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 Focused Growth Fund fell –2.01% during January. The stocks were heavily affected by the rotation from mega-cap technology stocks to smaller cap ex US stocks. Detractors for the fund were Service Now –27.4%, Visa –12.8%, Microsoft –15.4%, JP Morgan –9.3% and Apple –9.3%. On the positive Meta was up 3.9% and Taiwan Semiconductors 3.4%.

The High Growth Fund returned 0.16% 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 60% 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, Sony, Microsoft, Visa, and Mastercard felt the impact of AI stock rotation.

The NZ equities within the Fund generally detracted value, as the NZ market fell –0.9%. Some of this was offset by holding Australian stocks which were collectively flat for the month. The Dimensional Australian Sustainability PIE holds 24% of its assets in Material stocks which performed well. As did Woolworths +5.2%, CSL +4.9%, Macquarie +4.3%, Port of Tauranga +3.9% and F&P Healthcare 3%. Ebos Group, Summerset%, property stocks and technology stocks all detracted value.

The Income Fund returned 0.06% for January. The Dimensional funds have benefited from the credit squeeze and the shorter duration through the 2-Year and 5-Year PIEs. A 6-7% allocation to bank term deposits for the Income Fund also offset some of the underperformance from our NZ Fixed interest manager.  Global bonds are always 100% hedged within this fund. This means the assets are not exposed to the volatility of the NZ dollar, thus did not experience the 5% return decline from holding offshore assets during the month.

The Cash Fund returned +0.18% for the month. Lower New Zealand interest rates have reduced the monthly return on this Fund. However, it continues to provide a place for stability for members requiring more certainty on their investment.