Balanced Strategy Financial Performance

The portfolio delivered another positive quarter, driven primarily by strong performances in infrastructure and New Zealand equities, which rose by 13.5% and 6.0%, respectively. As a result, the portfolio has met its CPI+ objective over the 3-month, 6-month, and 1-year periods.

This quarter also marks an important milestone, as the portfolio now has a 3-year return figure. This number is annualised, reflecting the average yearly return assuming the investment has been compounded over time. While the three-year return has not met its objective, it's important to note that the objective is based on CPI, which has been especially high over this period. In addition, 2022 was a particularly challenging year for both equities and fixed income, with both asset classes ending that year in the negative. However, recent strong performance show how markets always eventually recover losses, reinforcing the importance of staying the course.

All key asset classes posted gains during the quarter, though the drivers were notably different from what we’ve seen in previous periods. US equities, particularly the ‘Magnificent 7’ tech stocks, had long led the way thanks to the growth potential surrounding AI. However, with falling interest rates, the top performers this time were more interest-rate-sensitive sectors such as listed infrastructure. New Zealand equities also fall into this category, given the composition of the NZ stock market.

Fixed income made a meaningful contribution to returns, with New Zealand and global bonds performing strongly, over both the quarter and 1-year period. The NZ Bond index rose 11.3% over the 1-year period, well above the long-term averages for the asset class.

This quarter’s performance highlights the value of maintaining a well-diversified portfolio. While US technology stocks may have driven returns in previous periods, this quarter showed the importance of having exposure to a broader range of asset classes.

As we move into the last quarter of the year, there are several risks on the horizon which could impact global markets. Significant geopolitical tensions in the Middle East have the potential to disrupt energy markets and broader regional stability. The upcoming US presidential election adds another layer of uncertainty, with potential policy changes likely to influence the market. US stock valuations also appear stretched, which could limit further upside potential. While declining interest rates have supported markets, the presence of these risks suggests that it may not be smooth sailing from here to year-end.