Fin-X Capital Group Balanced Income MDA June 2026 performance report

Portfolio Performance

Over the quarter, our Investment Committee remained constructive on the longer-term investment outlook, while becoming increasingly selective around where we were prepared to deploy capital. Equity markets continued to be supported by resilient corporate earnings, particularly across technology and semiconductors, but this was occurring against a more complex macroeconomic backdrop. Persistent inflation, higher bond yields, geopolitical uncertainty in the Middle East and the potential implications for energy prices all reinforced the need to balance participation in structural growth opportunities with disciplined portfolio risk management.

A key consideration was the increasing divergence between underlying company fundamentals and market valuations. Strong performance across a relatively narrow group of global technology companies had pushed valuations higher, and our internal valuation work indicated that some holdings were beginning to offer less attractive risk-adjusted upside. This led us to selectively trim positions including Qualcomm, ARM, Broadcom and Alphabet and allow cash levels to increase rather than immediately redeploy capital at less compelling valuations. Importantly, this did not represent a change in our conviction in the long-term themes underpinning these investments. Rather, it reflected our philosophy that future returns are likely to be increasingly driven by earnings growth and company fundamentals rather than further valuation expansion.

At the same time, the Committee continued to look beyond traditional large-cap equity exposure for opportunities to improve portfolio diversification and resilience. Infrastructure, long/short and market-neutral strategies, fixed income and selected small and mid-cap opportunities were all considered as potential sources of return with less reliance on broad equity market direction. Infrastructure exposure was increased within more conservative portfolios, while several alternative strategies were reviewed where existing managers had either underperformed or where we believed better opportunities may be available. This reflects an important part of our investment process: we continually assess not only what we own, but whether each investment continues to perform the role for which it was originally selected.

Looking forward, our positioning remains guided by the same long-term thematic framework that underpins the Fin-X investment philosophy. We continue to favour high-quality global businesses exposed to structural growth opportunities, but we are equally conscious that the investment environment is changing. Interest rates may remain higher for longer, inflation risks have not disappeared, market concentration remains elevated and geopolitical events have the potential to create periods of heightened volatility. Against this backdrop, maintaining valuation discipline, appropriate diversification and the flexibility to hold and deploy cash when opportunities emerge remains central to our approach. We believe this combination allows us to remain invested in the long-term opportunities we continue to see, while being disciplined about the price and level of risk we are prepared to accept along the way.

Portfolio Changes

Market Summary & Portfolio Positioning

Market Outlook

The upturn in manufacturing and broadening US activity growth is a positive development for global revenue growth. However, the prospect of higher interest rates is not yet reflected in capital markets. Investors currently anticipate only half a percentage point of US rate rises between now and the end of 2027, and just a single increase in Australia before easing resumes. Should US rates rise by more than this, the effects would spill over into other currencies, and particularly into longer-dated bond yields around the world.

Higher rates would likely pose a threat to areas with elevated valuations, since they tend to rein in the multiples investors are prepared to pay for future earnings. On the surface, valuations do not look especially stretched on an earnings-multiple basis. But questions are increasingly being asked about the sustainability of AI-related earnings, particularly among the large-cap “hyperscalers”, the handful of technology giants building out the bulk of global AI computing capacity. A significant part of their recent earnings growth has come not from cash profits but from investment gains, as holdings in businesses such as Anthropic and OpenAI were revalued around the initial public offering of SpaceX, which also incorporated the xAI business.

The result is a picture of elevated earnings compared to the S&P500 that is accompanied by deteriorating free cash flows. Rather than returning profits to shareholders through dividends and buybacks, companies are increasingly raising capital to fund AI infrastructure. Around the time of the SpaceX IPO, Alphabet raised an even larger sum of funds. Related strains are visible at the edges of private credit markets, where lenders exposed to software have experienced heavy outflows as AI tools call the sector’s traditional business models into question.

Government bond yields rose in response to hawkish central bank guidance, though by less than the inflation and fiscal outlook might have implied. That investors appear to retain confidence in the inflation-fighting credibility of central banks is an important stabilising factor — and perhaps the most consequential variable to monitor in the quarters ahead.

Doubts about the durability of the earnings trajectory are compounded by the release of several capable but far cheaper Chinese AI models. It is probably too early to conclude that value has shifted decisively towards other areas, such as the “harnesses” that allow AI agents to operate, or models run locally inside corporations. Either way, volatility among technology names appears likely to increase.

Against this backdrop, more attractive opportunities are appearing in smaller companies and emerging markets. Broadening economic growth should support earnings across a wider range of businesses.

Moreover, reasonable valuations offer a measure of resilience should interest rates rise further than the market currently expects. Given a backdrop of waning market liquidity, valuation discipline seems more likely to be rewarded in the future compared to the last few years.

Market Performance

Events in the Persian Gulf dominated the second quarter. The war between the United States, Israel and Iran initially drove oil prices sharply higher, reviving fears of a fresh inflationary shock.

Those fears eased as the quarter progressed. Large-scale releases from strategic reserves, weaker import demand and growing signs of progress towards a ceasefire combined to send prices back down. Brent crude, which had traded above US$100 a barrel entering April and spiked towards the mid-US$120s at its peak, completed a near-round trip to the mid-US$70s by the end of June. Energy was the principal casualty, finishing as one of the weakest sectors as prices receded, even though the potential for renewed volatility remains.

