The Investment Committee’s latest discussion focused on a market environment increasingly defined by higher-for-longer interest rates, rising government debt, persistent inflation, pressure within private credit and a widening gap between attractive and unattractive areas of equity markets.

The central conclusion was that this is becoming less of an index-driven market and more of a stock-picker’s market. While economic growth remains positive in most major regions, the Committee sees enough pressure building through refinancing costs, household finances and government bond markets to justify a more defensive approach to fixed income while remaining selective within growth assets.

Global economic backdrop

The Committee’s base case remains that the global economy continues to grow, but with inflation remaining elevated enough to prevent interest rates from returning quickly to the unusually low levels experienced over the decade before COVID.

Higher food and energy costs remain important risks. Floods, droughts, fires and changing weather patterns may create additional pressure on agricultural production and food security into 2027. This is particularly relevant because another supply-driven rise in food prices would complicate central banks’ efforts to control inflation without unnecessarily weakening economic activity.

The Committee therefore sees a growing possibility of a stagflation-like environment in some economies: slower economic growth occurring alongside persistent inflation and relatively high interest rates.

For portfolios, the implication is that assets requiring cheap and readily available financing deserve greater scrutiny. Companies with strong balance sheets, reliable cash flows and genuine pricing power should become increasingly valuable if this environment persists.

United States: growth remains heavily dependent on investment

The United States remains one of the Committee’s key areas of concern.

AI infrastructure investment continues to provide substantial support to economic activity and corporate earnings. Recent semiconductor results reinforced the view that spending on AI remains substantial. However, the Committee distinguished between earnings growth and free cash flow.

Large technology businesses continue to grow earnings, but the enormous capital requirements associated with AI infrastructure mean free cash flow needs to be monitored closely. The Committee wants evidence that the hundreds of billions being invested in data centres, chips and related infrastructure ultimately translate into sustainable returns to shareholders.

This makes the Committee cautious about simply increasing exposure to the largest U.S. technology companies at current valuations.

At the same time, U.S. household indicators are becoming less supportive. The Committee noted weaker consumer spending and confidence, a declining savings rate and growing signs of stress across areas such as consumer credit. The view expressed was that without the enormous contribution from AI-related capital expenditure, U.S. economic conditions would look considerably weaker.

The U.S. bond market is becoming increasingly important

The more significant concern is the U.S. Treasury market.

U.S. government debt has reached approximately US$40 trillion, while long-dated Treasury yields have moved above 5%. The Committee sees this as evidence that investors are once again demanding a meaningful risk premium for holding long-term government debt.

The issue is not simply the current level of interest rates. Large amounts of debt originally financed at much lower rates must eventually be refinanced.

As this refinancing occurs, governments, businesses and households face structurally higher interest costs.

Recent intervention by the U.S. Treasury was viewed as an attempt to improve liquidity and contain long-term yields. However, the Committee questioned whether government intervention can permanently override the underlying market forces created by inflation, debt issuance and fiscal deficits.

The practical implication is that portfolios should not assume long-term interest rates will rapidly return to pre-pandemic norms.

The debasement trade: supportive for gold and commodities

The Committee remains constructive on gold.

Continued government intervention in bond markets, elevated fiscal deficits and the possibility of a weaker U.S. dollar reinforce the strategic case for gold as a portfolio diversifier.

Central-bank gold purchases were also identified as supportive.

The Committee therefore remains comfortable retaining its existing gold exposure rather than treating recent strength as a reason to exit the asset class.

A weaker U.S. dollar would also generally be supportive for commodities more broadly, particularly alongside the structural demand associated with electrification, power infrastructure and AI development.

Europe: improving fundamentals, but energy remains the key risk

The Committee’s view on continental Europe has become more constructive.

PMI data are improving, manufacturing activity is recovering in parts of the region and employment and wage growth remain positive. Germany is showing signs of improvement, while some smaller European economies have demonstrated particularly strong growth.

The principal risk is energy.

Europe remains vulnerable to disruptions in oil and gas markets, particularly heading into winter. A sustained rise in crude oil prices would increase inflation, reduce household purchasing power and potentially force European central banks to maintain restrictive monetary policy for longer.

If geopolitical tensions ease and energy supply conditions improve, the Committee sees Europe as an increasingly attractive area for additional exposure.

