Stephen Miller

Since the conclusion of the last Fed Federal Open Market Committee (FOMC) meeting, the US financial market commentariat have spent some time highlighting Fed Chair Warsh’s communication shortcomings.

It appears that Warsh unnecessarily let his (justified) antipathy toward forward guidance manifest itself in a reticence to communicate a rationale for the Fed’s decision to keep the policy rate steady, failing to communicate any detail regarding Fed members’ assessments of current inflation pressures, and indeed on the economy more broadly.

Warsh could have simply shared elements of the Fed’s current economic assessments without crossing the line into forward guidance.

By choosing to communicate nothing by way of a rationale for the FOMC decision the Fed Chair has created an information vacuum. In part reflecting that void, the bond market took the path of least resistance and arrived at a collective view that Warsh lacked resolve on inflation.

It probably didn’t help that President Trump opined that Warsh was doing a “fantastic job” and “would love to lower interest rates”.

That circumstance seems to have distracted the US bond market from an inflation picture that is much less challenging that might have been feared, particularly in the wake of the Trump Administration’s tariff policies and the potentially deleterious effect on inflation and inflation expectations from the surge in oil prices in the wake of the Iranian conflict.

Last night’s US consumer price index (CPI) release is another indicator of just how well US inflation has behaved despite the challenges from, among other things, tariffs and oil.

US core CPI inflation came in at 2.5 per cent, the lowest annual rate since March 2021. That was at the height of COVID deflation fears (remember that!).

Meanwhile, the traditional Fed inflation focus – the core private consumption expenditures (PCE) price index – is, at 3.3 per cent, well north of the Fed target of 2 per cent. Warsh prefers the Dallas Fed trimmed-mean measure which is currently running at 2.2 per cent (June read) – not that far from the Fed target and the lowest read since July 2021.

Of course, the vagaries of oil prices might upset that positive emergent US inflation narrative but nevertheless the forgoing results are a positive surprise.

Along with recent softer payrolls numbers they indicate that the Fed is not under any pressure to urgently raise the policy rate.

Bond markets still have a bit to worry about, particularly the huge US Budget deficit, but if Fed Chair Warsh had articulated that emergent positive narrative – and he could have done so that without crossing the forward guidance line – then perhaps bond markets might be well be a tad less anxious.

RBA: Bullock avoids the ‘Warsh trap’ but monetary policy challenges remain

Following the Fed Chair Warsh’s poorly received communication after the Fed kept rates steady in July, I conjectured that Reserve Bank of Australia (RBA) Governor Bullock would have to be on top of her communication game in the event the RBA held rates steady in the August meeting.

In the event those fears proved unfounded.

Bullock gave a credible rationale for the RBA’s decision to keep the policy rate steady. She framed the Monetary Policy Board (MPB) debate as one between keeping rates steady and increasing the policy rate, ceding the “bond vigilantes” some succour.  That was given some emphasis by a stated readiness to raise the policy rate should upside risks to inflation assert themselves.

Bullock speaks from a position of greater credibility than Warsh given that the RBA had raised the policy rate at three successive meetings in February, March and May of this year. In that sense she has revealed inflation-fighting credentials in a way that Warsh has yet to demonstrate.

The June quarter trimmed-mean inflation outcome at 3.6 per cent was below the RBA forecast of 3.8 per cent issued in May. So, the argument went, the increases in the policy rate so far this year are working to contain inflation, and with activity growth tepid, the balance of risks pointed to no further requirement for an increase at the August meeting.

Bullock communicated this in a clear and balanced way, albeit one can argue whether the Board arrived at the “correct” decision.

Warsh on the other hand, unnecessarily let his antipathy toward forward guidance manifest itself in a reticence to communicate a rationale for the Fed’s decision to keep the policy rate steady, failing to communicate any detail regarding Fed members’ assessments of current inflation pressures, and indeed on the economy more broadly.

Warsh could have shared elements of the Fed’s current economic assessments without crossing the line into forward guidance.

Taking a leaf out of Bullock’s approach, Warsh might have pointed out that US inflation has been less than feared.

In other words, there were good reasons for the Fed leaving the policy rate unchanged.

Last night’s July CPI report reaffirmed that.

Warsh has in the past conjectured that disinflation in the US will follow from tremendous (largely AI motivated) investment. In Warsh’s view that investment has wrought a productivity dividend that (other things equal) has raised the US economy’s “speed limit”. In other words, the US economy can grow at faster rate before igniting inflationary pressures.

The notion that AI driven productivity growth can constrain inflation is a credible – if debatable – position. Some worry that the huge capex requirements associated with AI might in the short-term put demand pressure on inflation. Indeed, it is the latter that the RBA emphasised in its articulation of upside risks to inflation.

The RBA’s decision to hold the policy rate at the August meeting, however, is not without some risk. Australia has an “underlying” inflation rate that is among the highest in the developed world. That reflects the stark reality of a homegrown structural inflation proclivity. I tend to think that the RBA underplays this factor in its public commentary.

I have noted in the past that that reflects the interplay of regulatory creep in labour and goods markets that impose costs on businesses, part of which are passed on to consumers, and which result in abject productivity growth which makes the task of inflation containment all the harder. Australia’s abject productivity growth may be why AI related capex has a greater inflation impulse in Australia.

Frustratingly, governments (state and federal; Labor and Coalition) have displayed a ‘head in the sand’ approach to dealing with these issues and unfortunately the current Federal government is no exception.

In that context, the policy rate “hold” from the RBA last week may be defensible but I continue to worry that the RBA will be required to raise the policy rate again at some stage in 2026. Unit labour cost growth in excess of 3 per cent (even if down from 5 per cent a year ago) is hard to square with a seamless return of inflation to the mid-point of the target. Too great a delay in tightening policy runs the risk of too “sticky” an inflation rate and, as a consequence, a more substantial dislocation in economic activity and in the labour market down the track.

By Stephen Miller, investment stragtegist.

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Private markets are becoming an increasingly important component of diversified investment portfolios.

Australia’s superannuation funds have quietly reshaped their portfolios over the past decade, and the numbers tell the private markets story better than any commentary can. Hostplus allocates 38% of its ‘balanced’ option to private markets, AustralianSuper sits at 23.75%, and ART discloses 29.5% in unlisted and alternative assets^[1]. These aren’t marginal allocations. They represent a structural shift in how the largest pools of retirement capital in the country are being invested, and that shift has implications beyond the super sector.

For financial advisers, this raises an obvious question. If institutional investors have moved so decisively into private markets, what does that mean for your clients? Private equity, private credit, unlisted infrastructure and private real estate were once considered specialist territory, reserved for large institutions with the scale and patience to commit capital for a decade or more. That’s no longer the case. Access has broadened, structures have matured and the case for including private markets in a well-constructed portfolio has become harder to ignore.

It’s important to note why private markets have traditionally sat out of reach for most advisers and their clients. Private companies aren’t held to the same disclosure standards as listed companies, so the information available about their operations is far more limited, and the due diligence needed to assess them properly has largely been the preserve of institutions with the resources to do it well.

Minimum investment sizes add another barrier, and the sheer breadth of sectors and sub-sectors within private markets makes genuine diversification difficult for retail investors to achieve on their own, assuming they can secure access to begin with.

These aren’t small hurdles and they’re part of the reason private markets have taken time to reach a broader audience. But the diversification private markets can offer away from public markets, particularly during volatile geopolitical periods, is a genuine and growing part of the case for including them in client portfolios.

What are private markets?

Private markets refer to capital invested in companies and assets that aren’t listed on a public exchange. Where a public market investor buys shares in a company through the ASX or other exchange, a private markets investor commits capital directly to a business, project or asset that isn’t publicly traded. That capital is usually held for years rather than traded day to day.

