What happened in the markets

The last quarter was a strong one for the DIMS investment series, especially those investors in the portfolios with a high allocation to equities. Those investors that have remained invested in growth assets, through the 100/0 and 80/20 in particular, have recovered from early year wobbles around Liberation Day, now seeing their portfolio accounts go up close to 10% for 2025.

The strong gains in equities have been driven by robust artificial intelligence and technology demand, solid corporate earnings, and a well-anticipated Federal Reserve (Fed) rate cut. A weaker US dollar also supported emerging markets. Credit and fixed income, particularly in New Zealand, also performed well. The US & UK technology and communication services sectors (AI Boom), European financials and healthcare sectors (strong corporate earnings), and UK materials (higher gold prices) were the leading sectors for the strong equity market returns in Q3. The Japanese equity market advanced strongly with cyclical sectors and semiconductor related stocks benefiting from global AI demand, higher commodity prices, and robust corporate results.

Emerging Markets were the strongest performing region in Q3. This was driven by the index heavyweights China (US-China trade talks progressing and continued focus on their anti-involution policy), Taiwan (against a backdrop of ongoing strength in technology stocks and continued demand for artificial intelligence), and Korea (similar to Taiwan).

The performance of government bond markets was mixed during Q3. US Treasury yields and New Zealand government stock ended the quarter lower, while UK, German and Japanese yields all rose over the period. The steepening of the yield curve in the US and NZ was driven by rate cut expectations. It was a positive quarter for credit markets. US investment grade spreads tightened further, outperforming government bonds. The NZ fixed interest funds performed better than the global bond funds in September and over the quarter.

The markets are optimistic that further rate cuts by the Fed will occur in coming months, before year end.

What happened with our Portfolios

The models produced strong returns in September, ranging from 1.5% to up to 4%, and even stronger over the quarter, from 3.5% to 9%. The more aggressive models are now up over 10%pa for 5 years, demonstrating the benefits of investing in equities over the longer term. Even the more conservative portfolios have returned over 8%pa for 3 years and 4%pa for 5 years. These have consistently outperformed inflation and cash in the bank.

There have been no changes to the portfolios underlying holdings over the quarter.