Quarterly fund commentary State Street Australian Equity Fund

Market commentary

Global economic activity remained broadly resilient during Q2 2026 despite heightened geopolitical uncertainty. Manufacturing activity strengthened across several major economies, while services activity was mixed. Labor market conditions were generally stable, although signs of moderation emerged during the quarter. Inflation pressures remained elevated, prompting major central banks to maintain a cautious policy stance.

Risk sentiment improved as the Middle East conflict began to de-escalate and oil prices retraced much of their earlier spike, reducing fears of a prolonged energy-driven inflation shock. At the same time, the artificial intelligence investment cycle reasserted itself as the dominant driver of market performance, with technology, semiconductors, and AI infrastructure beneficiaries leading the rally. Developed market equities advanced strongly during the quarter, while emerging markets delivered particularly robust gains, supported by significant exposure to semiconductor and technology hardware supply chains.

The macro backdrop remained mixed. Stronger-than-expected earnings and continued AI capital spending supported equity valuations, but inflation pressures remained elevated, particularly through the energy channel. By mid-June, the ECB had delivered a 25-basis-point rate hike, while the Federal Reserve, under new Chair Kevin Warsh, kept rates unchanged at 3.50%–3.75%. The Bank of Japan also raised its policy rate to 1.0%, reinforcing the broader theme that central banks were becoming less willing to look through persistent inflation pressures. By late June, oil prices had retraced approximately 80–85% of the war-driven spike, but investors remained sensitive to the possibility that the inflation shock, while likely temporary, could still complicate the near-term policy outlook.

Meanwhile, the Reserve Bank of Australia is likely to remain restrictive for an extended period and could still deliver one final hike should underlying inflation prove sticky, although a slowing economy should eventually pave the way for a more dovish turn. Australian lagged over Global Equities over the quarter, with the S&P/ASX 300 returning +4.14% in AUD terms.

Fund update

The State Street Australian Equity Fund returned +1.46% (net of fees) for the three months to 30 June 2026, compared with a return of +4.14% for the S&P/ASX 300 Index.

Australian equity markets were led by cyclical sectors during the quarter, while more defensive sectors lagged. Energy (-16.7%), Utilities (-6.6%) and Health Care (-6.1%) were among the weakest-performing sectors. In contrast Consumer Discretionary (+18.0%) and Information Technology (+17.4%) delivered particularly strong returns.

From a relative performance perspective, sector positioning was the primary driver of the fund's underperformance over the period. The most significant allocation headwinds arose from the fund's underweight exposure to Consumer Discretionary and overweight exposure to Health Care. Stock selection within the Energy and Real Estate (o/w Charter Hall, +4.6%, o/w Region Group, +5.8%) sectors detracted from performance. This was mostly offset by positive selection within Health Care (notably within Health Care Equipment) and Industrials.

Despite the challenging relative performance environment, the fund maintains its defensive characteristics and continued to exhibit a lower risk and volatility profile than the benchmark. Over the past three years, the fund has delivered an annualised volatility of 8.5%, compared with 10.6% for the S&P/ASX 300 Index. This lower volatility profile is supported by the fund's reduced sensitivity to broader market sensitivity, with a three-year beta of 0.7 relative to the benchmark.

12 month commentary

The State Street Australian Equity Fund returned 3.26% (net of fees) for the 12 months to 30 June 2026, compared with a return of 6.16% for the S&P/ASX 300 Index.

The Australian equity market was supported by the strength in resource-related sectors over the period. Materials (+52.2%) was the standout performer, benefiting from strong gains across the larger iron ore miners, while Energy and Consumer Staples also delivered. Against this backdrop, the Fund's underweight positions in both Materials and Energy were the largest detractors from relative performance.

Within Health Care, relative performance was mixed. Health Care (-36.2%) significantly underperformed the broader market, however stock selection within the sector was strong, offsetting most of the drag from overweight allocation effect. Overweight’s to Ansell Limited and Fisher & Paykell Healthcare were the largest contributors to stock selection within the sector.

Helping to further offset the underperformance more broadly were contributions from Information Technology, Financials and Industrials. The Fund benefited from its underweight exposure to Information Technology and Financials, both of which underperformed the broader market over the period. An overweight position in Industrials also added value, supported by the resilient performance of a number of quality infrastructure and service-related businesses.

Looking forward, we continue to advocate caution amid a backdrop of:

• Elevated valuations, particularly in growth-sensitive sectors.
• Resurfacing of ongoing tensions in the Middle-East and uncertainty around a return to heightened conflict observed at the start of the year
• Inflation may remain sticky which is likely to keep central banks cautious with any policy easing dependent on further improvement in inflation.

The case for defensive strategies remains intact, particularly if market volatility returns. The Fund remains positioned in high-quality, cash-generative businesses with resilient earnings profiles, while retaining the flexibility to benefit should market leadership broaden beyond the more cyclical areas of the market.

Notable changes during the quarter:

During the quarter, the main sectoral changes were increases in Energy (+4.9%) and Communication Services (+4.6%) which was funded from sales across Materials (-4.1%) and Health Care (-2.8%).

Within the Energy sector, we opened new positions in four companies, Woodside Energy, Santos and Ampol while subsequently trimming positions in the existing positions in Whitehaven Coal and Yancoal Australia as we rotate into lower volatility names with higher alpha scores.

In the Industrials sector which is the largest weight within the fund, we increased exposure in Virgin Australia, moving closer in weight to airline competitor Qantas. Increased allocation to airlines can be attributed to both Value and Quality whereby both companies maintain good valuations and quality scores.

In terms of sales within the portfolio, the significant funding was sourced from Westpac (sell all), Graincorp (sell all) and Rio Tinto (partial sell) as our quantitative approach weighs the relative trade-off between different investment opportunities. Deterioration in stock sentiment (Westpac) and Quality (Graincorp) led to the sell off of the two companies, whereas the partial sell for Rio Tinto was to reduce risk as the Rio Tinto has a higher beta than the benchmark.

Our positioning remains concentrated on investment in companies with lower economic sensitivities and higher long-term sustainability in earnings. The goal is to sail through the uncertain market conditions ahead, preserve capital and focus on investing in companies with strong long-term fundamentals.