Peter Green
Lonsec has released new analysis of Australian equity market performance over the 2025 calendar year, highlighting a challenging period for growth strategies, strong dispersion among active managers, and renewed momentum in the small‑cap sector. The findings also point to meaningful structural shifts driven by superannuation fund flows and the continued rise of passive investing.
Growth underperforms as markets rotate
Lonsec’s review shows that growth strategies lagged throughout CY25 as investors rotated away from structural growth and toward resources and value-oriented stocks.
“We saw a clear shift in market leadership this year,” said Peter Green, Director of Research at Lonsec.
“Technology and healthcare sectors contracted –19.1% and –23.9%, while resources and materials delivered impressive gains of +36.2% and +37.5%. This rotation significantly impacted growth managers’ relative performance.”
Small caps enjoy a strong recovery
After several muted years, small caps delivered excellent returns, with the S&P/ASX Small Ordinaries Index rising 24.96%.
“Small caps finally had their day in the sun,” Green said. “Gold miners were a standout, buoyed by a 65% increase in the spot gold price.
Reporting season drives investor behaviour
Lonsec notes heightened volatility around the February 2025 and August 2025 reporting periods.
“We observed large price reactions when company results differed from expectations,” said Green.
“Managers have been more active leading into reporting season as earnings guidance becomes an increasingly important driver of performance.”
Structural market shifts continue to evolve
The research also highlights long‑term structural changes influencing market dynamics:
- Top industry super funds account for around 12% of capital in the domestic equity market (based on 25% of member balances allocated to Australian shares).
- Passive investing continues to accelerate, shaping index composition and liquidity.
- IPO activity remained subdued, though Lonsec expects more listings in 2026 as market conditions improve.
“These structural forces are reshaping the Australian equity landscape,” Green said.
“They affect everything from liquidity to price discovery and create both headwinds and opportunities for active managers.”
