Equity markets were positive again in December. However, the source of returns was different, Europe (driven by financials), and Emerging Markets (driven by technology heavy Korea and Taiwan). Most other markets were flat.

Closer to home, the Australian equity market was quite strong in December, notably the large cap stocks, and in particular the resource stocks and banks. IT and Healthcare were the big underperformers (as they have been all year). In New Zealand the large cap stocks were flat while the mid cap stocks performed well, up around 0.6%. Over the year the smaller cap stocks in NZ have done substantially better than the top 20.

Fixed interest markets were negative for the second month in a row, as long-dated bond yields start to rise. While a 25-basis point cut by the Bank of England was positive for UK gilts, returns were muted in US Treasuries, and in Japan government bonds experienced a significant selloff, with yields rising to multi-decade highs. New Zealand longer-dated bond yields also rose during December.

The year has been another very good one, both for equity markets and bond markets. The US market is up by 15% for the year (the third successive year in a row). The US market in 2025 has been powered by mega-cap strength and unrelenting AI-related optimism. The desire for Fed rate cuts has also propelled the rally in mid to small-caps. Communication Services and IT companies led the way in 2025, while Real Estate was the only negative sector. However, we also had Europe and Asia join the party in 2025. Europe was up over 20% for the year (led by the UK, with strong support from Germany, Switzerland and Spain). In Asia, Korea returned 85%, Hong Kong & Taiwan both 30% (all led by technology, semiconductors, and Communication services), and Japan 25%. In Australia we have also seen returns of over 10% for the last three years. NZ, in contrast has been quite disappointing, up only 3% for the year.

Central banks globally have run a controlled easing of interest rates throughout the year, balancing this against the possibility of rising inflation. This, along with gains from corporate credit bonds, has translated into fixed interest funds returning around 1-2% above cash rates for the year. Bucking the trend was Japanese bonds. Yields here rose 2% for the year, delivering a negative return for the bond market.

As we look ahead to 2026, we see further opportunities within the digitalisation megatrend. Artificial Intelligence (AI) should continue to lead innovation as well as drive efficiencies within businesses. We see the semiconductor chip manufacturers and smart infrastructure like data centres, networking & cloud hyperscalers, as key benefactors of this megatrend in 2026. We see energy transition and decarbonisation continue to be a key change in 2026 and we are also hoping that the advancement in healthcare innovation drives higher share prices of leading companies in this field.

The World Equity Fund returned 0.39% for December. Europe (Roche 8%, Accenture 7.1%), Japan (Toyota 5.7%) and Emerging Markets were the standouts (Schroder GEM Fund up +4%), while US financials held up that market (Visa 4.7%, Mastercard 3.5%, Bank of America 2.9%, JP Morgan 2.7%). Over the 2025 year, the World Equity Fund returned 13.59%, its third big year in a row. This has primarily been driven by the large US stocks, notably in the Technology sector. The Fund holds just over 70% of its assets in US equities and a quarter of those are in the Technology sector.

The Australasian Equity Fund returned 0.29% for December, with the positive returns from Australian equities offsetting a negative New Zealand equity market. The Australian banks and insurance companies were the big driver of return (CBA 6.9%, QBE 4.9%, Macquarie 4.6%, Westpac 4.2%), plus Goodman Group 6.1%. Closer to home we did see some Industrial sector stocks perform well, AIA return 4.1%, Mainfreight 3.9%, and Freightways 3.6%. Smaller cap stocks generally performed better than larger cap stocks, which the Fund did capture that return through the Dimensional Australian Sustainability Fund.

The World Bond Fund was negative for December, returning –0.25%. While the shorter duration positioning, through the DFA 2-Year Sustainability Fund, returned 0.18%, the rise in longer-term fixed rates meant a negative return for the month. Over the calendar year the Fund returned 3.18%, about 1% above cash in the bank.

The New Zealand Bond Fund was also negative for December, returning –0.22%. Similar to its global counterpart, the long-dated bond yields rose during December as expectations of rate cutting appears to be getting closer to the end and inflation numbers start to rise. Over the calendar year the Fund returned 4.83%, about 2% above cash in the bank.