The United Kingdom is viewed less favourably, with persistent inflation and cost-of-living pressures leaving the economy closer to a stagflationary environment.

Japan: positive structural changes, but carry-trade risk is increasing

The Committee remains broadly comfortable maintaining Japanese equity exposure but is not currently seeking to materially increase it.

Japan is moving further away from the ultra-low interest-rate regime that defined the country for decades. Further Bank of Japan tightening would represent an important structural change for global capital markets.

One risk is the Japanese carry trade.

For many years, investors have borrowed cheaply in yen and invested the proceeds in higher-returning assets elsewhere. Rising Japanese interest rates reduce the attractiveness of this strategy and could eventually cause capital to be repatriated.

An accelerated unwind could create volatility across global equity, currency and bond markets.

The appropriate position at present is therefore closer to neutral rather than aggressively overweight Japan.

China: technology strength against a weak domestic economy

China remains difficult to assess as a single market.

Domestic consumption and property continue to act as headwinds, while inflation remains very low. The government has been relatively restrained in stimulating household demand but considerably more supportive of strategically important industries such as semiconductors, technology and advanced manufacturing.

Exports remain comparatively strong, and the Committee continues to see opportunity within Chinese technology and manufacturing.

However, the investment case is highly uneven.

The Committee did not express a uniform regional view on China, with members ranging from cautious to overweight. This reinforces the broader conclusion that country-level allocations are becoming too blunt and that individual industries and companies increasingly need to be considered separately.

Australia: slower growth without an immediate recession

The Australian outlook is for slower but still positive growth.

Business activity has improved, led by services, but momentum appears to be moderating. The Committee expects calendar-year economic growth could fall below 2%.

Inflation has eased but remains sticky, with wage growth and weak productivity contributing to ongoing price pressure.

Housing has also become an important issue. Recent policy changes have affected consumer confidence, while Sydney and Melbourne were identified as areas likely to experience greater weakness. However, structural undersupply and continued migration could eventually provide support to prices.

The Committee is not currently forecasting an Australian recession but expects households to remain under pressure from elevated interest rates and cost-of-living expenses.

For clients, this means portfolios should not depend heavily on a rapid RBA easing cycle to generate returns.

Australian equities: focus on technology, healthcare and selected resources

Within the Australian market, the Committee identified technology, healthcare and selected resource companies as the areas offering the most attractive opportunities.

Resources remain supported by several longer-term themes.

Electrification continues to increase the need for copper and critical minerals, while the build-out of AI infrastructure requires enormous quantities of electricity, transmission infrastructure and physical equipment.

The Committee therefore prefers selected resource exposures rather than a broad commodity allocation.

Healthcare is becoming the preferred defensive exposure

Healthcare was one of the most extensively discussed sectors.

The Committee believes the sector has undergone a substantial valuation reset and may now provide a more attractive defensive exposure than traditional consumer staples.

Consumer staples such as supermarkets have already performed strongly, making valuations less attractive. The Committee therefore questioned whether investors are being adequately compensated for buying expensive defensive businesses simply because economic growth is slowing.

Healthcare potentially provides both defensive characteristics and selective recovery opportunities.

Cochlear

Cochlear was viewed positively on the quality and defensibility of its underlying product.

The investment case is partly based on operational improvement rather than simply continued business-as-usual performance. Management execution therefore remains important.

However, the Committee sees limited technological disruption risk relative to several other areas of healthcare, making Cochlear an attractive turnaround opportunity if operational performance improves.

Sonic Healthcare

Sonic was also strongly supported.

Its valuation has retraced from recent highs, and pathology provides recurring demand characteristics that may be useful within a slower economic environment.

However, the Committee also discussed the possibility that technological advances could eventually reduce the cost of simple pathology testing. This represents a longer-term disruption risk that needs to be monitored.

Ansell

Ansell was considered attractive because of its global operations and recurring demand for consumable medical products such as gloves and protective equipment.

Its valuation was considered reasonable relative to other global healthcare companies, although historical earnings volatility and sensitivity to input costs were raised as concerns.

CSL

CSL remains on the Committee’s watchlist.

The business has experienced a significant share-price recovery, while the Committee noted that underlying earnings growth has remained relatively modest. The preference is therefore to monitor subsequent results rather than aggressively chase the recovery.