The asset class covers several distinct categories, each with its own risk and return profile:

• Private equity involves taking ownership stakes in private companies, often with the goal of improving operations or growth before an eventual sale or listing.
• Private credit is direct lending to companies, typically businesses that sit outside the reach of traditional bank lending or public bond markets.
• Private infrastructure covers long-life physical assets such as toll roads, energy networks and data centres, generally chosen for their stable, often inflation-linked income.
• Private real estate involves direct or fund-based ownership of property assets that aren’t held through listed property trusts.
• Venture capital funds early-stage, high-growth companies, often in technology or life sciences, where the potential for outsized returns comes with a higher risk of failure.

The mechanics of investing in private markets differ from public markets in a few important ways. Most private market funds operate on a capital call basis, meaning an investor commits a set amount of capital upfront but the manager draws it down over time as opportunities arise.

Returns are typically distributed back to investors as the underlying assets are sold or refinanced, rather than through the ongoing dividends or capital growth an investor might expect from a listed share. And because these assets aren’t traded on an exchange, there’s no daily market price. Valuations are set periodically by the fund manager, usually quarterly, based on independent assessments.

As previously noted, private markets were, until fairly recently, the domain of large institutions. Minimum investment sizes were high, lock-up periods were long and the due diligence required to select and monitor individual fund managers was significant.

That is changing. The emergence of evergreen and semi-liquid fund structures, wider distribution through wealth platforms and growing manager appetite for the retail and high net worth channel have all lowered the practical barriers to entry. For advisers, this means an asset class that was once out of reach most clients is increasingly something to actively consider as part of mainstream portfolio construction.

The move from public to private

The Australian public market has been shrinking, a trend that isn’t new or seemingly temporary. On 31 December 2024, the ASX had 1,989 domestic and foreign equity issuers listed, and while total market capitalisation sat near record highs, the number of listed companies fell by 145 between December 2022 and December 2024, the largest two-year decline since the recession of the early 1990s. That decline was driven by two factors: fewer new listings (66) and a larger number of delistings (211).^[2]

This pattern isn’t unique to Australia. In the United States, the number of publicly listed companies has halved over the past 25 years, and the London Stock Exchange has seen a 15% reduction in listings over the past decade. Companies across major markets are choosing to stay private for longer, or leaving public markets altogether, and Australia is following the same structural path^[2].

Meanwhile, capital has been flowing the other way. According to ASIC, the total value of Australian public equity and debt markets doubled over the ten years to 2024, while the value of private capital funds grew by 161% over the same period^[4], comfortably outpacing public market growth. That gap is the clearest evidence of where investor appetite has been heading.

The scale of this shift is visible globally and can be seen by following the money. Preqin expects the global alternatives market, spanning private equity, private credit, infrastructure, real estate, hedge funds and natural resources, to reach US$32 trillion in assets under management by 2030^[5].

The trade-off between public and private markets is relatively straightforward. Public markets offer daily liquidity, price transparency and a level of regulatory oversight that private markets don’t. Private markets offer access to a broader and growing opportunity set, often with less short-term volatility, in exchange for reduced liquidity and less frequent, manager-determined valuations. Private markets are typically uncorrelated with traditional public market investments, adding diversification benefits to the ‘pros’ column for private market investments. For advisers, understanding this trade-off is the starting point for deciding whether, and how much, private markets exposure suits a given client.

The benefits of private market investment

The case for private markets rests on more than access to a growing opportunity set. For advisers building portfolios, the core appeal comes down to a handful of practical benefits, and diversification sits at the top of the list.

Diversification

Public and private markets don’t move in lockstep, and that gap is where much of the diversification benefit comes from; there’s a significant dispersion of returns between investments and investment managers. What that means is the difference between the best-performing private market asset manager and the worst-performing is sometimes five times as much as the difference in performance in listed markets.

The dispersion in the private space can be thousands of basis points, whereas in the listed space the dispersion of returns typically would be closer to 100 basis points in fixed income and 200 basis points in equities.

Therefore, there are huge opportunities for investors to outperform. But equally, if they choose the wrong investment or fund, there is the chance that their investment could severely underperform.

A broader opportunity set

Diversification isn’t only about correlation. It’s also about access to a different universe of companies and assets altogether. Private equity invests in a distinct set of businesses that sit outside public indexes entirely, giving investors exposure to different capital structures, growth profiles and industries than they’d find on a listed exchange. With fewer listed companies and a narrower range of economic exposures on public markets, private equity has increasingly become a source of opportunities that public markets simply can’t replicate. The same holds for private credit and private real estate.

Private credit gives investors access to lending relationships with mid-sized businesses that sit outside the reach of bank balance sheets and public bond markets, a segment of the lending market with no real public equivalent.

Private real estate opens up a wider range of property types than the relatively narrow set found in listed property trusts, including sectors such as build-to-rent, data centre facilities and specialist industrial assets, with valuations tied more closely to the performance of the physical asset itself rather than to listed market swings.

Return potential and income characteristics

Private markets have historically offered the potential for enhanced returns relative to public market benchmarks, reflecting the illiquidity premium investors are compensated for locking up capital over longer periods, along with the value active managers can add through direct involvement in portfolio companies. Certain private market categories, particularly infrastructure and private credit, also offer income streams that are often more stable or contractually linked to inflation than their listed equivalents, which can be a useful complement for clients seeking defensive income alongside growth.

Resilience in volatile periods

Because private market valuations are set periodically rather than priced daily, portfolios with private markets exposure tend to show a smoother return path through periods of public market volatility. This shouldn’t be mistaken for an absence of risk, but it does mean clients are less likely to see the same day-to-day swings in reported value that come with a fully listed portfolio, which can support better client outcomes during periods of market stress simply by reducing the temptation to react to short-term noise.

Co-investment and fund of fund structures

Private markets aren’t a single asset class but a wide array. Each of these behaves differently, carries a different risk profile and offers the potential for substantial gains alongside the potential for substantial losses. What’s the best way for your clients to approach such a diverse and, in places, high-risk field?

GSFM’s private markets partner CI Global Asset Management believes that a multi-strategy approach delivers the best outcome for most investors, for several reasons.

Access to specialised expertise

The first is expertise. Private credit, private equity, venture capital and infrastructure each require a different skill set to assess properly, and a manager who understands how to evaluate a mid-market lending deal isn’t necessarily equipped to assess a venture capital opportunity or an infrastructure asset. A multi-strategy structure provides investors with access to specialists in each individual asset class, rather than relying on one team with broad but shallow knowledge spread across private markets as a whole.

Scale matters

To deliver genuine diversification across these asset classes, a multi-manager operator needs scale. Scale is what opens doors to deal flow in the first place, since the best private market opportunities are often oversubscribed and go to investors with the strongest existing relationships. It also translates into negotiating power on fees, since a large operator committing significant capital is in a far stronger position to negotiate favourable terms than a smaller investor or wealth adviser trying to access the same opportunity independently.

Due diligence takes considerable resources

Private markets don’t come with the same public disclosure requirements that apply to listed companies, which means the due diligence process looks very different. Assessing a manager or a deal properly requires background research into the companies involved and the people running them, none of which is readily available through public filings. A multi-strategy operator needs sufficient scale and resourcing to do this work properly, both at the point of initial investment and on an ongoing basis, since private market monitoring doesn’t (or shouldn’t!) stop once capital has been committed.

Co-investment as a complement

Within a multi-strategy structure, co-investment can play a useful additional role. This is the opportunity to invest directly alongside a fund manager in a specific deal, sitting next to the manager’s own fund capital in that transaction. Because there’s no second layer of fund fees on top of the deal, co-investment is typically a lower-cost way to add targeted exposure. These opportunities tend to go to those existing investors who bring more than capital, whether that’s scale, relationship history or the ability to move quickly. This is where the ecosystem argument becomes most relevant.

Why the ecosystem matters

Being part of a large, well-resourced multi-strategy structure gives investors access to networks and relationships that a smaller platform would struggle to replicate. Large managers see more deal flow than smaller ones, get better allocation in oversubscribed funds and can negotiate more favourable terms across fees, co-investment rights and reporting standards. This is because of the scale of capital they represent. For a client invested through a large, well-connected platform, that access comes built into the structure itself. 

Weighing the trade offs

None of this comes without cost. A multi-strategy structure generally adds an additional layer of fees on top of the fees charged by the underlying funds, and advisers need to be able to explain that layered cost clearly to clients and weigh it against the diversification, expertise and access benefits on offer.

