Portfolio Activity During the quarter, VIP reduced fixed interest exposure and reallocated into property. UBS Small Caps was sold, with proceeds redeployed into other small- and micro-cap managers. Positions in oversold sectors, including Healthcare and WiseTech, were increased. National Storage REIT was replaced with the Magellan Core Infrastructure Fund (CBOE: MSCI), broadening exposure to global infrastructure equities while maintaining the portfolio’s growth orientation.
Australian Economic & Market Backdrop Australian economic indicators over Q4 2025 were broadly supportive but signalled rising inflation pressures. The RBA held the cash rate steady at 3.60%, adopting a more hawkish tone in December and noting persistent inflation risks. Headline CPI rose to 3.8% YoY in October, with core measures trending higher. The unemployment rate edged down to 4.3%, while wage growth held at 3.4% YoY, reflecting a tight but stable labour market. GDP grew modestly at 0.4% QoQ (2.1% YoY), supported by private investment, particularly machinery and equipment spending linked to data centre construction, while household disposable income outpaced spending, leaving scope for further demand.
Australian government bond yields rose across the curve, with the 3-year yield climbing to 4.1% and the 10-year yield ending the quarter near 4.8%, reflecting expectations of a potential RBA rate hike in early 2026. Credit spreads remained tight, underpinned by strong fundamentals and robust offshore demand, though rate-sensitive sectors like REITs stayed exposed to policy and inflation risk. The Australian dollar traded in the mid-0.65s against the US dollar, supported by the hawkish RBA pivot, with further upside contingent on relative central bank policy actions.
International Markets US equities outperformed, led by AI-driven gains, while European and Japanese markets were mixed. Long-duration government bonds underperformed, though mid-curve credit offered modest yield. Real assets and infrastructure remained defensive anchors amid ongoing policy uncertainty and geopolitical risk. While tariff shocks have largely faded, trade tensions and idiosyncratic central bank actions will continue to shape market dynamics into 2026.