Goal-Based Portfolio Update – Quarter Ending 31 March 2025
Market Update
| May 12, 2026
Quarterly Update
If you only looked at where markets started the year and where they finished the quarter, you might think it was a fairly unremarkable few months. The reality was anything but. The first two months of 2026 were genuinely encouraging, before volatility increased significantly on the back of the conflict in the Middle East. Key information regarding the Profusion goal-based portfolio structure is summarised below
How the Buckets Performed
Short Term Bucket
Return: flat for the quarter, 3.30% for the year
This bucket was essentially flat for the quarter. In a period where both equities and bonds declined, that is a result worth appreciating. The job of this bucket is straightforward: protect the capital you may need in the next couple of years while generating a modest return above cash. It is not designed to participate in equity market rallies, and equally, it is not supposed to suffer when equity markets fall. This quarter, it did its job.
The RBA’s two rate increases created headwinds for fixed income markets broadly. Rising rates reduce the value of existing bond holdings, and the speed of the shift caught many parts of the market off guard. Within the portfolio, our Australian-focused credit managers generally delivered modest positive returns, while the more globally exposed strategies were modestly negative. The portfolio’s positioning in shorter-dated, investment-grade credit with low sensitivity to rate movements is a deliberate choice for this bucket, and this quarter demonstrated why. Over twelve months, this bucket has returned 3.30%, and since inception 5.12% per annum.
Medium Term Bucket
Return: -1.53% for the quarter, 7.90% for the year
This bucket declined 1.53% for the quarter. That is a negative number, and we won’t dress it up as anything else. But the story within the portfolio is worth understanding, because it illustrates exactly why we build this bucket the way we do.
Equities fell. Bonds fell. But our infrastructure allocation delivered a strong positive return. Global property advanced. Our real return strategies contributed. When you hold genuinely different asset classes, they tend to behave differently in different environments. That is not a theory; it is what actually happened this quarter. The parts of the portfolio that are linked to inflation, that have defensive revenue characteristics, or that are designed to navigate mixed conditions all held up, while the more market-sensitive holdings declined. The overall result was a modest loss rather than something more painful.
This is diversification doing what it is supposed to do. Not eliminating losses entirely, but ensuring the portfolio draws on multiple sources of return so that no single market environment can dominate the outcome. Over twelve months the bucket has returned 7.90%, and since inception 9.48% per annum.
Long-Term Bucket
Return: -4.09% for the quarter, 9.23% for the year
This bucket declined 4.09% for the quarter. With around 90% in growth assets, there is no escaping the reality that when equity markets fall, this portfolio will feel it. That is the nature of the allocation, and it is the right allocation for a ten-year horizon where the primary objective is long-term wealth accumulation.
Within the portfolio, the range of outcomes was wide. Our hedged global value strategy was the only equity holding to deliver a positive return, while our growth-oriented global manager fell sharply given its concentration in technology companies. The gap between the best and worst performer was nearly 20 percentage points. That kind of dispersion can look concerning in any single quarter, but it reflects something we believe is important: holding managers with genuinely different approaches. Value alongside growth. Hedged alongside unhedged. Large alongside small. Australian alongside global. Over a full decade, these different styles will take turns contributing, and the blend is designed to capture those varying opportunities without being overly dependent on any one of them.
Over twelve months the model has returned 9.23%, and since inception 12.53% per annum.
High Growth
Return: -4.56% for the quarter, 13.34% for the year
This bucket declined 4.56% for the quarter. With 100% in growth assets, it will always feel market declines most directly, and this quarter was no exception. Most holdings were negative. The one standout was our global small companies manager, which delivered a strong positive return while everything else in the portfolio fell.
Quarters like this are part of the deal with a high growth portfolio. The portfolio exists to compound wealth aggressively over long periods, and the price of that potential is accepting larger drawdowns along the way. That trade-off doesn’t change quarter to quarter. What matters is whether the portfolio is doing what it is supposed to do over its intended timeframe, and the numbers support that. Over one year the model has returned 13.34%, and since inception 10.48% per annum.
Key Highlights
Short-Term Portfolio: Adapting to a New Rate Environment
Six months ago, the market expected further rate cuts from the RBA. Today, the cash rate is 50 basis points higher, and the conversation has shifted entirely. The adjustments we made to the Short-Term Portfolio last quarter, adding higher-yielding credit exposures that are mostly floating-rate rather than fixed, positioned it to navigate this shift better than it would have otherwise. The portfolio remains focused on investment-grade credit with low duration, which is the right profile for capital with a two-year horizon and reflects Profusion’s principle of taking only the risks necessary to achieve portfolio objectives.
Medium-Term Portfolio: Why We Hold What We Hold
When we explain the Medium-Term model to clients, we often talk about the importance of holding asset classes that behave differently from each other. This quarter was one of the clearest demonstrations of that principle in the portfolio’s history. The fact that infrastructure and property delivered positive returns while equities and bonds fell is not a coincidence; it reflects genuinely different return drivers built into the portfolio by design. This is Profusion’s asset-allocation-driven approach in practice: the primary focus on allocating across different markets and sources of return, rather than trying to predict which single market will perform best.