For most clients new to private markets, a multi-strategy structure offers the more practical starting point because it combines specialised manager selection, diversification and ongoing due diligence in a single vehicle, backed by the scale needed to do all three properly.

The investor case in a nutshell

As more companies choose to stay private for longer, the case for looking to private markets for genuine diversification only gets stronger. This isn’t a niche addition to a portfolio. It’s a meaningful shift in where opportunity lie in today’s investment environment.

Private companies are typically valued only quarterly, which means they operate outside the daily noise of listed markets. That gives managers room to focus on improving operations and building long-term value in the underlying assets, rather than managing to a share price. Private credit and venture capital extend the opportunity further still, offering access to businesses and deals that simply don’t exist in public markets, from lending relationships with companies outside the reach of bank balance sheets to early-stage businesses years away from any listing.

Done well, with the right strategic asset allocation, a private markets allocation should make a portfolio more efficient overall, with the potential for higher returns and lower volatility. That’s not a new idea, as illustrated by the super fund allocations highlighted at the beginning of the article.

Direct access remains difficult for most investors, given the scale of the assets involved and the relationships needed to get in the door. But a growing range of private markets funds now invest across private markets opportunities, giving your clients a practical way in.

In short, the investment case for your clients can be summarised succinctly as follows: broader diversification, access to opportunities public markets can’t offer, and a structure that’s worked for institutions for decades, now increasingly available to a wider range of investors.

None of this replaces your careful client-by-client judgement. Private markets will suit some clients well and others not at all; you are best placed to weigh liquidity needs, time horizon and cost against the potential benefits before making a recommendation.

However, for those clients where a private markets allocation makes sense, the opportunity is clear. What sophisticated institutional investors have been doing for decades is now within reach of a much wider range of clients through the right fund structures. Private markets have moved from the margins of institutional investing to a core part of how capital is being allocated; now they can form part of your investment strategy to be used to benefit clients.

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Notes:
[1] Open Markets
[2] ASIC
[3] Investing.com
[4] Morningstar
[5]  Prequin

The information included in this article is provided for informational purposes only and is general advice only. It does not take into account an investor’s own objectives. The information contained in this article reflects, as of the date of publication, the current opinion of GSFM Pty Ltd and CI Global Asset Management and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. Neither CI Global Asset Management, GSFM Pty Ltd, their related bodies nor associates gives any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article.

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Stephen Miller

The financial market commentariat would have us believe that Federal Reserve Chair Warsh’s Congressional testimony was “hawkish”.

Fair enough! Despite a benign June consumer price index (CPI) report and last night’s benign producer price index (PPI) report, Warsh noted that it didn’t follow that it was ‘mission accomplished’ on inflation. He added for good measure that the Fed’s interest rate setting committee had ‘no tolerance for persistently elevated inflation’ and further, were united in ‘a resolute commitment to restoring price stability’.

I would note that it would be highly problematic for a central bank chair to communicate anything other than a ‘resolute commitment’ to fighting (what appears to be elevated and “sticky”) inflation.

Warsh gave nothing away regarding the likely Fed stance that will emerge from the next meeting of the Fed’s interest rate setting committee on July 28-29. (For what it is worth, markets dialled down their expectations of a tightening at the July meeting to a trivial level in the wake of the benign inflation reports but are still pricing slightly more than one further tightening before year-end).

All in all, Warsh’s comments are consistent with the notion that statements from this Fed Chair may well assume a more Delphic quality than that to which financial markets have become accustomed.

Warsh has indicated a strong antipathy for central bank “forward guidance” and by implication, the utility of the Fed’s “dot plot”. He did not submit a “plot” at the most recent Fed policy meeting and has made it clear that he doesn’t put too much store in the accuracy of the “plot”.

In essence, Warsh appears to doubt that the “dot plot” is additive to the information set of the Fed or markets. Indeed, he implies that in some instances the exercise is possessed of a certain disutility, insofar as such projections are innately ephemeral and create a damaging facade of an anchoring mechanism that bears no relation to unfolding reality.

In this sense it might be that to the extent that markets have inferred a tactical “hawkish” tilt under Warsh, it might be misplaced.

What Warsh has articulated is a desire to reframe the Fed’s strategic direction via the establishment of a series of taskforces covering communication, Fed balance sheet management, a review of data sources, productivity and jobs, and inflation drivers and measurement.

Having said that, to the extent that one could draw any conclusions regarding the benign June inflation reports it is that they appear to be some way from necessitating an increase in the Fed policy rate.

Inflation, however measured, is still north of the Fed’s 2 per cent target but looks to be trending (very grudgingly) downward despite tariff impacts and the surge in oil prices in the wake of the Iranian conflict. Of course, it might be argued that with respect to oil prices, the jury is still out when it comes to potential contagion effects on broader inflation and inflation expectations, particularly in the wake of the reescalation of the Iranian conflict.

The taskforces on productivity and jobs and price and inflation frameworks play into a theme that Warsh has in the past been quite vocal about. Specifically, Warsh conjectures that disinflation in the US will follow from tremendous (largely AI motivated) investment. In Warsh’s view that investment has wrought a productivity dividend that (other things equal) has raised the US economy’s “speed limit”. In other words, the US economy can grow at faster rate before igniting inflationary pressures.

The notion that AI driven productivity growth can constrain inflation is a credible – if debateable – position. Some worry that the huge capex requirements associated with AI might in the short-term put demand pressure on inflation.

What is also interesting is that when it comes to inflation measures, Warsh has indicated that he prefers the Dallas Fed trimmed-mean measure of the PCE. That measure was 2.4 per cent in in May, a full percentage point below the traditionally preferred core PCE at 3.4 per cent and occurs despite those aforementioned broad-based price pressures emanating from the Trump tariff agenda and oil price increases. Like other measures, the Dallas Fed inflation measure is still north of the Fed’s 2 per cent target for “inflation” but further away from mandating a policy rate increase than the traditionally preferred measure.

If that remains the case (an admittedly big “if”) and if Chairman Warsh can convince other FOMC members of the veracity of his viewpoint (a similarly big “if”) then a policy rate hike might be a more remote prospect than markets currently contemplate.

Further, Warsh’s more strategic focus might mean less frequent policy adjustments than have been seen in the past.

Instead, an extended period of a stable policy rate might be a more credible scenario.

By Stephen Miller, investment strategist

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Stephen Miller

I’m not sure that the news flow of the last week or so has managed to advance whatever one may have been thinking about the decision of the Reserve Bank of Australia (RBA) Monetary Policy Board (MPB) at its next meeting in August.

The minutes from the June meeting noted that policy was ‘somewhat’ restrictive but at the same time exhibited some handwringing around elevated inflation expectations. What might have been at the forefront of the RBA Board’s contemplations was the Fair Work Commission (FWC) decision to award a 4.75 per cent increase in the minimum wage and awards. That such an increase occurred against a backdrop of ongoing abject productivity growth and how it might inform wider wage negotiations is clearly a concern going forward.

The May monthly consumer price index report (CPI) was not as bad as feared and is probably consistent with the most recently issued RBA forecasts back in May.

Nevertheless, Australian inflation remains elevated. Trimmed-mean consumer price index (CPI) inflation in Australia is currently running at 3.6 per cent. That puts Australia at the top the developed country inflation league. That is not a (developed) World Cup we should want to win!

Some more positive news since the June meeting has been declining oil prices which might mitigate the dangers of oil price inflation broadening into something even more pernicious.

But Australia’s inflation problem is way more than just oil prices, as illustrated by the aforementioned adverse comparison of Australian inflation with elsewhere in the developed world.

Jim Chalmers might have us believe that the Middle-East tensions and the attendant ratcheting up of the price of oil is the primary driver of our current inflation challenge, and yes there is a skerrick of truth in that, at least in absolute terms.

But the stark reality is Australia has a structural homegrown inflation proclivity.

