March was all about the conflict in the Middle East. Israel and the US launched a military strike against Iran, targeting Iranian leaders. Iran effectively shut down the Strait of Hormuz, a crucial shipping route for oil and gas exports from the Middle East. Oil prices shot through the roof (a barrel of Brent crude oil over $100), which saw commodities perform well. However, almost everything else was negative. Government bonds globally experienced a sell-off as those higher commodity prices fuelled worries over inflation and potential interest rate rises. Equity markets globally fell by around 6% collectively but several countries were down over 10% for March.

Energy stocks were the only standout performing sector (particularly in the UK), with integrated producers, refiners and energy infrastructure all benefiting from higher oil prices. US Technology stocks suffered more than other sectors, which was a little surprising, considering many IT companies reported solid revenue growth. The software sector was particularly hard hit. In Europe the economically sensitive consumer discretionary sector was the hardest hit. Unlike in the US, European semiconductors and IT hardware fared better, with positive returns after some well-received corporate earnings. Japan, Asia Pacific and Emerging Markets all suffered from the conflicts in the Middle East, triggering a risk-off sentiment toward energy-importing countries.

New Zealand equities also struggled over the month, with the larger stocks doing slightly better than the smaller cap stocks. The Australian large caps held up much better, although this was centred on a few of the top 20 ranked companies.

The US Federal Reserve kept policy unchanged, and tempered market expectations for imminent rate cuts. The ECB also left is policy rates unchanged, signalling no immediate urgency to alter borrowing costs. The BoE and BoJ also kept policy unchanged, citing tension in the Middle East and uncertainty over oil prices introduced additional risks.

The Iran conflict drove the NZD lower against the USD during the month, falling from 0.60 to around 0.57 (-4.2%). The NZD also continued to fall versus the AUD, now down to 0.83.

The World Equity Fund returned –4.76% for March and –3.44% for the quarter. All equity markets were negative for the month, with the US holding up slightly better than Europe, Asia and emerging markets. The main drivers of return for the fund were the conflict in the Middle East in March and the selloff of AI stocks in January. There was nowhere to hide in March, with our investment themes, and underlying managers, all experiencing a retraction in their shareprice/unit price. The only exception was the Energy sector, where our exposure is less than 3%.

Stocks that stood up in this harsh environment over March were Novo Nordisk +7%, Amazon +4.3%, Nvidia +3.4%, Johnson & Johnson +3.5%, Bank of America +3.5%, JP Morgan +3%, and Walmart +2.4%. Over the quarter the standouts have been ASML +23.1%, Caterpillar +22.1%, Johnson & Johnson +17.3%, Taiwan Semiconductors +11.5%, Walmart +9.8%.

The Australasian Equity Fund returned –4.81% for March and –3.89% for the quarter. The main driver for the return was the conflict in the Middle East. Hardest hit were the the largest sectors in New Zealand, Industrial and Healthcare, and smaller cap companies. In Australia the defensive sectors squeezed out a positive return, in particularly Energy, but also Utilities and Consumer Staples. Worst performers were Materials, Technology, and Real Estate, all down over 10% for March. Top individual performers for March were Telstra +4.1%, Infratil +3.8%, Woolworths +3.5%, and QBE +2.5%. Stocks that struggled were Auckland Airport, Freightways, Summerset, Mainfreight, and Goodman Group.

The World Bond Fund returned –2.00% for March and –0.86% for the quarter. All the major countries kept their policy unchanged and thus short-term interest rates the same.  Rising inflation expectations and the likelihood of interest rate rising rather than falling in 2026 triggered the longer dated fixed interest rates to increase (10-year bond rates increased by around 0.3-0.6%), thus causing a negative return for the Fund. The Fund was slightly protected by holding a shorter duration position versus the market.

The New Zealand Bond Fund returned –1.55% for March and –0.43% for the quarter. The likelihood of interest rate rises in 2026 triggered the longer dated fixed interest rates to increase (by around 0.4-0.5%), thus causing a negative return for the Fund. Going forward our underlying manager thinks rates have gone too far and expects positive contributions from the longer-dated bonds going forward.

The Investment Strategies, on the back of negative returns from all four underlying asset classes, were negative for March, ranging from –2.7% to –4.8%.