Monthly market update

While headline returns appeared relatively stable, there were significant movements beneath the surface as investors responded to company results, changing economic conditions and geopolitical developments.

The global AI race

Artificial intelligence (AI) continues to be one of the most important themes in financial markets. This has created a global race to develop and commercialise the next generation of technology.

During July, investors became more cautious as markets questioned how quickly AI investment would translate into sustainable earnings.

This contributed to greater volatility among several large technology companies. Because these companies represent a significant share of major global share indices, movements in a relatively small number of stocks had a noticeable effect on overall market returns.

Importantly, the weakness was not evenly spread across the market. Many other industries and regions were more resilient.

Geopolitical uncertainty

Rising tensions in the Middle East also contributed to higher oil prices and greater uncertainty across global markets.

The Australian housing market

Closer to home, Australia’s housing market weakened, with prices falling across most major markets. Higher interest rates have also placed pressure on some property developers and private lenders.

The Diversified option was affected mainly by weaker performance in some overseas share markets, particularly emerging markets. The stronger Australian dollar also slightly reduced the value of international investments when translated back into Australian dollars.

Other parts of the portfolio were more resilient, helping to reduce the overall impact of weaker share markets.

NGS Super does not directly own Australian residential property. We do have some exposure to private real estate lending, but this is through carefully selected senior secured loans.

Senior secured loans have priority over more highly leveraged or subordinated forms of finance if a borrower experiences difficulty. They are also supported by property security. All these investments are currently performing well and continue to be closely monitored.

This exposure is consistent with our broader diversification strategy. Many members already have significant exposure to Australian housing through their own homes. The Diversified option provides access to a much wider range of investments across Australia and overseas, reducing members’ reliance on the performance of any single market.

How NGS Super manages through changing markets

NGS Super invests across a broad range of asset classes, industries and regions. Our approach is designed to manage risk while providing members with access to investments that can support returns over the long term.

Investing across the AI ecosystem

NGS continues to believe that AI will be transformational over the longer term, although its development is likely to be uneven and not every company attracting investment today will ultimately succeed.

Rather than relying on a small number of large technology companies, NGS has built exposure across different parts of the AI ecosystem, including AI developers, semiconductor and infrastructure providers, and businesses applying AI to solve real-world problems.

We are also investing in emerging areas such as "embodied AI", where artificial intelligence is integrated into physical systems including robots, autonomous vehicles and industrial equipment. We believe these technologies have the potential to create significant economic value across many industries.

Maintaining a long-term perspective

Benjamin Graham, Warren Buffett’s mentor, famously observed that, in the short term, the market is a voting machine, but over the long term, it is a weighing machine.

In the short term, markets can be driven by sentiment, headlines and investor flows. Over longer periods, investment returns are more closely connected to fundamentals such as earnings, cash flows and valuations.

NGS takes a disciplined, long-term approach. We assess both the expected return and potential downside risk of each investment and combine different types of assets to build a diversified portfolio. An important part of this process is distinguishing temporary market noise from developments that have lasting investment consequences.

Short-term volatility cannot be avoided completely. When our investment process indicates that risks are rising, we may use hedging strategies to help reduce the portfolio’s exposure. These strategies do not eliminate risk, but they can help limit the impact of periods of market stress.

This approach allows members to retain exposure to investments with attractive long-term return potential while the Fund continues to manage shorter-term risks. Returns will vary, and periods of weaker performance should be expected, but the portfolio remains designed to achieve its investment objective over the long term.

Whether you’d like to learn more about how investments work or discuss how your investment mix reflects your personal circumstances, goals and time horizon, NGS Advice can help.

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