That homegrown structural inflation proclivity reflects, inter alia, the interplay of regulatory creep in labour and goods markets that impose costs on businesses, part of which are passed on to consumers. The regulatory regime is also reflected in the abject productivity growth which makes the task of inflation containment all the harder.

As I’ve stated in the past, this state of affairs is not just down to the current Federal Government. Rather it reflects a long-standing policy deficiency since the end of the Hawke-Keating and Howard-Costello eras. Governments (both State and Federal and Labor and Coalition) have long averted their eyes from addressing productivity enhancing policy measures. Just as importantly, little attention has been given to avoiding productivity diminishing measures attaching to (mostly well-intentioned but poorly thought out) regulatory oversight of labour and goods markets.

Sure, (to paraphrase the Prime Minister) people don’t sit around the kitchen table talking about low (or negative) productivity growth. But productivity remains central to enhancing standards of living not the least through mitigating inflation.

The decision to “pause and reflect” at the June meeting was understandable given concerns about looming cyclical fragility. In that context it reflected a view that there was some utility in using the “space” provided by preceding policy rate increases to assess how the economy was adjusting and the impact of disruptions.

However, both the RBA minutes and Governor Bullock’s comments would indicate that the policy rate might still need to be increased at a later date. That reflects, inter alia, governments’ inability to support the RBA’s inflation battle with supportive structural policies.

So, in determining the course of the policy rate over coming months, the RBA faces considerable challenges having to negotiate a tricky (dare I say “narrow”) path between structural inflation factors and cyclical fragility.

The June CPI release later this month looms as a key staging post in how the negotiation of that path may evolve.

Eurozone June “flash” CPI: ECB to stand pat in July

Overnight, Euro area CPI inflation for June came in a little lower than expected at 2.8 per cent at the headline level (compared with 3 per cent expected). The core reading was also better than expected at 2.4 per cent (2.6 per cent expected).

While inflation remains above the ECB target of 2 per cent, there now seems almost no prospect of a policy rate (deposit facility) increase from the current 2.25 per cent at the July 22-23^rd meeting.

Speaking at the ECB’s Sintra Conference earlier in the week, ECB President Lagarde stated that she thought the ECB had gone some way to making the Eurozone economy less vulnerable to inflation shocks, perhaps reflecting a more rigorous financial framework.  She also noted that tensions in the Middle East had subsided (even if resolution was ‘far from assured’). Overnight at that same conference, Lagarde stated that she thought the risks to inflation and growth are ‘broadly balanced’ which would indicate that she sees no compelling case for a policy rate rise. (She also expressed a scepticism regarding the utility of “forward guidance” and other features of COVID era monetary policy such as “quantitative easing”.)

Other ECB decisionmakers are less sanguine.

Markets see the prospect of a hike in as closer to 30 per cent in September.

The latest set of ECB forecasts were based on Brent oil prices of around $US82 per barrel. It is currently at circa $US73 per barrel giving the ECB some “space” to digest whether further inflation pressures might necessitate a further increase.

Coming up: US non-farm payrolls tonight (ahead of Independence Day holiday)

As mentioned above, even more benign looking measures of inflation such as the Dallas Fed ‘s trimmed mean core PCE measure is, at was 2.4 per cent in May, still a way above the 2 per cent Fed “inflation” target.

And progress on the inflation front has been excruciatingly slow.

So absent some sharp and unforeseen deterioration in the labour market a policy rate cut hardly looks proximate.

Tonight sees the release of the June non-farm payrolls report ahead of Friday’s Independence Day holiday.

Indications are that the labour market remains in satisfactory condition.

The May Job Openings and Labor Turnover survey (JOLTs) report saw openings mostly unchanged at a healthy enough 7.6m.

The ADP June payrolls report showed a solid enough gain of 98k (even if lower than the 113k increase expected). The ADP report is sometimes dismissed (too easily in my view) because of its poor record in foreshadowing month-to-month movements in the Bureau of Labor Statistics payrolls measure. However, it is just as good a measure of the state of the labour market as the payrolls report.

The June Institute of Supply Management (ISM) manufacturing index (PMI) released overnight paints a reasonably satisfactory picture of the US manufacturing sector: the index coming in unchanged at 53.3. The employment component increased to to 49.7 from 48.6 in May (50.0 is the neutral point between expansion and contraction). The prices component declined to 73.0 from 82.1 in May. That is still elevated but maybe a harbinger of some easing of price pressures to come.  

A consensus outcome for payrolls of a circa 110k increase in employment and an unemployment rate unchanged at 4.3 per cent with average earnings growth of 3.5 per cent is not going to move the dial for any Fed members.

By Stephen Miller, investment strategist

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Decarbonisation is reshaping the global economy, creating long-term investment opportunities across clean energy, energy efficiency, circular economy infrastructure and climate-driven innovation.

Few themes rival the scale, urgency and long-term significance of climate change. Consequently, regions, countries, companies and individuals are taking positive action to decarbonise the planet and work toward net zero 2050 goals. For growth equity investors, decarbonisation is not simply a regulatory obligation or a moral imperative. It is the single largest, earnings-driven wealth-creation opportunity of our generation.

Decarbonisation has crossed the threshold from future ambition to today’s dominant economic reality, propelled by an unprecedented alignment of policy, corporate capital and investor mandate. With over 90 percent of global GDP now bound to net-zero targets, the regulatory floor has permanently shifted.

Corporate giants like Microsoft, Walmart and Samsung are no longer just making promises, they are deploying hundreds of billions of dollars to re-engineer supply chains, lock down clean energy grids and build climate-resilient operations. For investors, this isn’t a passive ESG checkbox; it is a directive to deploy capital into the businesses driving this structural transformation.

Yet, transitioning the global economy is a monumental task. Hitting terminal climate targets requires an enormous, sustained capital expenditure cycle across every major sector. While early market attention focused heavily on renewable energy and electric vehicles, the next phase of growth is far more diverse. The most compelling, earnings-driven opportunities now span critical, high-barrier sectors including advanced nuclear energy, energy efficiency and circular economy infrastructure.

Climate and the S-curve

Climate is not a cyclical trend; it is a permanent structural rewrite of the global economy that will span decades. Achieving net-zero emissions by mid-century will require estimated capital in excess of US$50 trillion. For growth investors, the critical question is no longer whether this capital allocation will happen, but rather, which companies will capture the lion’s share.

To reinforce the opportunity available to investors, one only needs to look at climate’s S-curve.

The S-curve models how an investment theme, such as climate, moves from niche concept to dominant market standard. Rather than a straight line, the S-curve breaks down into three distinct structural components, each representing a critical phase in that thematic’s lifecycle.

• Incubation phase – at the bottom of the curve, pioneering technologies often face high initial capital costs, regulatory bottlenecks and steep engineering hurdles.
• Inflection and acceleration – once a technology hits commercial viability it crosses a critical threshold. Costs drop, demand surges and growth enters a hyper-accelerated phase. The most resilient compounders in a global growth portfolio capitalise on this multi-year runway, scaling their total addressable market and generating durable earnings growth.
• Saturation – eventually, the curve flattens. The market matures, competition intensifies and incremental gains become harder to secure.

As illustrated in figure one, climate and related decarbonisation technologies are right at the start of the S-Curve. This means a long runway of growth, significant earnings growth potential and ultimately, positive contribution to investor portfolios.

Driving forces of the climate transition

This massive macroeconomic shift is sustained by an interlocking trio of structural drivers (figure two):

• Geopolitical policy and mandates – subsidies, tax incentives and regulatory penalties are setting a permanent economic floor for green tech adoption.
• Corporate capex reallocation – market leaders are proactively deploying hundreds of billions to future-proof their supply chains and operational resilience.
• Investor capital mandates – institutional asset allocation is permanently shifting, starving carbon-heavy legacy businesses of capital while rewarding green compounders.

Crucially, these three forces do not operate in isolation. They form a self-reinforcing feedback loop that creates a multi-decade compounding tailwind for the high-growth companies anchoring the transition. Let’s examine each of these tailwinds in greater detail.

