The VIP Growth Portfolio underperformed its benchmark, the Morningstar Growth Index for the quarter ending 30 June 2026, generating a return of 4.20% compared to the benchmark return of 7.99%, reflecting an underperformance of 3.79%.
The portfolio’s underperformance reflected a period where the investment style and positioning were temporarily out of favour relative to broader market conditions. While Relative performance was primarily impacted by security selection within Australian equities, there was an additional impact from the portfolio’s elevated cash position, which reduced participation in the broader market recovery.
The strategy maintains a valuation-focused approach, seeking to invest in high-quality businesses with sustainable competitive advantages and attractive long-term return potential. During the quarter, however, market leadership shifted toward cyclical exposures, lower valuation companies and benchmark-heavy sectors, while several of the portfolio’s preferred holdings experienced valuation compression.
The main negative impact on performance came from Australian equity exposures across healthcare, financials, resources and technology. Investors rotated away from quality growth and defensive businesses as market sentiment shifted toward shorter-duration earnings and economically sensitive sectors. This resulted in weakness across several portfolio holdings despite limited changes to the underlying long-term investment fundamentals.
Healthcare was a significant detractor, with holdings including CSL, Cochlear, ResMed and Sonic Healthcare experiencing material share price weakness as investors reassessed the valuations of defensive growth businesses. CSL’s decline reflected a combination of changing earnings expectations, near-term growth concerns and broader investor preference shifting away from premium-multiple healthcare companies. Cochlear was the largest individual detractor during the quarter following a downgrade to earnings guidance, which resulted in a significant reassessment of near-term earnings expectations and valuation. While these events impacted short-term portfolio performance, the IC continues to believe these businesses possess strong competitive positions, attractive long-term industry dynamics and sustainable earnings potential. The weakness across healthcare is viewed as primarily driven by valuation compression, changing investor sentiment and company-specific short-term factors rather than a deterioration in the long-term investment cases.
Financials also detracted, with holdings including National Australia Bank and Westpac impacted by sector-wide weakness. NAB experienced additional pressure following the announcement of accelerated software amortisation charges, higher credit impairment provisions and capital management initiatives, which weighed on near-term earnings expectations. More broadly, Australian banks experienced a valuation reset following a strong period of prior performance, with investors becoming increasingly focused on margin pressure, mortgage competition and the outlook for credit growth. VIP’s IC continues to view the major banks as high-quality franchises with strong capital positions and attractive long-term shareholder return characteristics.
Resource exposures also contributed negatively as commodity markets remained volatile. Holdings including Ramelius Resources, Evolution Mining, Northern Star Resources, Woodside and Santos were impacted by movements in commodity prices, China growth expectations and geopolitical uncertainty. Gold-related exposures were also affected as investors shifted toward income-producing assets such as bonds, increasing the opportunity cost of holding non-yielding assets. The IC continues to believe selected resource exposures provide valuable diversification benefits and long-term exposure to structural commodity demand trends.
Technology exposure detracted primarily through WiseTech Global, which experienced significant share price volatility following CEO-related governance concerns. While this negatively impacted quarterly performance, the IC continues to focus on the company’s underlying competitive advantages, scalable business model and long-term earnings potential.
The largest individual detractors during the quarter were Cochlear (-0.43% attribution), Woodside Energy (-0.23%), ResMed (-0.21%), National Australia Bank (-0.15%) and Westpac (-0.14%). While these holdings negatively impacted quarterly returns, the IC believes the majority of the underperformance reflected short-term market repricing, valuation adjustments and sector rotation rather than a permanent impairment of the underlying investment theses. Several of these businesses continue to demonstrate strong competitive advantages, resilient balance sheets and attractive long-term growth opportunities, with recent share price weakness creating more compelling valuation opportunities for long-term investors.
Within our international exposure US equities have remained quite resilient despite the Israel–Iran conflict, with markets largely absorbing the geopolitical shock. We increased our US exposure, prioritising US equities over Australian equities as recession concerns eased, supported by resilient consumer confidence and labour-market conditions. We also reduced the currency hedge on part of our US exposure, increasing our exposure to the US dollar.
Overall, the quarter reflected a period where market returns favoured benchmark-heavy and cyclical exposures, while the portfolio’s valuation-focused investment approach experienced short-term headwinds. The IC believes the weakness across several holdings was driven predominantly by valuation adjustments, sector rotation and company-specific sentiment rather than a deterioration in underlying business quality.
The IC remains confident in the portfolio positioning, with several holdings trading at valuations that do not fully reflect their long-term earnings potential. The strategy remains focused on identifying high-quality businesses where the market is underestimating future value creation, with the expectation that disciplined security selection will support long-term relative performance through a full market cycle.