Global equities recorded another solid month in June, although with sharp contrasts between geographical regions. US equities advanced beyond their mid-February peak while continuing to outperform globally, catching up with their European peers. The sharp rally in US equities since mid-April defied growing concerns over US assets and the risk of major outflows from US capital markets, which had built up in Q1 and peaked just after Liberation Day. There were several likely triggers of the V-shaped rebound, most notably, the overly pessimistic investor sentiment around corporate earnings, the modest impact of tariffs on US growth and inflation, and expectations of Fed rate cuts in H2 – much earlier than initially forecast. At the same time, repeated failures to break above the 4.5% resistance level on the 10Y US Treasury yield reassured investors that the new Big Beautiful Tax Bill is unlikely to spark a confidence crisis in US debt, which remains sustainable despite projections of persistently high public deficits. Looking ahead, the economic outlook for the US in H2 appears increasingly weak, with the real effects of tariffs on consumer spending and inflation yet to materialize. Equity investors have shifted from a Goldilocks scenario (soft landing and disinflation) to a “bad news is good news” mindset, expecting that the coming slowdown will rapidly prompt an expansionary Fed policy and further declines in long bond yields. The risk is that the downturn proves to be more persistent, with consumer confidence undermined by inflation and stagnant wages, while the new tax reform fails to deliver any meaningful economic stimulus. Ultimately, decent US corporate earnings and the AI-driven promise of productivity gains will need to continue to justify the high valuations of US equities. Any downward revisions to these expectations could spark another selloff, similar to April.

The Fund was up a +0.9% (A, USD) in June, continuing to revert to its short-term rate + 3% p.a. performance objective. The portfolio turnover was high in the first half of the month but the sustained high-volatility regime throughout most of the month allowed higher-then-usual yields to be captured on reinvestments, despite the decline in funding. With positive equity returns, the downside protection of the portfolio stayed stable throughout the month. As of 30/06, the Fund’s running yield was at +9.9% p.a. (USD, gross) with +18.2% downside protection of the income notes allocation and 4.1-month average maturity.