Geopolitical policy – the foundation for action

Over the past decade, climate policies have evolved from aspirational targets to enforceable regulations, reshaping entire industries. The Paris Agreement set the global benchmark for emissions reduction, while COP28 reinforced the ambition with commitments to triple renewable energy capacity by 2030 and nuclear energy by 2050.

National policies are now following suit. The Inflation Reduction Act in the United States – despite some rollbacks from President Trump in the ‘One Big Beautiful Bill’ in July 2025 – and the European Union’s Green Deal are directing hundreds of billions of dollars in public support and mobilising trillions in total investment toward clean energy, electrification and industrial decarbonisation.

While the political landscape varies by region, the trend is clear – governments are using regulation, financial incentives and carbon pricing to steer capital toward low-emissions technologies. Countries representing more than 90 percent of global GDP have now adopted net-zero targets, up from roughly 16 percent in 2019^[1].

The scale of these policy-driven investment flows is accelerating the adoption of renewables, grid infrastructure, energy storage and efficiency technologies, thereby reinforcing the case for long-term structural growth.

Corporate leadership and capex reallocation

While government policy is providing the framework for the energy transition, corporate capital is increasingly driving its implementation. Some of the world’s largest companies are investing directly in renewable and low-carbon energy sources, including nuclear power, while securing long-term power purchase agreements (PPAs) to guarantee access to reliable, carbon-free electricity.

These investments are motivated by more than sustainability objectives. The rapid growth of AI, data centres and electrification are creating unprecedented demand for power, making energy security and affordability strategic priorities for businesses. At the same time, commercial property owners and industrial operators are investing in energy-efficient infrastructure. This ranges from HVAC systems, insulation and building upgrades, to lower operating costs and reduce emissions.

Together, these trends reflect a fundamental shift in corporate climate strategy. Rather than relying primarily on carbon offsets, businesses are embedding decarbonisation into their operations, supply chains and physical assets. This is creating growing demand for the technologies and infrastructure needed to support a lower-carbon economy, from energy storage and grid modernisation to advanced efficiency solutions.

Investor influence – capital allocation as a force for change

The financial sector is playing a critical role in accelerating the climate transition. Global investment in the energy transition reached a record US$2.3 trillion in 2025, up 8 percent from the previous year, with capital flowing into renewable energy, electrified transport, power grids, energy storage and other decarbonisation technologies^[2]. This demonstrates a compelling investment opportunity.

ESG strategies have shifted from passive screening to active capital deployment. Instead of just picking companies that already boast low emissions, forward-thinking investors are targeting the enablers of true decarbonisation – those scaling clean power, advancing the circular economy and maximising energy efficiency.

Concurrently, shareholder pressure is intensifying. Businesses face mounting demands to lock in emissions targets, boost transparency and clean up their supply chains. In short: climate risk is now a core financial risk, and laggards are losing their competitive edge.

Climate investing does not always mean avoiding high-emissions companies altogether. Some of the most critical investment opportunities lie in companies with significant carbon footprints that are leading their industries in decarbonisation – whether by transitioning to clean energy, adopting breakthrough efficiency technologies or setting ambitious emissions reduction targets. These businesses may not be low carbon today but their role in transforming industrial processes, power generation, and heavy transport is essential to reaching net zero.

Opportunities within climate: four key sub-themes

Within its climate fund, Munro Partners focuses on four key sub-themes: clean energy, energy efficiency, the circular economy and clean transport.

Clean energy – the foundation of decarbonisation

Clean energy is essential to reaching net zero. However, not all clean energy investments are created equal. Renewables like solar and wind are now well established, but they face increasing commoditisation, intense competition and supply chain risks. For example, Chinese dominance in solar panel manufacturing has driven prices lower and squeezed profit margins, making these investments less attractive. Meanwhile, the dependence of renewables on weather conditions means they cannot meet rising energy demand alone. Regardless of this, solar and onshore wind are on the trajectory to be the more cost competitive energy technologies globally^[3].

Nuclear energy, on the other hand, is seeing a resurgence as a reliable, carbon-free baseload power source. Hyper scalers, including Microsoft and Amazon, are actively securing long-term nuclear power contracts to meet their sustainability commitments and ensure a stable energy supply for their AI-driven data centres. While small modular reactors (SMRs) hold promise, their commercial deployment is still in the early stages and likely won’t scale until the 2030s.

While power generation is vital, a highly compelling investment opportunity exists in energy enablers. These companies provide the grid upgrades, energy storage and critical infrastructure required to seamlessly integrate renewable and nuclear power into the broader energy ecosystem.

Stock story: CATL (China)

Contemporary Amperex Technology Co. Limited (CATL) is the world’s largest battery manufacturer. holding a 39.2 percent global market share in electric vehicle (EV) batteries and 30.4 percent in grid-scale Energy Storage Systems (ESS) according to 2025 data from SNE Research. To sustain growth, the company is diversifying away from pure automotive dependency into higher-margin utility-scale storage, driven by surging AI data centre energy demands, alongside electric shipping and aviation.

Energy efficiency – the unsung hero of decarbonisation

Despite being an overlooked climate asset, energy efficiency outperformed renewables in reducing US emissions over the past decade. By eliminating demand at the source rather than just decarbonising supply, efficiency solutions deliver a dual advantage: immediate cost savings and structural emissions reductions.

Buildings alone account for nearly 40 percent of global energy use, making HVAC systems, insulation and energy management software critical areas of investment. With short payback periods – often under two years – energy efficiency solutions represent one of the fastest-growing and most financially attractive areas of climate investment.

Industrial energy efficiency is becoming a major investment theme. Technologies such as industrial process optimisation, heat pumps and waste heat recovery are improving operational efficiency in manufacturing, logistics and data centres.

Circular economy – reducing waste, increasing sustainability

The transition to a sustainable economy is also about redefining how we use materials. The circular economy focuses on waste reduction, increased recycling and the creation of more sustainable production systems.

Plastics, industrial waste and water scarcity present some of the biggest environmental challenges today. Companies involved in waste management, advanced recycling and water treatment solutions are seeing rising demand, particularly as corporate and government policies push for higher sustainability standards in packaging and industrial processes.

Beyond traditional waste management, innovation in alternative materials – such as bio-based plastics, low carbon cement and synthetic fuels – is opening new investment opportunities. These industries are still in the early stages, but they are set to grow as global supply chains adapt to increasing regulatory and consumer pressure.

Stock story: Clean Harbours (United States)

Clean Harbors is North America’s largest environmental services provider and a primary executor of the industrial circular economy. Through its Safety-Kleen subsidiary, the company operates a closed-loop infrastructure network that processes hundreds of millions of gallons of hazardous waste and used motor oil annually. Clean Harbors collects roughly one out of every five gallons of waste oil in North America, re-refining it into high-quality base oils and lubricants that require up to 85% less energy to produce than crude oil alternatives. The company’s recycling volumes reached 1.9 million metric tons in 2024, clearing its 2030 target years ahead of schedule^[4].

For investors, this asset-heavy infrastructure creates a significant competitive moat; the company leverages recurring service revenues from a diverse corporate customer base to drive compounding free cash flow, capitalising directly on rising corporate ESG mandates and supply chain reshoring trends.

Clean transport – beyond the EV

The rise of electric vehicles (EVs) is one of the most visible shifts in the climate transition, but the investment case for direct EV exposure is becoming more complex. A combination of oversupply, slowing demand and aggressive competition from China has put pressure on automakers, making investments less compelling in the short term.

However, the broader clean transport ecosystem remains an attractive investment theme. The supply chain behind EVs – including battery materials, charging infrastructure and grid integration technologies – continues to grow as electrification expands across passenger vehicles, trucks and public transport.

At the same time, low-carbon fuels, hydrogen, and sustainable aviation solutions are emerging as potential areas for future investment, particularly in industries where electrification is not yet viable.

Looking ahead: emerging drivers and innovations

Decarbonisation is accelerating, shifting climate investing beyond its first generation. Investors must look past standard renewables and efficiency to capture emerging opportunities driven by changing energy grid dynamics, new technology deployment, and shifting corporate sustainability mandates.

