Quarterly fund commentary State Street Global Equity Fund

Market commentary

Global equity markets declined in Q1 2026, with the MSCI All Country World Index (ACWI) falling -5.7% (AUD). Risk sentiment deteriorated amid a sharp rise in energy prices, renewed geopolitical tensions in the Middle East, and a reassessment of global monetary policy expectations. Investor focus shifted from disinflation and anticipated policy easing toward upside inflation risks, as energy-related supply disruptions pushed oil prices higher and drove increased volatility across asset classes.

Global economic activity remained resilient but gradually moderated toward quarter-end, as demand and business confidence softened. Services supported growth early in the period, while manufacturing conditions stabilised across several regions, with activity improving modestly toward the end of the quarter. As the quarter progressed, escalating conflict in the Middle East lifted energy and commodity prices, intensifying input cost pressures and weighing on market sentiment. Inflationary pressures increased, while labour-market conditions showed modest softening toward quarter-end.

The Iran conflict represents a dual shock to the global economy: an immediate, energy-driven inflation impulse and a lagged drag on growth should the conflict persist. To date, the shock has been primarily reflected in prices rather than physical supply disruptions; however, downside risks would rise sharply if the Strait of Hormuz remains impaired beyond late June. The U.S. is relatively better cushioned due to domestic energy production and limited wage pass-through, although higher gasoline prices are expected to temporarily lift headline inflation and weigh marginally on consumption.

Fund update

The State Street Global Equity Fund (“the Fund”) ended the quarter with a gross return of +3.5% (3.2% net), outperforming the MSCI World ex Australia (unhedged) index return of -6.2%

Global equities began the year trading within a narrow range, despite significant underlying dispersion and heightened volatility. Software stocks were a major focal point, as expectations surrounding AI-driven disruption and displacement weighed on the sector. Private credit also experienced notable pressure, reflecting its outsized exposure to Software. Overall equity markets were supported by continued expectations of solid double-digit earnings growth for the S&P 500, despite signs of softer labour-market conditions and inflation remaining stubbornly above the Federal Reserve’s target.

Risk appetite shifted decisively toward a risk-off stance in late February, following the U.S. launch of Operation Epic Fury – a joint offensive against Iran alongside Israel. While President Trump stated that the U.S. largely achieved its objectives, oil flows through the Strait of Hormuz remained constrained. Crude prices stayed elevated, with limited relief from coordinated strategic reserve releases. Against this backdrop, market expectations for further interest rate cuts faded.

Energy was the best-performing sector for the quarter, rising 33%, followed by strong performance in Mining and Chemicals. Defensive sectors such as Utilities and Consumer Staples also outperformed. Conversely, cyclical sectors like Consumer Discretionary, Information Technology, and Financials lagged.

At the portfolio level, excluding currency hedging, the Fund outperformed the unhedged benchmark by over 6.5%. An underweight exposure to Information Technology (particularly minimal holdings in Software) combined with an overweight in Utilities, were the primary contributors to outperformance. Strong stock selection within Communication Services (overweight diversified telecommunications and underweight interactive media) and Healthcare (select holdings in health services and pharmaceuticals) also contributed positively. These gains were partially offset by underweight exposure to Energy and Materials.

DSH comments

The fund’s Dynamic Strategic Hedging (DSH) currency program maintained a weighted average AUD hedge ratio of over 96% 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 (80%), GBP (100%) 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 from the Fund's return.

12 month commentary

The Fund delivered a return of +19.4% gross of fees (+18.4% net), outperforming the MSCI World ex Australia (unhedged) Index, which returned +8.1% over the past 12 months.

The Global Defensive Equity strategy demonstrated resilience amid rapid shifts in market preferences, frequent bouts of volatility, and sharp market rebounds. Over the full twelve-month period, market leadership was dominated by cyclical and high-beta sectors. Despite this backdrop, the strategy generated solid returns well ahead of both the broad market and the comparable Minimum Volatility Index. Strong stock selection was the primary driver of performance, more than offsetting the structural headwind from the Fund’s lower-beta profile. This highlights the strategy’s effectiveness in delivering downside protection while maintaining meaningful upside participation through alpha-driven stock selection.

At the sector level, outperformance was driven by strong stock selection within Financials (particularly in capital markets and insurance) and Materials, supported by overweight positions in gold miners and European construction materials. Conversely, performance was negatively impacted by underweight exposure to Information Technology (notably semiconductors and semiconductor equipment) and weak selection in Communication Services, including traditional telecommunications, alongside underweight exposure to interactive media and entertainment.

The strategy continues to focus on companies with lower economic sensitivity and strong earnings and cash flow characteristics. The Fund maintained higher allocations to defensive sectors such as Healthcare, Utilities, Consumer Staples, and Telecommunications Services. Within cyclical sectors, we favored Financials and Materials over Industrials, Consumer Discretionary, and Information Technology.

Stock selection signals for Energy have improved, leading to the addition of selected positions during the period. Additional allocation increases were made within Utilities and Consumer Discretionary. On the funding side, we have reduced positions in Consumer Staples over the last twelve months on weaker return prospects; and more recently Financials and Industrials.

At the Fund level, currency hedging contributed positively over the twelve-month period, with particularly strong gains in the second half of 2025 as the U.S. dollar weakened against major currency pairs.