Long-Term Portfolio: The Value of Patience and Breadth
It can be tempting to look at a quarter where one manager returned 1.4% and another fell 18.2% and wonder whether we should simply own more of the former and less of the latter. But that thinking is precisely what leads investors astray. The managers that lagged this quarter have delivered strong returns over longer periods, and the conditions that favoured value over growth this quarter will not persist indefinitely. We maintain breadth across styles because we are building a portfolio for a decade, not a quarter. Toward the end of March, as the sell-off created opportunities, we took the decision to modestly increase the portfolio’s risk positioning. We discuss this further below.
High Growth Portfolio: Staying the Course
For investors with genuinely long time horizons, the most important thing during a quarter like this is not to retreat from the portfolio’s mandate. As with the Long-Term model, we used the sell-off late in the quarter to modestly increase the portfolio’s risk positioning, taking advantage of lower prices in areas we already wanted to own.
Oil Prices and Inflation
The most immediate question for markets is whether the oil price increase proves temporary or persistent. The conflict in the Middle East and the disruption to the Strait of Hormuz drove much of the repricing this quarter. If oil prices remain elevated, the inflationary consequences will continue to weigh on central bank decisions, both globally and here in Australia. The RBA’s March statement was explicit that higher fuel prices, if sustained, would add to inflation. We don’t attempt to predict how this plays out, but we ensure your short-term allocations remain positioned for capital preservation regardless of the direction.
Equity Markets: Broadening Out
Before March’s sell-off, the most encouraging development in equity markets was the broadening of leadership. For the first time in several years, it wasn’t just a handful of mega-cap technology stocks driving returns. Smaller companies, international markets, and value-oriented strategies were all participating. The sell-off interrupted that rotation, but the underlying dynamic remains. Our portfolios are positioned across multiple equity styles and geographies precisely so that we can participate when different areas of the market lead, rather than depending on any single theme to drive performance.
Monetary Policy: A More Complicated Picture
Central bank paths diverged further during the quarter. The RBA is raising rates. The ECB has signalled a possible hiking bias. The outlook for US rate cuts has been pushed back significantly. For portfolios, this means fixed income markets will remain volatile, and the relationship between stocks and bonds (which moved in the same direction this quarter) may continue to behave differently from historical norms. This is one of the reasons we place such emphasis on genuine diversification in the Medium-Term model, drawing returns from multiple uncorrelated sources rather than relying on any single asset class.
Your Portfolios Are Built for This
Rather than attempting to predict how events unfold from here, our focus remains on ensuring each bucket is appropriately positioned for its timeframe. That is the core of Profusion’s approach. Short-term buckets protect capital. Medium-term buckets draw on multiple return sources. Long-term buckets maintain the equity exposure needed for capital appreciation. If markets recover, your long-term buckets are fully positioned to participate. If volatility persists, your short-term and medium-term allocations are built to weather it. We don’t need to predict the outcome to be appropriately positioned. That is the fundamental purpose of the bucket structure.
Portfolio Actions and Commitment
During the March quarter, we retained our positions in the Short & Medium Term portfolios following the adjustments made in the December quarter.
In the Long-Term and High Growth models, we took a different approach. Toward the end of March, as the sell-off pushed equity prices lower, we modestly increased the risk positioning in both portfolios. This was not a dramatic shift or a call on where markets are heading next. It was a measured response to the opportunity created by falling prices: the chance to add to positions at valuations that were more attractive than they had been a few weeks earlier.
This is one of the practical advantages of the separately managed account structure that underpins your Profusion portfolios. We have the flexibility to respond to market conditions in close to real time. We can make adjustments when we see opportunities, rather than waiting for quarterly rebalance dates or navigating the constraints of a pooled vehicle. We believe that responding thoughtfully to meaningful market dislocations, within the risk parameters of each bucket, is a better approach than simply ignoring them.
Our focus remains on the principles that guide your portfolio construction:
- Each bucket serves its designated timeframe. We won’t compromise short-term stability chasing long-term returns, nor will we sacrifice long-term growth potential for short-term comfort.
- Asset allocation drives returns. Your performance comes primarily from how we allocate across different return sources, not from attempting to pick winning securities or time markets. This quarter demonstrated that clearly.
- We take only the risks we need to. Every risk in your portfolios serves a specific purpose aligned with your goals. The modest increase in risk in the Long-Term and High Growth models reflects our conviction that the sell-off created an opportunity consistent with those portfolios’ long-term mandates.
- Costs matter. We blend low-cost passive exposure with selective active management where we see genuine potential for value addition.
- Valuations matter. We maintain patience to own things at sensible prices rather than chasing momentum. When prices fall and fundamentals hold, that patience can translate into action.
Quarters like this are exactly why we build portfolios the way we do. Your bucket structure continues to serve its purpose: protecting near-term capital while maintaining long-term growth exposure. We’ll continue monitoring developments closely and will act when opportunities arise that align with our investment philosophy.
Thank you for your continued trust in Profusion