The rapid adoption of artificial intelligence is reshaping global energy consumption. AI workloads are significantly more power-intensive than traditional computing, and as businesses deploy AI at scale, data centre electricity demand is set to surge.

According to the International Energy Agency (IEA), total global electricity consumption from data centres is projected to roughly double by 2030, climbing from 485 terawatt-hours (TWh) to 950 TWh, accounting for approximately 3 percent of global electricity demand. Notably, power consumption from data centres specifically focused on AI is poised to triple, reaching 465 TWh by 2030 to nearly match the energy footprint of conventional data centres^[5].

AI is also playing a role in energy efficiency and grid optimisation. Machine learning models are being used to improve electricity demand forecasting, enhance battery storage performance and increase the efficiency of industrial and building energy systems. While AI is accelerating the need for clean power, it is also emerging as a key enabler of smarter energy use.

At the same time, heavy industry is undergoing a structural shift. New industrial technologies are emerging – from green steel and cement to low-carbon chemical production – driven by both regulation and corporate commitments to reduce supply chain emissions. While these areas are still in the early stages, they may represent the next major investment wave in the climate transition.

The transition to net zero will fluctuate rather than progress in a straight line, dictated by changing political landscapes, technological breakthroughs and shifting consumer behaviour. Yet the macro trajectory remains undeniable. Capital allocation from both public and private sectors is steadily flowing into decarbonisation, targeted directly at upgrading energy infrastructure, scaling efficiency tech and modernising resource management.

For forward-looking investors, the climate transition has transcended ethical necessity to become a structural economic theme defining the 21st century. This systemic shift is already reshaping global industries and is unlocking substantial value across energy, transport agriculture and finance. Driven by tightening regulatory mandates, shifting consumer preferences and institutional capital favouring sustainable assets, the financial momentum behind decarbonisation will continue to compound.

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References:
[1] https://zerotracker.net/
[2] BloombergNEF, Energy Transition Investment Trends 2025
[3] Wood Mackenzie, Global competitiveness of renewable LCOE continues to accelerate
[4] https://resource-recycling.com/plastics/2025/09/24/clean-harbors-hits-2030-recycling-goal-early/
[5] Key Questions on Energy and AI, International Energy Agency, April 2026

The information included in this article is provided for informational purposes only and is general advice only. It does not take into account an investor’s own objectives. The information contained in this article reflects, as of the date of publication, the current opinion of Munro Partners and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. Neither Munro Partners, GSFM Pty Ltd, their related bodies nor associates gives any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article.

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Damien McIntyre

Structural changes in global capital markets have reshaped the investment landscape, and investors are increasingly viewing private markets as a core portfolio allocation, according to GSFM CEO, Damien McIntyre.

But as private markets continue to mature, manager selection and portfolio construction will become even more important, McIntyre says.

“Private markets are no longer a niche allocation reserved for large institutions. More companies are choosing to stay private for longer, meaning investors relying solely on listed markets are accessing a smaller proportion of the global opportunity set.”

McIntyre says private markets now encompass a broad range of asset classes, including private equity, private credit, infrastructure, real estate and venture capital, providing investors with additional sources of diversification and return.

“By investing across all private markets, it is possible to build more resilient portfolios by accessing investments that are driven by different fundamentals to listed markets.”

McIntyre says it is not surprising that investor interest in private markets had accelerated in recent years.

“The market volatility experienced during 2022 reminded investors that traditional diversification doesn’t always work as expected,” he says.

“Public companies often operate under an intense 90-day reporting cycle,” he explains.

“Private market investments tend to be valued on underlying business fundamentals rather than daily market sentiment, reducing the impact of short-term noise and allowing managers to focus on long-term value creation.

“Private ownership allows businesses to focus on improving operations, investing for growth and creating value over several years rather than managing for the next quarterly result.

“The advantage is that management teams have ability to execute long-term strategies without the pressure of meeting quarterly earnings expectations that comes with listed markets.”

But McIntyre says manager selection is an important element of successful private market investing.

“The dispersion between top-performing and average managers in private markets is significantly wider than in listed markets, making manager selection a key driver of long-term returns.”

Rather than concentrating exposure in a single private asset class, McIntyre said the CI Global Private Markets Funds take an approach that combines private equity, private credit, infrastructure, real estate and venture capital within a diversified portfolio framework.

“The approach is to diversify across managers, asset classes, investment vintages and liquidity profiles,” he says.

“This provides investors with exposure to the breadth of opportunities available across private markets while helping manage portfolio risk.”

This is not to say that listed markets do not have a place.

“The role of private markets isn’t to replace listed investments but to complement them, improving diversification and potentially increasing long-term risk-adjusted returns.”

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Stephen Miller

As was pretty much expected, the Federal Reserve’s Federal Open Market Committee (FOMC) chose to keep the policy (federal funds) rate target unchanged at 3.5 – 3.75 per cent.

That was pretty much universally expected.

The Statement issued with the decision looked a little more “hawkish” than the market had anticipated.

Overall, the Committee looked to be relatively sanguine regarding economic activity growth and the labour market but noted that ‘inflation remains elevated relative to the Committee’s 2 per cent goal’ and that ‘the Committee will deliver price stability.’ There was no reference to the employment side of the Federal Reserve’s (Fed) mandate.

The phrasing of the Statement looked to be framed against a backdrop of a particular concern regarding the “stickiness” of inflation.

That was reflected in the projection materials. The central tendency of the Fed’s traditional inflation focus, the core private consumption expenditures (PCE) price index, is now thought to come in at 3.3 per cent for 2026 compared with 2.7 per cent in March.

Reflecting that the central tendency of the policy (federal funds) rate which was revised up to 3.8 per cent from 3.4 per cent in March. In terms of the “dot plot”, of the 19 participants, 9 saw at least one further increase in the policy rate (3 saw one increase, 5 saw two increases, and 1 saw three increases), 8 participants saw no change and 1 saw a reduction. Chair Warsh did not submit a plot.

In his press conference, Chair Warsh foreshadowed some potentially significant changes in current Fed decision-making processes. He announced the establishment of five taskforces that will cover key elements of the current Fed processes and practices. Those task forces will cover:

• Fed communication, including, presumably, the utility of the current “dot plot”.
• Management of the Fed’s balance sheet.
• How the Fed uses existing data and whether new information sources might provide more useful information.
• Productivity and jobs.
• Price / inflation frameworks, including drivers and the measurement of inflation.
• As mentioned, the markets have taken a view that the Statement is a relatively ‘hawkish’ one: equity markets are weaker as is the USD, bond yields mostly rose, particularly in the front-end.

The “hawkish” reaction is understandable.

For one thing half of the FOMC, via the “dot plot”, see a hike in the policy rate this year.

For another, the Statement and Warsh in his press conference, emphasised “price stability” with an implication that current inflation is too high. Chair Warsh in his press conference seemed to wish to reinforce the Fed’s credibility as an inflation fighter.

And finally, the Chair too exhibited no real disposition to do the President’s bidding, putting Fed independence on display.

However, my sense of the press conference was that Warsh was not necessarily signalling much about the future path of policy (not surprising given his disdain for forward guidance and, indeed, the utility of the “dot plot”).

In that context the bond market reaction may have reflected a market that was anticipating a more “dovish” disposition from the Fed Chair. In other words, bond market positioning was “the wrong way around”.

Indeed, on the “dot plot” Warsh noted in the press conference that when he reviewed the plots of his colleagues, he spotted they were in pencil, ‘the type with an eraser’ he said, suggesting that circumstances can shift quickly and that markets should be wary of their informational utility.

Moreover, the announcement of a series of taskforces and the implied changes in Fed processes suggests that the next Fed move is maybe more of an open question, as might be the ultimate impact on the bond market, particularly via the balance sheet taskforce.

RBA: stayin’ “live”

For what it is worth I think the RBA made the right call at Tuesday’s meeting.

With inflation showing signs of peaking, with the news flow from the Middle-East marginally less worrying, with the economy clearly slowing and growth narrowly based, with the labour market possibly at an inflection point and having raised the policy rate at each of the three previous meetings, a ‘pause and reflect’ made sense.