Anticipating a resurgence in inflation, central banks turned decidedly more hawkish. The Reserve Bank of Australia raised the cash rate by a further quarter point in May, to 4.35% — its third increase of the year and a full reversal of the previous cycle’s cuts. The European Central Bank delivered its first rate rise since 2023, and the Bank of Japan lifted rates to their highest level in more than three decades. Rates were held steady in the United States despite the appointment of a new Federal Reserve Chair by a president with a clear preference for rate cuts.

Government bond markets bore the strain of this shift in policy expectations. Long-dated yields pushed higher through the quarter with the US 10-year Treasury yield approaching 4.7% at its peak and the 30-year trading above 5.1%, its highest level since before the global financial crisis, before retreating as falling oil prices allowed them to settle lower into quarter-end.

The Australian dollar was a notable casualty in currency markets, sliding towards US$0.69 late in June on softer commodity prices and narrowing rate differentials.

Despite having to absorb the prospect of an energy price shock, every major asset class delivered a positive return over the quarter. Over the past twelve months, Australian property was the sole exception, posting a negative return even after a strong rebound during the quarter.

Source: Bloomberg, MSCI, S&P Dow Jones, 24th July 2026

The quarter’s defining stock market story related to ongoing investment in artificial intelligence. A very strong first quarter for AI-related earnings prompted widespread upgrades to technology sector forecasts. As the build-out of infrastructure continued, demand for semiconductors surged, carrying the global technology sector higher across both developed and emerging markets. That strength was heavily concentrated in a handful of emerging-market chipmakers: Taiwan’s TSMC and South Korea’s SK Hynix and Samsung Electronics. Their dominance allowed emerging markets to outpace their developed-market peers, returning +22.6% against +12.6%. A note of caution is warranted, however. Much of the gain reflected higher prices rather than higher volumes. Supply is expected to remain constrained for the remainder of 2026, with additional capacity likely to arrive in 2027. The current boom may prove temporary.

Global Economy

In the years following the pandemic, the world’s major economies had become unusually synchronised, moving through the same inflationary surge and subsequent adjustment more or less in step. Five years on, that synchronisation is giving way to divergence, as differences in sector composition and fiscal policy reassert themselves.

The United States sits at the centre of the AI infrastructure boom. The resulting investment has flattered headline growth while masking weakness elsewhere in the economy, most notably in manufacturing, which has struggled worldwide for the past two years but is now showing tentative signs of an upturn. American fiscal policy is beginning to gain traction. Tax incentives for capital expenditure are increasingly outweighing the drag from higher trade tariffs, and the recovery appears to be broadening beyond a narrow set of beneficiaries to a wider range of businesses.

In Australia, data centre construction is now large enough to register in the national accounts, although the overall base of growth remains comparatively narrow.

The government launched a hastily prepared tax reform programme in the May budget. Proposed changes to capital gains tax are already weighing on house prices, raising the risk of negative wealth effects that could, in turn, dampen consumer spending.

More encouragingly, employment has held up relatively well, though the risks are skewed towards higher unemployment. Minimum wage increases as high as 4.75% from July could discourage hiring at a time when AI tools are increasingly viewed as a viable alternative to additional staff. Adoption remains at a very early stage. Anthropic, among others, regards penetration as only just beginning. But the experience of previous technological leaps suggests that wider AI adoption could just as easily lead to higher employment in the long run. There are hopes, too, that AI may help address Australia’s persistent productivity weakness.

The manufacturing upturn is also benefiting parts of Asia and Europe. As in Australia, however, those gains come with greater risk, given exposure to higher and more volatile energy import prices.

Most importantly, the risks of higher inflation and higher interest rates have grown. At the end of the first quarter, the prospect of an oil shock had raised the odds of an economic slowdown, and central banks responded swiftly to nip any inflationary pressure in the bud, likely dampening economic growth.

With the US economy now likely re-accelerating, higher oil prices are less likely to dent activity and more likely to feed a sustained rise in inflation. The risks are building that interest rates may need to move substantially higher, and that central banks could yet fall “behind the curve”; the point at which policy is no longer tight enough to contain inflation, forcing more aggressive action later.

Disclaimer

The contents of this communication are prepared by Brerona Capital Asset Management Pty Ltd (A.C.N. 627 650 293; AFSL 520526 trading as Fin-X Capital Group). Any advice contained in this communication is general advice and does not take into consideration your personal objectives, goals, needs and financial situation. You should therefore not rely on the information contained in this email to make any investment decisions without first consulting an investment professional such as your financial adviser. Where there is any reference to specific products, you should obtain the relevant Product Disclosure Statement(s) and familiarise yourself prior to making a financial decision. The authors have relied on external data sources and as such do not guarantee the accuracy of the information, as such you should independently verify all data yourself. Any unauthorised use of this communication is prohibited. This email (including any attachments) is intended only for general information purposes. You must not copy, reproduce, disseminate, or use this document and its contents without seeking prior approval from Fin-X Capital Group. We track our performance based on trade date +1 day, and we make the assumption that trades were placed at this time, this may not always be the case. This may result in timing differences for trades placed through our custodian not perfectly reflecting the reporting function which reports the end of day price. Actual performance you experience may not truly reflect the results outlined in the table due to timing differences, commission differences etc. Please take these performance numbers as indicative only.