Quarterly fund commentary State Street Global Equity Fund

Market commentary

Global economic activity in third quarter remained resilient, driven by strong service sector growth despite a slight slowdown in September, while manufacturing showed signs of recovery. Labor markets softened globally, with notable weakness in the US. Inflation remained elevated but broadly stable across major economies, with some regional divergence. The US experienced renewed price pressures from tariffs, whereas Europe and several emerging economies saw ongoing disinflation. Asian equities rose during the period. Asian bonds declined slightly in USD unhedged terms and rose on USD hedged basis.

In the third quarter of 2025, central banks in the region generally maintained accommodative or neutral policy stances to support growth amid global uncertainties. China’s economic indicators reflected mixed trends in the third quarter of 2025. China’s economy showed signs of recovery, with manufacturing activity and exports rebounding, though deflation persisted and fixed-asset investment remained weak. Hong Kong’s growth held steady at 3.1% year-on-year, supported by moderate inflation and stable unemployment. South Korea’s economy remained resilient, with inflation rising to 2.1% and GDP expanding, but the labour market softened slightly.

Fund update

The State Street Global Equity Fund (“the Fund”) ended the quarter with a gross return of +4.69% (4.46% net), lagging the MSCI World ex Australia (unhedged) index return of +6.14%.
Global equities advanced in the third quarter, propelled by the broadening of the artificial intelligence (AI) investment boom and the Federal Reserve’s first rate cut of the year. The MSCI World Index posted a robust gain of 6.2% for the period, reflecting sustained risk appetite among investors. AI-related themes continued to dominate market sentiment, with strong earnings and significant capital flows into AI infrastructure and semiconductor companies. Conversely, defensive sectors encountered mounting macroeconomic and policy headwinds. Rising input costs—driven by tariffs and labour pressures—began to weigh on Consumer Staples, while ongoing adverse policy developments clouded the outlook for the health care sector. Notably, the highest beta quintile outperformed the lowest by a substantial 13% margin.

The market environment in Q3 presented a challenging backdrop for the Global Defensive Equity (GDE) type of strategy, which maintains a structural tilt toward lower beta exposures. The underperformance of our Fund was attributable to the portfolio’s low beta allocation, which lagged in a market environment that favoured risk-taking. Sector allocation mirrored the impact of beta positioning, with defensive tilts (overweights in underperforming staples and health care) and underweights in growth sectors (technologies and communication services) detracting from active performance. While stock selection contributed modestly to returns, it was insufficient to offset the negative effects of beta and sector allocation.

Despite the relative underperformance in Q3, the GDE strategy has delivered a strong year-to-date lead over the market with our Fund outperforming the market capitalisation benchmark by 6.6% (net of fees). This achievement is particularly notable given the strength of equity market returns in 2025, underscoring the portfolio’s ability to generate alpha through disciplined stock selection—even when its structural tilts are out of favour.

Relative to low volatility benchmarks, the Global Defensive Equity strategy has outperformed the MSCI World ex Australia Minimum Volatility Index YTD and in the last twelve months. This highlights the strategy’s effectiveness in combining downside protection with meaningful participation in market rallies.

DSH comments

The fund’s Dynamic Strategic Hedging (DSH) currency program maintained a weighted average AUD hedge ratio of over 90% at the end of the quarter, toward the high end of its history since the program's inception. Among major currency pairs, USD (100%), CHF (100%), SGD (100%), HKD (100%), CAD (90%), and EUR (100%) were heavily hedged. Conversely, JPY (0%), DKK (0%), NOK (0%), and SEK (0%) had the lowest hedge ratios.

The impact of currency hedging was positive this quarter. Since inception, DSH has detracted 0.9% per annum from the Fund's return.

12 month commentary

The Fund returned +16.61% gross of fees (+15.63% net); underperforming the MSCI World ex Australia (unhedged) index return of +23.03% over the last 12 months. 

The portfolio has demonstrated resilience amid rapid changes in market preferences, flash corrections and sharp rebounds. Stock selection and defensive positioning has supported the performance of the fund. Excluding the impacts of currency hedging, the Fund produced a total return of 23.6% (before fees) over the last 12 months, lagging the unhedged benchmark return of 23.03%. 

Stock selection was positive across most sectors over the 12 months. Despite headwinds for the Defensive sectors, we are pleased to see strong stock selection within Healthcare and Utilities more than offsetting the negative drags from allocation effect. Selection also strong in Financials (overweight capital markets) and Materials (overweight in European construction materials). On the opposite side, stock selection was negative within I.T. (underweight semiconductors and semi-equipment) and Communication Services (underweight interactive media and entertainment). 

Our strategy aims to invest in companies with lower economic sensitivities and those backed by solid earnings and cash flows. It continues to have a higher allocation to less cyclical sectors like Utilities, Consumer Staples, and Healthcare.

At the Fund level, currency hedging has detracted value over the last 12 months. Notable detraction occurred in the December quarter of 2024, when the US Dollar significantly outperformed across major currency pairs.