Quarterly fund commentary State Street Global Equity Fund

Market commentary

Global equity markets ended Q4 higher for the third consecutive quarter, with the MSCI All Country World Index gaining 2.7% in AUD and bringing year-to-date returns to 14.1%. Market sentiment was buoyed by easing inflation, lower energy prices, and a gradual shift in monetary policy.

The US Federal Reserve delivered three rate cuts in 2025, including one in December, lowering the federal funds target range to 3.50% - 3.75%. The Bank of England also cut rates, while the European Central Bank held steady, and the Bank of Japan tightened policy for the first time in decades. Easing inflation across major economies enabled central banks to adopt more accommodative stances, supporting risk assets and investor confidence.

Global GDP growth exceeded expectations, with upward revisions for the US, China, and the eurozone. The US posted a strong Q3 GDP growth rate of 4.3%, beating consensus forecasts. Structural resilience in Europe and robust consumption in Japan further contributed to positive outlooks.

Fund update

The State Street Global Equity Fund (“the Fund”) ended the quarter with a gross return of +4.11% (3.89% net), outperforming the MSCI World ex Australia (unhedged) index return of +2.55%.

Despite turbulent headlines, global equities ended 2025 on a strong note, with Q4 extending the year’s gains. Investors navigated a “wall of worry” – including a record U.S. government shutdown, cooling economies, and shifting central bank policies – yet risk assets proved resilient. Easing inflation created a more supportive monetary backdrop. By Q4, the market’s advance broadened across sectors and regions. Value stocks staged a late-year comeback, and international markets outperformed the U.S., underscoring the benefits of diversification.

The most notable Q4 reversal was the pause in the Technology rally, as rising concerns over significant AI infrastructure spending triggered profit-taking among several big-tech leaders. Cyclicals outperformed, led by Financials and Materials, as confidence in economic resilience strengthened. Defensive sectors were mixed: Health Care rebounded strongly with a 10% gain, while Utilities, Consumer Staples, and Telecommunication Services lagged.

The Fund ended 2025 on a high note, delivering a 3.89% total return (including currency hedging and net of fees) in Q4 and outperforming the broad market by 1.34%. Strong stock selection was the key driver, more than offsetting the structural headwind from the Fund’s lower-beta tilt. At the sector level, most outperformance came from strong selection in Financials (notably capital markets and insurers) and Materials (overweight positions in gold miners and European construction materials). Conversely, performance was dragged by Information Technology (weak selection in tech hardware and underweights in semiconductors and software) and Communication Services (weak selection in traditional telcos and underweight exposure to online media).

Relative to low-volatility benchmarks, the Fund notably outperformed the MSCI World ex Australia Minimum Volatility Index both this quarter and over the past twelve months. This underscores the strategy’s effectiveness in combining downside protection with meaningful participation in market rallies through alpha-driven stock selection.

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%), 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 +21.9% gross of fees (+20.9% net), outperforming the MSCI World ex Australia (unhedged) Index, which returned +12.5% over the past 12 months.

Major global indices posted their third consecutive annual gains, with the MSCI World Index, S&P 500, Nasdaq, and the MSCI Emerging Markets all finishing the year in positive territory. The AI theme was a dominant market driver, with AI chipmakers and infrastructure firms among the best-performing areas. Market strength broadened beyond technology, with notable gains in Aerospace & Defense, construction and engineering, banks, China tech, and precious metals miners. Laggards included managed care, apparel, consumer staples, and energy.

Our Global Defensive Equity strategy demonstrated resilience amid rapid shifts in market preferences, flash corrections, and sharp rebounds. Despite a market led by cyclical and high-beta sectors, the Fund ended 2025 on a strong note, delivering returns well ahead of the broad market. Strong stock selection was the primary driver, more than offsetting the structural headwind from the Fund’s lower-beta tilt.

At the sector level, outperformance was driven by strong selection in Financials (notably capital markets and insurers) and Materials (overweight positions in gold miners and European construction materials). Conversely, performance was hindered by Information Technology (weak selection in tech hardware and underweight positions in semiconductors and semi-equipment) and Communication Services (weak selection in traditional telcos and underweight exposure to interactive media and entertainment).

Relative to low-volatility benchmarks, the Fund outperformed the MSCI World ex Australia Minimum Volatility Index both this quarter and over the past twelve months. This underscores the strategy’s effectiveness in combining downside protection with meaningful participation in market rallies through alpha-driven stock selection.

Our strategy focuses on companies with lower economic sensitivity and strong earnings and cash flow profiles. The Fund maintained higher allocations to less cyclical sectors such as Healthcare, Utilities, and Consumer Staples. Within the cyclical segment, we favored Financials and Materials over Industrials, Consumer Discretionary, and Information Technology. Over the past 12 months, we increased positions in Utilities, Financials, Healthcare, and Materials; funded by reduced allocations to Industrials, Staples, and Information Technology.

At the Fund level, currency hedging contributed positively over the last twelve months, with notable gains in the second half of the year as the U.S. Dollar weakened against major currency pairs.