VIP Growth Portfolio Performance Overview
The VIP Growth Portfolio continue to return positive performance amid market turbulence and US recession fears returning. Over the past month the portfolio outperformed its Benchmark by 39bps. Despite global and domestic uncertainties, the portfolio has strategic been positioned to mitigate risk with its Standard deviation at 8.63% compared to Vanguards 10.38%.
Key contributors to performance were Global X GOLD ETF (+0.40%) and Ramelius Resources (+0.05%), both benefiting from the surge in gold prices as investors turn to safe-haven assets amid rising global uncertainty. Additionally, iShares Japan (+0.07%) contributed positively, reflecting investor confidence in the Japanese markets and a shift away from the volatility seen in the US. On the downside top detractors to portfolio were, QLTY (-0.28%), and GQG Partners (-0.24%) reinforcing market sediment as capital flowed out of U.S. equities.
Australian Economy
Despite Global uncertainties the RBA cut rates for the first time in February by 25bps to 4.1%. Domestic factors like a tight Labour market (unemployment 4.1%) and downward pressures on wages and spending led the RBA to make this call with potential possibility of further monetary easing to come in July. Despite Wage growth being at 3.5% which is higher then the current CPI of 2.4% high mortgage rates still continue to contribute to the cost of living crisis and further rate cuts will help to take pressure of households. Labour productivity on the other hand has not increased since December 2016, and the absence of any such gains is a major headwind to future growth in living standards, despite this economists forecast a “soft landing,” with real GDP growth expected to pick up from 1.5% in 2024–25 to 2.25% in 2025–26 and 2.5% in 2026–27. Inflation is projected to fall within the Reserve Bank of Australia’s target range, decreasing from around 3.5% in 2023–24 to 2.75% in 2024–25.
Australian Equity Market
On February 14th the ASX200 reached a closing high of about 8,555.81, and then fell on March 13th to a closing low of roughly 7,749.07 (9.43%) (AUD 240 billion). Reflecting investor concerns over a potential US recession and unpredictable trade policies.
International Markets
Over the past quarter, the world economy has been marked by heightened volatility as investors navigated challenges of protectionist trade measures, ongoing war uncertainty and cautious monetary easing. While robust underlying fundamentals remain in several regions, renewed volatility fuelled largely by tariff policies and shifting central bank outlooks has led to a reassessment of asset allocations across markets. A selling wave is sweeping across global markets as Trump continues with his tariff policies, announcing 25% tariffs on auto imports. Goldman Sachs analysts raised their 12-month recession probability from 20% to 35% and gold hit record highs of $3,128 as investors struggle for safe havens investment options. The US dollar has also had its worst month in two years, having dropped by 3.5%.
European Stock Market whilst ending the month of March down due to imposing tariffs still outperformed their US counterparts YTD. Whilst sectors like luxury goods, automobiles, and healthcare will be affected the most by American tariffs the euro has recorded its strongest monthly performance against the US dollar since November 2022 climbing from 1.04 to 1.08.
Germany’s announcement of a €500 billion infrastructure fund and modifications to borrowing regulations is reshaping the bond market landscape. These measures are expected to increase the supply of top-rated debt, leading to a structural rise in government bond yields. Following the announcements, German 10-year bond yields surged by 40 basis points to approximately 2.9%, with projections suggesting they could reach 3%. This shift has broader implications for borrowing costs across Europe, influencing both corporate and sovereign debt markets.
Across the sea Japan’s economy has been transitioning from deflation to reflation, supported by rising wages, capital expenditure, and a potential shift in the Bank of Japan’s monetary policy, possibly leading to interest rate hikes. This economic recovery is boosting investor confidence. Corporate governance reforms, particularly on the Tokyo Stock Exchange, are fostering a more investor-friendly environment. Companies are increasingly focusing on capital efficiency, with a notable rise in share buybacks. This is expected to improve returns on equity and attract foreign investment. The Nikkei index is forecasted to reach 40,000 by mid-2025 and 42,500 by the end of the year, driven by strong corporate earnings.
Strategic Adjustments
Over March quarter, 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 VanEck MSCI International Small Companies and reallocated capital into Global X’s EURO STOXX 50 ETF, we strategically shifted away from American small caps to mitigate risk, traditionally more vulnerable in recessions due to their limited resources and sensitivity to economic downturns especially given the current U.S. challenges and tariff pressures. In addition, we are encouraged by the recent strengthening of the Euro relative to the USD. This currency trend not only enhances the potential value of European assets but also acts as an added hedge against U.S. economic headwinds.
These strategic adjustments aim to navigate global economic uncertainty while positioning the portfolio to benefit from long-term structural trends. 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.