Market Data – March 2025

Market Returns - 1 Month to 31 March 2025 (in AUD)

Market Commentary

The first quarter of 2025 was characterised by significant market volatility driven primarily by U.S. trade policy following President Trump's inauguration. Markets began the year positively but sentiment shifted as the administration imposed and threatened various tariffs—25% on Canada and Mexico (later postponed) and 10% on Chinese imports.

Global markets diverged considerably, with European equities outperforming, gaining approximately 10% in AUD terms, while U.S. markets retreated. The S&P 500 closed down 5% for the quarter, while the Nasdaq fell nearly 10% and the "Magnificent Seven" tech stocks plunged over 15%. The most dramatic single event was Chinese AI firm DeepSeek's emergence, which triggered NVIDIA's historic $600 billion single-day market value loss. Central banks showed diverging policies. The RBA cut rates in February by 25bps to 4.1%—its first reduction since 2020—while the Bank of Japan unexpectedly hiked rates to 0.5%. The Fed maintained rates amid mixed economic signals, lowering growth forecasts while raising inflation expectations. Bond markets demonstrated volatility but generally saw yields fall as recession concerns mounted. Commodities showed strength, with gold reaching record highs above $3,000 per ounce.

In Australia, the February reporting season revealed companies generally beating earnings expectations, though results weakened throughout the month, particularly in sectors like healthcare and retail. The ASX300 Banks Index shed 5.2% in February despite healthy credit growth and low bad debts, largely due to elevated valuations after strong 2024 performance. The quarter closed with emerging signs of stagflation, as personal spending in the U.S. rose just 0.1% in February alongside upticks in inflation data. This economic uncertainty fuelled defensive positioning, with investor sentiment deteriorating and economic policy uncertainty reaching multi-decade highs. Safe-haven assets benefited, with gold's record-breaking run reflecting the quarter's persistent volatility.

Australian Equities

The Prime Australian Equities Growth Portfolio declined 3.5% in March 2025, as global trade tensions and domestic economic concerns impacted investor sentiment across Australian markets. Despite challenging conditions, several key holdings demonstrated impressive resilience.

Resource exposures provided meaningful support, with Newmont Corporation emerging as the standout performer, surging 16.06% as gold prices rallied amid market uncertainty. Rio Tinto gained 6.36% as iron ore markets stabilised despite concerns about global demand. The energy sector contributed positively with Santos delivering a 1.83% return amid recovering oil prices.

Defensive allocations demonstrated their value, with Cleanaway Waste Management advancing 3.60% as investors favored businesses with reliable cash flows. The portfolio's cash position through the iShares Core Cash ETF provoved to be an important volatility buffer.

However, these positive contributions were outweighed by weakness in several key holdings such as James Hardie Industries, which plummeted 23.97% as concerns about housing market activity intensified. Financial services faced substantial headwinds with Macquarie Group falling 13.22%. Consumer discretionary stocks struggled as Premier Investments declined 12.20% with retail spending showing signs of moderation. Technology exposures continued their recent weakness, with Block declining 16.12% as the tech sector rotation persisted throughout the month.

The portfolio's balanced sector approach, combining quality cyclical exposures with defensive allocations, continues to navigate the current environment of elevated volatility. 

Defensive Income

March was a weak month of performance for global fixed income. Uncertainty surrounding the scope of impending tariffs continue to drive hesitation in global markets, as fears grow that we could see a slowing economy coupled with persistent elevated inflation (stagflation). The US 10y yield closed the month flat at 4.21%, falling from the intra-month high of 4.40% in the final two trading days. High yields widened considerably, up 67bps to 376bps on the CDX HY 5y spread.

The Australian bond market saw a slight steepening in the curve, particularly at the longer end. The domestic ACGB 10y yield increased 9bps to 4.38%, and our 2y yield fell 2bps to 3.68%. Domestic credit spreads were mixed, with quality outperforming. The AusBond Credit FRN OAS was flat at 62bps, whereas the AusBond Credit BBB- to BBB+ OAS widened 7bps to 124bps. Our 5y constant tenor Big Four Tier 2 FRN spread widened materially by 20bps to 164bps.

Prime delivered a return of +0.31% in March, which was a relatively strong result given market conditions. This performance contributed to an impressive 1y and 2y return of +6.73% and +6.47% p.a., outperforming the Bank Bill Index by +2.29% and +2.15%, respectively. Positively, this has been achieved with no negative months recorded since May 2023 (which was a modest negative 3bps). This excellent performance has been achieved while maintaining consistently low exposure to interest risk (~1.5y duration) and high credit quality (A- portfolio average credit rating).

The top performers for the Portfolio were Metrics Direct Income Fund (+0.78%) and MA Priority Income Fund (+0.69%), contributing weighted returns of +9bps and +8bps, respectively. PIMCO Global Bond Fund was the largest detractor (-3bps), driven by a -1.29% fall in market price as a function of offshore duration underperformance.

In the first month of trading MA1 remained largely par-bound and with healthy volumes. Comparitively, DN1 traded well initially however, volumes fell away even faster than anticipated. In April we have placed an order to reduce our exposure to DN1, with the expectation to also reduce MA1 over the coming months.

International Equities

The Prime International Growth Portfolio navigated a challenging market environment in March, declining 4.16% amid heightened uncertainty surrounding U.S. trade policies and mixed global economic signals. The portfolio's diversified approach demonstrated resilience as markets reacted to evolving geopolitical tensions.

European investments emerged as standout performers, with the iShares Europe ETF delivering a 3.1% gain. Value-oriented strategies similarly demonstrated their defensive merits, with the Pzena Global Focused Value Fund returning 2.3% and the Trinetra Emerging Markets Growth Trust adding stability with a 2.0% return.

These positive contributions were counterbalanced by pressure on growth-oriented holdings, particularly the Munro Concentrated Global Growth Fund which declined 3.7% as investor sentiment shifted away from high-valuation technology companies amid trade uncertainties. The substantial allocation to U.S. equities through the iShares S&P 500 ETF similarly detracted with a 3.2% decline.

Over the trailing twelve months, the portfolio's 8.86% return trailed the benchmark primarily due to differences in positioning. The underweight exposure to U.S. large-cap technology stocks, which drove significant benchmark returns during the S&P 500's strong rallies, particularly in the late 2024 post-election surge, accounted for much of the divergence. The portfolio's allocation to more diversified regional exposures and value-oriented strategies provided stability however generated subdued returns compared to the concentrated gains in U.S. markets. Emerging market and Japanese holdings were affected by trade policy uncertainties and currency fluctuations, further contributing to the relative performance divergence during a 12 month period characterised by narrow market leadership.

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