ResMed

ResMed remains fundamentally attractive but has a more complicated structural risk.

The Committee discussed whether GLP-1 weight-loss drugs could reduce the long-term growth rate in sleep-apnoea treatment by reducing obesity among patients in developed markets.

This does not necessarily invalidate the ResMed investment case, but it creates greater uncertainty around future growth assumptions.

Following the discussion, Cochlear and Sonic Healthcare received the strongest overall support from the Committee, although individual members expressed different preferences between Cochlear, Sonic and Ansell.

WiseTech: opportunity remains, but valuation discipline is important

WiseTech was discussed as an example of the need to separate company fundamentals from market sentiment.

The Committee remains comfortable maintaining exposure and continuing to accumulate selectively following the substantial correction in the share price.

However, the business is exposed to global trade volumes. If global freight and supply-chain activity slow meaningfully, earnings could be affected.

The Committee therefore prefers a measured approach rather than an unrestricted buy recommendation, with the discussion identifying approximately $55–$60 as an area where valuation and portfolio positioning should be reassessed.

Food inflation: invest around the theme rather than directly into agriculture

The Committee expects food inflation to become a more important issue.

Weather events, higher agricultural costs and potential supply restrictions could increase prices across grains, protein and other food categories.

However, direct agriculture investing was viewed cautiously.

Agricultural businesses face multiple risks including weather, disease, pests, commodity cycles and substantial operating leverage. Even when underlying commodity prices rise, producers do not necessarily capture the entire increase through higher margins.

The Committee therefore prefers looking for lower-volatility beneficiaries surrounding the agricultural sector, such as equipment, inputs, infrastructure or businesses with genuine pricing power, rather than assuming agricultural producers will automatically benefit.

Private credit: risk has increased materially

Private credit generated the strongest risk-management discussion of the meeting.

The Committee is increasingly uncomfortable with the sector because higher interest rates are beginning to expose refinancing risk.

Many private credit strategies advertise short portfolio durations. However, the Committee highlighted that these durations frequently assume loans are repaid or refinanced at maturity.

If refinancing becomes difficult, a nominally short-duration loan can become a much longer exposure.

This is particularly concerning within property development, second-tier residential lending and warehouse structures.

The Committee’s position is that receiving an additional 1%–2% of yield may no longer justify taking materially greater liquidity, refinancing and capital-loss risk.

Alexander High Yield Fund

The Committee agreed to reduce exposure to Alexander, with the retail portfolio changes to begin being implemented.

The underlying concern is not necessarily that losses are imminent but that the risk/reward profile has become less attractive.

The Committee would rather act too early and sacrifice some income than wait until liquidity or refinancing problems become obvious.

Existing versus new investors

An important distinction was made between existing and new clients.

For existing clients already invested in these strategies, the Committee was more comfortable maintaining positions while further analysis is undertaken because those investors have already received elevated yields.

For new money, however, the Committee does not currently believe the additional yield adequately compensates for the increased downside risk.

The working position is therefore:

• existing investors: generally hold while exposures are reviewed;
• new investors: do not add to the higher-risk private credit strategies;
• gradually reduce higher-risk credit exposures where appropriate; and
• prioritise liquidity and capital stability over incremental yield.

Realm and other credit managers

Realm was not given an immediate full-exit recommendation.

Its portfolio is more diversified than some other credit strategies, but exposure to warehouse lending and residential credit remains relevant.

Further due diligence is required before the Committee determines whether the holding should be reduced.

The broader conclusion was that similar scrutiny needs to be applied consistently across the wholesale and retail approved product lists rather than removing one manager while ignoring comparable risks elsewhere.

Fixed income: capital preservation before alpha

This represents a significant change in positioning.

Fixed income has historically been an important source of portfolio alpha. The Committee is now prepared to sacrifice some of that excess return to reduce downside risk.

Term deposits, high-quality bank credit and liquid fixed-income instruments were viewed increasingly favourably.

The principle is straightforward: earning approximately 5%–6% with strong liquidity and a high probability of capital preservation may be preferable to targeting 8% where the additional return comes with meaningful refinancing or liquidity risk.

The Committee specifically discussed SFIF as a possible higher-quality credit allocation because its underlying exposure is concentrated in regulated Australian bank debt and provides daily liquidity.