What also made sense was to reinforce ongoing concern regarding inflation.

That is despite the aforementioned better news from the Middle-East.

Jim Chalmers might have us believe that the Middle-East tensions and the ratcheting up of the price of oil is the primary driver of our current inflation challenge. That is partially true at the ‘headline’ level. But the reality is Australia has a structural homegrown inflation proclivity.

That much may be gleaned from the trimmed-mean inflation measure which excludes any strong upward impetus from oil prices.

Trimmed-mean consumer price index (CPI) inflation in Australia is currently running at 3.4 per cent. That means we’re currently competing with Norway for the highest developed country inflation crown. That is not a (developed) World Cup we should want to win!

By way of comparison, the trimmed-mean measure in the US is 2.9 per cent and that is with some tariff impact that doesn’t apply in the Australian context.

Treasurer Chalmers might seek to conceal that point in his public statements on interest rates and inflation, but the reality is much of the problem is our own doing.

That homegrown structural inflation proclivity reflects, inter alia, the interplay of regulatory creep in labour and goods markets that impose costs on businesses, part of which are passed on to consumers. The regulatory regime is also reflected in abject productivity growth making the task of inflation containment all the harder.

Ruchir Sharma in a recent opinion piece in the Financial Times noted that “populists of the left and right tend to push for lower interest rates but appear not to recognise that the people hurt most by the resulting inflation are their main constituents: the poor and middle class.”

That is something the Treasurer may wish to reflect on, not to mention his erstwhile mentor, Wayne Swan, who not long ago accused the RBA of “punching itself in the face”! Nice line, but Swan’s sentiment is not one that has aged well. Indeed, one might be tempted to reference glass houses. (Mea culpa: we’ve all been there!)

To be fair, the current state of affairs is not down to the current Federal Government. Rather it reflects a long-standing policy deficiency since the end of the Hawke-Keating and Howard-Costello eras. Governments (both State and Federal and Labor and Coalition) have long averted their eyes from addressing productivity enhancing policy measures. Just as importantly, little attention has been given to avoiding productivity diminishing measures attaching to (mostly well-intentioned but poorly thought out) regulatory oversight of labour and goods markets.

Sure, (to paraphrase the Prime Minister) people don’t sit around the kitchen table talking about low (or negative) productivity growth. But productivity remains central to enhancing standards of living not the least through mitigating inflation.

So, while looming cyclical fragility may have motivated the RBA’s ‘pause and reflect’, that Governor Bullock was clear that the policy rate might still need to be increased at a later date, reflects governments’ inability to support the RBA’s inflation battle with supportive structural policies.

In determining the course of the policy rate over coming months, the RBA faces considerable challenges having to negotiate a tricky (dare I say “narrow”) path between structural inflation factors and cyclical fragility.

Bank of England’ nothing to see here…yet

The Bank of England meets tonight.

In some ways the Bank of England calculus is similar to that faced by the RBA.

The economy is in a state of cyclical fragility, and the UK also has somewhat of a structural inflation proclivity. In many ways, the inattention to structural elements has been more egregious than that attaching to Australia and in that context it is surprising that inflation has at the margin been better behaved. That may be attributable to a deeper cyclical fragility.

In any case, a set of benign (relative to expectations) virtually seals the deal for no rate rise at this meeting.

Headline CPI in May was unchanged at 2.8 per cent (versus 3.0 per cent expected). Core inflation came in at 2.6 per cent, slightly up from 2.5 per cent in April, and a little below the 2.7 per cent expected. Services inflation remains somewhat problematic coming in at 3.7 per cent up from 3.2 per cent in April.

So, while inflation remains well north of the 2 per cent target, against a backdrop of more positive news from the Middle-East this week, the key inflation measures seem sufficient enough to forestall any potential increase in the policy rate at tonight’s meeting. That said, markets may continue to romance the notion of a policy rate rise given services inflation and the fact that the current measures are well north of the target.

By Stephen Miller, investment strategist

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Stephen Miller

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Integrating trend following into an investment strategy serves as a structural mechanism for portfolio resilience rather than a short-term market play.

Trend following strategies aim to generate returns by capturing sustained price movements across a diverse range of asset classes. Unlike traditional investment approaches that rely on valuation or forecasting, trend following is fundamentally reactive. It is built on the premise that asset prices exhibit momentum; that is, rising prices tend to keep rising, and falling prices tend to keep falling, for periods longer than pure randomness would suggest.

Trend following does not seek to forecast markets or prices. Instead, it identifies the direction of an established trend and positions the portfolio accordingly:

• In prolonged bull markets a trend following strategy takes long positions to profit from continued upward momentum
• In extended bear markets a trend following strategy takes short positions to capitalise on continuing downward price movements, providing a source of portfolio diversification and crisis alpha

While market selection, position sizing and risk controls dictate the intricacies of execution, the core objective remains constant: identify the direction of a market trend and assess its potential duration.

Traditional trend following markets

At face value, trend following is a simple strategy. Buy something that is going up; and sell something that is going down. However, Finance 101 says that trends should not exist; markets are efficient and information is instantaneously reflected in prices. This ignores the fact that decisions lag news flow, that economic cycles play out over years and that humans get emotional and sometimes make irrational choices.

Trend following strategies eliminates the factors that can impede good decision making. Instead, it identifies and captures trends across a range of sectors: stocks, bonds, currencies, agricultural investments, commodities, interest rates, energy and utilities and credit. Strategies typically invest across hundreds of markets and sectors at any one time.

Traditional trend-following markets are the large, exchange‑traded futures and forwards: equity indices (for example, S&P 500), government bonds (US Treasuries), major foreign exchange (USD/GBP) and core commodities (such as gold, copper or crude oil). They are highly liquid, transparent and operationally simple, with deep capacity, tight bid/ask spreads and long data histories, making them efficient to access at scale. Trend following across these markets offers the combined attractiveness of a positive expected long-run Sharpe ratio and positive expected crisis Sharpe ratio^[1]. As a reminder, the Sharpe ratio is a metric for risk-adjusted return, which shows excess return per unit of risk.

Traditional markets can also proxy the key macro risk factors present in the global economy. For example, growth, inflation, monetary policy and world trade movements can all be captured using a combination of these liquid markets.

Figure one shows market combinations that may be sensitive to moves in each of these macro factors. These are illustrative examples – and trend following will capture many more effects – but in big macro events such as an equity collapse, these core markets typically feel the largest impact.

Since trend-following models can be both long and short, traditional markets tend to exhibit the strongest defensiveness (higher expected crisis Sharpe ratio) during broad, cross‑asset sell‑offs, providing potential ‘crisis alpha’ to multi‑asset portfolios. In stressed environments, movements in the largest macro risk factors are amplified, generating more opportunities for trend to position appropriately (long or short) and to benefit. However, the influence of these macro factors is not constant. They can go through periods of being more or less significant in the context of the global economy.

Given the unpredictable nature of price trends, trend following strategies often broaden their scope to encompass both traditional and alternative markets. Alternative markets offer exposure to idiosyncratic, market-specific risk factors that drive diversifying price trends.

Alternative markets come in many forms and historically, Man Group’s research demonstrates the application of trend following models to this diversified set of markets has delivered higher absolute returns. Importantly, classifying a market as alternative doesn’t equate to it being inherently less liquid.

Synthetic markets – which allow trend followers to trade themes in markets versus the markets themselves – can also provide further diversification from traditional markets. A well-documented example is equity styles; constructed by cross-sectionally ranking cash equities based on fundamental metrics representative of a particular investment style. Trend following applied to equity styles not only offers a more robust way to monetise equity styles but is also highly diversifying to traditional index-based trend following.

Why invest in trend following strategies?

There are five key reasons to consider a trend following strategy for clients:

1. Diversification

Diversification is the primary tool for increasing portfolios’ Sharpe ratio. Because trend following strategies trade across a broad spectrum of uncorrelated global assets, they provide a reliable mechanism for dampening volatility and enhancing portfolio diversification.

