How the portfolios performed over the December 2024 quarter
Global shares ended 2024 on a high note, with the December quarter delivering strong gains fuelled by resilient economic growth, robust corporate earnings, and two US Federal Reserve (Fed) rate cuts. The US technology sector, a key driver of market performance over the past two years, led the rally. Market sentiment shifted significantly during the quarter. October was subdued as investors exercised caution ahead of the US election. November saw a sharp rally following Donald Trump’s decisive victory and a Republican sweep of Congress, which boosted expectations for deregulation, tax cuts, and tariffs. However, momentum waned in December as the Fed lowered its rate cut projections, citing persistent inflation concerns.
Fixed interest markets faced challenges as rising bond yields and inflation concerns took their toll. Long-term government bonds, particularly US Treasuries, experienced the steepest losses, while Australian short-term credit posted modest gains. Despite two rate cuts during the quarter, the Fed’s December guidance surprised markets, projecting only two additional 0.25% cuts in 2025. Central banks have emphasised that reducing inflation further will remain difficult, with interest rates likely to stay significantly higher than pre-COVID levels. The Partners Short, Medium, and Long Term Portfolios all delivered positive returns. The Partners Multi-Asset Income Portfolio ended slightly negative, impacted by its exposure to Australian shares, which experienced a softer quarter.
Key Contributors
Australian credit (corporate bond) manager Daintree Core Income Trust — which invests in a high-quality, well-diversified portfolio of credit securities and cash products and aims to generate returns above the RBA Cash Rate — benefited from attractive interest income and further tightening of credit spreads (which increases the market value of existing securities and reflects reduced perceived risk of default). Allocations within the Partners Short Term and Multi-Asset Income Portfolios contributed to performance.
Recently added to the international shares component of the Partners Medium and Long Term Portfolios, Vinva Global Systematic Equities delivered another strong quarter, supported by its exposure to the “Magnificent 7” and the US technology sector, which outperformed and drove broader market gains. Vinva employs a systematic investment approach, combining the expertise of its investment team with advanced computer algorithms to analyse vast amounts of real-time data efficiently. This disciplined and data-driven strategy allows Vinva to identify and capitalise on opportunities with precision.
Key Detractors
The S&P/ASX 200 Index faced a challenging December quarter, pressured by market volatility, rising bond yields, and subdued domestic economic data. At the sector level, materials and energy were significant detractors, weighed down by a weak oil demand outlook and ongoing economic concerns in China. While relative manager performance was generally positive, the broader exposure to Australian shares adversely impacted the absolute returns of the Partners Medium Term, Long Term, and Multi-Asset Income Portfolios.
In the international shares component of the Partners Medium and Multi-Asset Income Portfolios, Talaria Global Equity underperformed, detracting from performance. Talaria’s unique approach to portfolio construction results in a defensive income-orientated outcome. This approach is likely to underperform in stronger markets and outperform in weaker markets.
Looking Ahead
As we enter 2025, several factors provide a supportive backdrop for markets. Continued, albeit slower, rate cuts, economic growth aligning with long-term trends, and stimulatory fiscal policies worldwide are boosting aggregate demand, creating a favourable environment for share valuations and earnings growth.
However, elevated valuations suggest that shares are priced for perfection, requiring sustained earnings growth to drive further gains. Any downward revision in growth expectations could prompt a market correction, reinforcing a cautious approach to overweighting shares. The “Magnificent 7” — the tech giants that accounted for nearly 60% of the S&P 500 Index’s market cap gains in 2024 — remain pivotal. While market strength has broadened to include small caps, real assets, and financials, continued outperformance from these key players will be crucial.
Despite optimism for global growth, risks remain. These include the potential impact of Donald Trump’s policies on global trade, inflation, and the US dollar as he returns to the White House later this month. The “last mile” of bringing inflation sustainably back to target levels may prove challenging, potentially delaying rate cuts. Additionally, China’s ongoing economic struggles and the uncertain effectiveness of its stimulus measures pose risks to global growth, particularly for Australia and the local currency.
Ironbark Advice is the sponsor of the Partners Portfolios. Ironbark Advice is comprised of the following wholly owned entities of Ironbark: Advice First Pty Ltd, Advisory Group Pty Ltd, ARTT Group Pty Ltd, Brisbane Financial Services Pty Ltd, Elevate Financial Solutions Pty Ltd, Emohruo Financial Services Pty Ltd, Invest Blue Armidale Pty Ltd, Invest Blue Brisbane Pty Ltd, Invest Blue Coffs Harbour Pty Ltd, Invest Blue Direct Pty Ltd, Invest Blue Gladstone Pty Ltd, Ogilvie Financial Services Pty Ltd, TDT (Tas) Pty Ltd, The Bravien Group Pty Ltd, Vintage Wealth Pty Ltd and Wainscott Financial Planning & Advice Pty Ltd, trading as Ironbark Advice are authorised representatives and credit representatives of Akumin Financial Planning Pty Limited, Australian Financial Services Licence and Australian Credit Licence No. 232706. Countrywide Advice Pty Ltd and GrowUp Financial Pty Ltd trading as Ironbark Advice are authorised representatives and credit representatives of Charter Financial Planning Limited, Australian Financial Services Licence and Australian Credit Licence No. 234665. GR & LC Thompson Pty Ltd trading as Ironbark Advice, is an authorised representative and credit representative of Hillross Financial Services Limited, Australian Financial Services Licence and Australian Credit Licence No. 232705. LFC Advice Pty Ltd (ABN 19 647 509 466) trading as Ironbark Advice, is a Corporate Authorised Representative of LFC Group Pty Ltd (ABN 35 644 576 965), AFSL 526600.