The broader planning principle is particularly relevant for retirees and clients drawing income from portfolios. Capital stability can be more valuable than maximising headline yield if the higher-returning asset may suffer a drawdown precisely when funds are required.

Defensive alternatives: further research required

Reducing private credit creates a portfolio construction challenge.

The Committee does not want to simply replace one risky income asset with another asset carrying hidden risk.

Diversified infrastructure was identified as one potential solution.

Large infrastructure portfolios can provide exposure to essential assets such as transport, utilities, renewable energy and other long-duration physical assets.

However, some available funds have substantial exposure to data centres, which created debate within the Committee. While AI infrastructure remains a strong structural theme, the Committee does not necessarily want a defensive allocation to contain excessive exposure to the same AI build-out already represented elsewhere in growth portfolios.

Further work will therefore be undertaken on highly diversified infrastructure and other defensive alternative strategies, including potential managers such as Brookfield- and KKR-style offerings. No immediate replacement for the reduced private-credit exposure was agreed.

Portfolio construction implications

The discussion produced several broader principles for portfolio management.

First, liquidity has become increasingly valuable. In a more uncertain environment, the ability to rebalance or exit an investment is itself a source of risk management.

Second, the Committee does not believe return should be manufactured by simply moving further down the credit-quality spectrum.

Third, where additional portfolio risk is justified, the Committee would generally prefer taking that risk within carefully selected growth assets where upside is meaningful, rather than accepting asymmetric downside within private credit for a relatively modest yield premium.

Fourth, diversification should be assessed by underlying economic exposure rather than by fund labels. A portfolio containing several different investment vehicles can still be concentrated if each ultimately depends on property refinancing, AI infrastructure or the same economic risk.

Finally, valuations increasingly matter. The Committee sees this as a market where simply owning an index or sector may be less effective than selecting individual businesses with appropriate valuations, balance sheets and structural tailwinds.

Investment Committee Positioning Summary

The Committee’s current direction can be summarised as follows:

• Australia: neutral overall, with preference for healthcare, technology and selected resources.
• United States: selective rather than broad-market bullish; cautious on expensive mega-cap technology while remaining constructive on AI-related infrastructure and critical-mineral beneficiaries.
• Europe: increasingly constructive, subject to energy-price risk.
• Japan: neutral; retain exposure but avoid aggressively adding while rates and the carry trade adjust.
• China: mixed Committee views; favour technology and export-oriented opportunities over broad domestic exposure.
• Gold: retain as an important portfolio diversifier.
• Critical minerals and copper: structurally positive.
• Consumer staples: cautious following strong valuation expansion.
• Healthcare: overweight/positive, with Cochlear and Sonic among the preferred Australian opportunities.
• Private credit: reduce risk; stop allocating new client money to higher-risk exposures while existing portfolios are reviewed.
• Fixed income: favour liquidity, quality and capital preservation over incremental yield.
• Defensive alternatives: continue research into diversified infrastructure and other capital-stable strategies.

Conclusion

The overriding message from this Investment Committee meeting was not that a major economic downturn is immediately ahead. Rather, the risk/reward equation has changed.

Interest rates are higher, governments are more indebted, refinancing is becoming more expensive and several traditionally defensive assets have already been bid to expensive valuations.

At the same time, opportunities remain in healthcare, selected technology, critical minerals, gold and parts of Europe.

The appropriate response is not to abandon growth assets. It is to become more deliberate about where portfolio risk is taken.

Within the defensive portion of portfolios, the Committee’s priority is shifting towards liquidity and capital preservation. Within growth allocations, the emphasis is increasingly on individual companies and sectors where valuations, balance sheets and structural growth themes provide sufficient compensation for risk.

For financial planning clients, this means portfolio construction should increasingly be considered alongside cash-flow requirements, investment timeframes and capacity for loss. Retirees and clients drawing capital may benefit from maintaining stronger liquidity buffers, while longer-term investors can continue taking growth risk selectively rather than chasing additional yield from assets whose liquidity and refinancing risks may only become apparent during periods of stress.

This report summarises the views and discussions recorded at the Investment Committee meeting and should be considered in conjunction with individual client objectives, risk profiles, liquidity requirements and approved product research.