Many of traditional assets have similar underlying return drivers: stocks, fixed income, real estate and private equity all rely on a growing economy for price appreciation. When this driver breaks down due to geopolitical uncertainty and market events, these assets can sell off together. Diversification often fails when investors need it most.

This is where trend following comes in. Unlike traditional assets, trend following does not rely on economic growth to generate returns and has historically been uncorrelated to equities, bonds, real estate and other asset classes. More importantly, it has tended to perform best precisely when other asset classes struggle, offering a valuable counterbalance when stocks are meaningfully down^[2].

Figure two summarises this defensive property, with trend historically delivering in the worst periods for equities, while the performance of bonds and multi-strategy hedge funds are mixed.

2. Low correlation to traditional assets

In recent years, the traditional negative correlation between equities and bonds has broken down. Historically, bonds acted as a reliable cushion during stock market downturns. However, recent periods of high inflation and aggressive central bank interest rate hikes have caused both asset classes to move in the same direction, pushing their correlation into positive territory.

This shift has impacted the traditional 60/40 portfolio, most notably in 2022 when both equities and fixed income suffered simultaneous, double-digit losses. Because bonds can no longer be guaranteed to offset equity risk, financial advisers increasingly look beyond the 60/40 model, incorporating alternative strategies to achieve true portfolio diversification. Trend following strategies are a good example because they are structurally agnostic to asset class correlations and can take short positions.

Furthermore, because these strategies trade across dozens of uncorrelated global sectors, they provide exposure to return drivers that are completely absent from a standard equity and bond portfolio.

3. Risk/return and ‘crisis alpha’

Integrating trend following into a portfolio of traditional assets generally improves performance consistency while reducing volatility and drawdowns. Because these strategies can profit from downward price trends, they offer critical capital preservation when traditional markets decline.

‘Crisis alpha’ is a term that describes the structural ability of trend-following strategies to generate positive absolute returns during periods of sustained equity market distress and economic shocks. The term was formalised by authors Greyserman & Kaminski who used centuries of historical market data to demonstrate that because trend following systems are automated, rules-based and capable of taking short positions, they reliably provide a unique form of ‘insurance’ or alpha exactly when traditional 60/40 portfolios suffer major drawdowns^[3].

4. Liquidity

Trend following strategies invest across hundreds of liquid markets and usually offer investors daily liquidity; trend following is much less likely to get ‘locked up’ in the event of a market crisis.

5. Manage investor behaviour

By removing human emotion and biases through an entirely systematic, rules-based process, trend following offers a powerful behavioural benefit. This disciplined framework prevents clients from panic-selling or chasing overvalued assets during market extremes.

Equity and trend make good friends

Most advisers have experienced first-hand the frustration of seeing parts of a portfolio designed to provide ballast not always hold up as markets turn volatile. A historic case in point was the 2022 sell-off, when stocks and bonds declined in tandem. Even during the more recent shock of the war in the Middle East, stocks initially slumped and yields shot up.

As outlined earlier in this article, trend following has historically displayed a diversifying edge in times of market stress (for both equity and bond crises), solidifying its role as an alpha component which is not only diversifying but also may provide portfolio insurance properties.

It works for three reasons. First, as noted earlier, human behaviour tends to be predictable. Investors consistently underreact to new information and overreact to fear, creating trends that persist longer than efficient-market theory (the idea that asset prices already reflect all available information, so you can’t ‘beat’ the market) would suggest. Second, economic cycles can potentially play out over years, driving sustained directional moves in interest rates, currencies, commodities and other drivers. Third, decisions lag news flow. Information doesn’t get priced instantaneously; it gets digested, debated and acted upon gradually.

The data shows trend following to be a complement to equities (figure four). Going back to 2000, comparing US equities (S&P 500) and trend following over 12-month periods, Man Group found trend following is additive most of the time (almost 95%) to US equities.

In 46% of 12-month periods, both trend and equities are positive while in 50% of 12-month periods, one component helps offset negative returns from the other. Only 4% of 12-month periods result in both components delivering a negative return. Finally, in about a quarter of the observations, when US equities are negative, trend following generated a positive return 82% of the time.

Trend following exhibits convexity: its returns grow more positive the more asset prices move significantly in either direction. During the dot-com crash, the Global Financial Crisis and the 2022 inflationary episode, trend following delivered competitive positive returns while traditional assets suffered. This ‘crisis alpha’ property is a key attribute which can differentiate trend following from other alternatives that tend to underperform in the left tail of equity markets. When markets move a lot, either up or down, trend following strategies tend to do well.

When considering a trend following strategy for your clients, there are some important questions to ask:

• Is the strategy true to label and has it remained so over time?
• Has the strategy delivered crisis alpha in times of market downturns?
• Is the strategy performing as expected during inflationary periods?
• Is the strategy liquid and transparent?
• Does the strategy harness the latest technology – machine learning, artificial intelligence, platforms for swift execution of trades?

Integrating trend following into an investment strategy serves as a structural mechanism for portfolio resilience rather than a short-term market play. By functioning as a form of portfolio insurance that generates positive expected returns over time, the strategy provides downside protection as a byproduct of growth, rather than as a net cost like traditional put options. Maintaining a long-term strategic commitment allows the strategy to effectively stabilise a portfolio during major market dislocations.

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Notes:
[1] A Trend Following Deep Dive: The Optimal Market Mix for a Trend Follower, Man Group, January 2026
[2] Ibid.
[3] Trend Following with Managed Futures: The Search for Crisis Alpha, Greyserman & Kaminski, 2014

Important information: The information included in this article is provided for informational purposes only and is general advice only. It does not take into account an investor’s own objectives. The information contained in this article reflects, as of the date of publication, the current opinion of Man Group plc and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. Neither Man Group plc, GSFM Pty Ltd, their related bodies nor associates gives any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article. Past performance does not guarantee future results.

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Damien McIntyre

A volatile start to 2026 has masked some solid fundamentals in European markets, but the valuation gap that exists between European small caps relative to both history and their large cap peers makes them an attractive hunting ground for investors, says GSFM CEO Damien McIntyre. 

The US/ Iran war and the macro uncertainty this has created has delayed European recovery, but not derailed it, McIntyre says.

“There are good opportunities when investors take the right approach in the right sectors, particularly where trade buyers and private equity firms continue to show interest in merger and acquisition activity.” 

McIntyre says when it comes to investing in European small caps investors should prioritise quality companies with significant growth potential. 

“By focusing on sectors where there are favourable structural trends, such as healthcare, food and beverage, and defence and technology, investors are gaining exposure to companies that display resilient business models, regardless of the broader macro landscape,” he says.  

McIntyre says one of the keys to success in European small caps is an “active engagement” approach with the companies held in a portfolio.

“The world is in a state of flux as geopolitical risks escalate around the globe. In this context, investors can benefit from adopting a value-driven strategy and identifying compelling opportunities at the company level. 

“This has long been the tactic of private equity investors – they find and then invest in promising companies for the long haul. And it’s an approach that can also serve investors in global small cap equities as well. Adopting an active ownership approach of “friendly activism” can reap strong benefits over the long term.” 

McIntyre says this is the approach taken by Alantra EQMC. “By making a significant investment in a growing small cap company, up to around 25 per cent, Alantra has the power to initiate and encourage real change. 

“Small cap companies offer investors the opportunity to get in at ground level and benefit from the growth that happens as companies mature. Small caps are also generally an under-researched sector of the market, with most analysts focussing on larger cap companies. But this creates real potential for those analysts willing to do the research.

“An important consideration, however, is where the company you are investing in is domiciled. Not every jurisdiction offers the regulatory and legislative certainty of Europe.  

“A focus on European listed companies – not as a European play but rather investing in those companies that have a global growth exposure to other parts of the world – can be a strategy that adds good value. 

“There are some European small cap companies that are great global businesses that are leaders in their niches. They are ripe for growth, and with the right direction, can also become a target for mergers and acquisitions. 

“Active ownership approach from a fund manager can help accelerate a small cap company’s path to becoming a mid-cap company, thus creating shareholder value.” 

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