the past three months, the portfolio achieved a return of 1.91%, bringing its year-to-date returns to 13.64% outperforming its Benchmark of 12.80%. 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 December Quarter included Claremont Global (+0.60%), BetaShares Global Quality (+0.47%), and GQG Partners Global Equities (+0.43%), all of which benefitted from technological advancements and the ongoing global demand for automation. However, Centuria Industrials (-0.19%) and BHP (-0.14%) detracted from overall performance, reflecting a week property market and a fall in iron ore price (-22%)
Australian Economy
In the December 2024 quarter, the Australian economy exhibited signs of resilience amid global uncertainties. Retail sales experienced a 1% increase, driven by significant consumer spending during Black Friday and Cyber Monday. This uptick was further supported by government tax cuts and subsidies, contributing approximately 0.2 percentage points to the GDP. However, the labour market remained tight, with unemployment at 4%, exerting inflationary pressures that complicated the Reserve Bank of Australia’s (RBA) monetary policy decisions. Consequently, the RBA maintained the cash rate at 4.35% during its December meeting, balancing the need to control inflation without stifling economic growth.
International Markets
Globally, financial markets faced a mix of challenges and developments in the final quarter of 2024. The U.S. economy demonstrated resilience, with third-quarter GDP revised upward to a 3.1% annualized rate, marking robust growth. However, international equities experienced declines, influenced by a strengthening U.S. dollar and rising bond yields. The European Central Bank (ECB) implemented a 25 basis point rate cut in December, responding to a significant slowdown in business activity and a recession in the manufacturing sector. Additionally, geopolitical tensions were heightened by U.S. President Donald Trump’s imposition of sweeping tariffs on imports from Mexico, Canada, and China, prompting retaliatory measures and contributing to global trade uncertainties.
Outlook for the First Quarter of 2025
Looking ahead to the first quarter of 2025, cautious optimism prevails. In Australia, the combination of sustained consumer spending and potential monetary easing by the RBA could bolster economic activity. However, the tight labour market may continue to pose inflationary challenges, potentially influencing the timing and magnitude of any rate adjustments. Globally, markets will be closely monitoring central bank policies, particularly the ECB’s approach following its recent rate cut, and the ongoing impact of international trade tensions. The trajectory of the U.S. economy will also be pivotal, as its performance often sets the tone for global economic sentiment.
Strategic Adjustments
In December, VIP made several key portfolio adjustments to align with shifting market dynamics. VIP increased our allocation to Gold, in anticipation surrounding the US tariffs, Continual increase of gold reserves and as a general safe haven during economic uncertainty. Additionally, we exited our position in the JCB Global Bond and reallocated capital to MSCI Japan ETF, in anticipation for trumps tariffs and policies being inflationary, leading to higher US government bond yields, which in turn reduces the relative attractiveness of global fixed-income and reinforces our decision to reallocate capital into the Japanese market. VIP has identified two key themes driving Japanese markets: corporate improvement leading to greater capital efficiency and higher shareholder returns, and the ongoing shift from deflation to inflation transforming economic behaviour. VIP believe the market continues to underestimate the potential of these secular tailwinds, making this an opportune time to revisit strategic weightings in Japanese equities
These strategic adjustments aim to enhance resilience while positioning the portfolio to benefit from long-term structural trends heading into 2025. 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.