Quarterly fund commentary State Street Global 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.

The US economy continues to exhibit resilience, but the latest data reinforce our view that the Federal Reserve will remain on hold through 2026 as we push the two rate cuts in our forecast into 2027. While previous concerns centered on a reacceleration in labor demand, the June payroll report instead showed job growth slowing to just 57,000, accompanied by substantial downward revisions to prior months. Wage growth moderated further to 3.4% year-over-year, the slowest pace since 2021, easing fears of a wage-price spiral and supporting the case against additional Fed tightening. At the same time, inflation remains above target, with headline CPI having accelerated earlier this year, but the retreat in oil prices and broader commodity costs should help limit further upside pressure.

Growth remains supported by powerful AI-driven investment spending, particularly in equipment and intellectual property, even as consumer spending softens under the weight of flat real disposable incomes and depleted savings. We continue to expect GDP growth of 2.3% in 2026 and 2.2% in 2027, reflecting a resilient but increasingly uneven expansion.

Risk assets delivered strong gains during the quarter, supported by the de-escalation of Middle East geopolitical tensions, resilient corporate earnings, and continued AI-related optimism. Global equities advanced, with emerging markets (EM) outperforming developed markets (DM) and growth stocks outperforming value. Fixed income also delivered positive returns as tighter credit spreads helped offset the impact of modest increases in government bond yields. The US 10-year Treasury yield ended the quarter at 4.47%, while the US dollar strengthened.

Fund update

The State Street Global Equity Fund (“the Fund”) ended the quarter with a gross return of +7.14% (6.92% net), underperforming the MSCI World ex Australia (unhedged) index return of 12.6%. Underperformance was driven by equity holdings, whilst the Dynamic Strategic Hedging (DSH) added value.

Global equity markets rebounded in the second quarter of 2026, delivering one of the strongest quarterly rallies in recent years as easing Middle East tensions, a sharp reversal in oil prices, and renewed momentum around artificial intelligence (AI) supported a broad improvement in risk sentiment.

The quarter began with sharp risk-on positioning as investors rotated aggressively back into technology and AI-linked names following March’s war-driven drawdown. The rally broadened and deepened through May, supported by a robust Q1 earnings season and upward revisions to full-year profit expectations. By June, a 14-point US-Iran Memorandum of Understanding (MoU) formalized a 60-day ceasefire, gradual restoration of tanker traffic through the Strait of Hormuz, and contributed to a more than 30% decline in oil prices from their April peak, the largest quarterly drop since the 2020 pandemic. Even brief flare-ups in late June, including retaliatory strikes and drone attacks in the Gulf, failed to derail sentiment, as markets increasingly viewed the geopolitical premium as transitory.

Information Technology (+32.2%) was the best performing sector, followed by Financials (11.2%) and Industrials (+10.9%). Conversely Energy (-14.4%) and Utilities (-1%) were the worst performers.

At the portfolio level, both sector allocation and stock selection detracted from performance. The largest drag from sector allocation was the Fund's underweight exposure to Information Technology, primarily driven by an underweight position in semiconductors, as well as its overweight exposure to Utilities. Stock selection within Information Technology, particularly in Technology Hardware and Equipment, contributed positively; however, this was insufficient to offset the negative impact of the underweight sector allocation. In addition, stock selection within Communication Services, particularly holdings in Telecom Services, was weak and further detracted from relative performance.

Overall, the Fund's underperformance was driven by its positioning in defensive sectors, which lagged the broader market during a strong risk-on quarter.

DSH comments

The fund’s Dynamic Strategic Hedging (DSH) currency program maintained a weighted average AUD hedge ratio of just over 92% at the end of the quarter. Among major currency pairs, USD (100%), CHF (100%), SGD (100%), HKD (90%), 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 +20.81% gross of fees (+19.80% net), outperforming the MSCI World ex Australia (unhedged) Index, which returned +14.95% over the past 12 months. Performance from equity holdings underperformed but was offset by the DSH.

For the 12-month period, stock selection was positive overall. However, this was insufficient to fully offset the negative impact of defensive sector positioning on relative performance.

The largest allocation headwind was the Fund's underweight exposure to Information Technology, which returned approximately 31% and was the strongest-performing sector over the period. Additional allocation headwinds arose from an underweight position in Energy (+21.5%) and an overweight allocation to Consumer Staples (-0.7%). These impacts were partially offset by the Fund's underweight exposure to Consumer Discretionary (-8.9%), which added value from a positioning perspective.

Stock selection was strongest within Information Technology and Financials. Within Information Technology, positive stock selection in Technology Hardware, Storage & Peripherals and Electronic Equipment, Instruments & Components offset nearly all of the negative impact from the Fund's underweight sector exposure. Notable contributors included overweight positions in Dell Technologies and Corning, as well as an underweight position in Microsoft, all of which generated positive excess returns during the period. Conversely, the Fund's underweight exposure to the Semiconductors & Semiconductor Equipment industry detracted from relative performance.

Within Financials, stock selection was driven by the Fund's overweight exposure to Capital Markets, particularly investment banking, brokerage, and exchange-related businesses.

The Fund continues to maintain a quality-oriented investment approach, emphasizing companies with resilient business models, strong cash-flow generation and lower economic sensitivity. Consistent with this philosophy, the portfolio remained overweight in defensive sectors including Health Care, Utilities, Consumer Staples and Communication Services.

Within cyclical sectors, the Fund maintained a preference for Financials and Materials, over Information Technology, Consumer Discretionary and Industrials. While this positioning created a headwind, stock selection helped mitigate some of the negative impact.