Equity markets started the year well. The US market rotated away from the mega-cap technology stocks, with the smaller cap stocks driving most of the market gains. Energy was the leading sector, along with precious metals like gold and silver. Financials, Technology and Healthcare lagged. The shift is attributed to an improving economic outlook and a catch-up trade, as expensive mega-cap technology valuations prompt a rotation into more traditional, domestically focused companies that will benefit from lower interest rates and trade at more attractive valuations. Outside the US, equity markets were particularly strong, with emerging markets in particular returning close to 9% in local currency for January.

However, a lot of this performance was nullified by a strong NZ dollar, up over 5% against the US and close to 4% the Euro.

The NZ equity market showed a mix of performance. The index itself was down around 1%, dragged down by A2 Milk, several of the Healthcare/retirement stocks, property stocks and technology stocks. However, the smaller cap stocks rose over 4%. The Australian market was much stronger, up close to 2%, on the back of Energy, Materials and Healthcare stocks. Technology was the big loser in January in Australia.

Bonds produced modest gains despite rising Treasury yields, particularly in the corporate space as credit spreads tightened. US Treasury yields rose in anticipation that the Federal Reserve would pause its rate-cutting cycle. And by late January we did see the Federal Reserve held interest rates steady, ending a streak of three consecutive 0.25% cuts in late 2025. The shift was driven by better-than-expected economic data and signs of stabilisation in the labour market. NZ inflation has edged above Reserve Bank’s target band but is still expected to ease over 2026.

The World Equity Fund returned 0.14% for January. Equity markets globally were generally positive, with outside the US particularly strong. However, a very strong NZ dollar in January meant US share performance lost around 5% when converted to NZD and European stocks around 3%. The fund is around 55% hedged so more than half of this NZ currency appreciation was hedged out. This was evidenced by the three hedged funds (Dimensional Global Sustainability PIE, Schroder Sustainable Global Core PIE, Kernel global Infrastructure Fund) returning 1.7, 1.9%, and 3.9% respectively. Even with a currency headwind the Schroder Global Emerging Markets Fund returning 3.8%.

Stocks to standout in January were ASML (Dutch semiconductor) +26.5%, Caterpillar +9.4%, and Healthcare stocks Novo Nordisk (Denmark) 11.1%, Roche (Switzerland) 4.5%, Johnson & Johnson (US) 4.4%. On the flipside Service Now –27.4%, Sony –17.9%, UnitedHealth –17.4%, Microsoft –15.4%, Visa –12.8%, Mastercard –10.1%, felt the impact of AI stock rotation.

The Australasian Equity Fund returned –0.64% for January. The Australian equity market was strong, driven by Energy stocks and Materials. This fund itself is underweight these sectors. However, we did get some benefit of these gains through the Dimensional Australian Sustainability PIE. This fund holds 24% of its assets in Material stocks and 2% in Energy stocks. The New Zealand equity market was down around –0.9%. The fall was partly offset by a very strong return from the small cap market, up over 4%. Within the Fund, deterrents were Ebos Group –7%, Summerset –5.9%, Kiwi Property Group –4.3%, Precinct –2.9%, and across the ditch Xero –17.9%, CBA –7.1%, and Fortescue –4.7%. Holding the Fund up for January was Woolworths +5.2%, CSL +4.9%, Macquarie +4.3%, Port of Tauranga +3.9% and F&P Healthcare 3%.

The World Bond Fund returned 0.11%. This is in line with the benchmark index. Credit spreads tightened which was positive for the funds return. The Fund is around 50% exposure to credit. This offset the slight rise in longer-term interest rates as the US Fed stopped its rate cuts late in the month. The Fund’s shorter duration positioning through the DFA 2-Year Sustainability Fund also added a little bit of value.

The New Zealand Bond Fund returning –0.21%. The NZ bond market was influenced by its global counterparts, with the likelihood of rate increases from central banks in 2026 negatively impacting on the fund. The tightening credit spread globally was not evident closer to home, thus the fund didn’t get the uplift from this that the World Bond Portfolio did.