Portfolio Strategy for FY26: Balancing Growth, Cyclicals, and Defensive Quality with HUB24, Novonix, and Qantas

The 2025 financial year will be remembered as one of the most polarising in recent history. On paper, the market looked robust, but that headline masks a fractured reality. This was not a story of broad-based economic vigour. Rather, it was a rally built on a sharp monetary policy pivot that inflated a select group of defensive, quality-oriented stocks to stretched valuations. Beneath the market’s strong surface, the domestic economy stagnated, aggregate earnings fell, and cyclical sectors lagged badly. In other words, resilience was rewarded—but it came with extreme concentration risk and a widening gap between price and fundamental value. The Macro Tug-of-War: How the RBA’s Pivot to Accommodative Policy Contrasted with Persistent Economic Stagnation The dominant macro theme of FY25 was the Reserve Bank of Australia’s ability to bring inflation back into its target band. Headline CPI fell to 2.1% by June, while the core trimmed mean stood at 2.7%. That allowed the RBA to switch from tightening to easing, cutting the cash rate from 4.35% to 3.60% via three 25bp reductions in February, May, and August. But rate relief arrived in an economy still running in low gear. GDP grew just 1.3% over the year, barely recovering from a per-capita recession in late 2024. Consumers were cautious—choosing to save Stage 3 tax cuts and energy rebates rather than spend them—while business investment outside a few sectors remained muted. The bright spots were a still-strong labour market, with unemployment holding at 4.3%, and tentative signs of a housing rebound as borrowing costs eased. Wage growth slowed to 3.2%, which, when paired with falling inflation, lifted real incomes for the first time in years. Market Drivers: The Great Divide Between Defensive Safe Havens and Economically Sensitive Sectors, Highlighted by the Extraordinary Performance of CBA Defensive and quality factors dominated returns in FY25. Financials and tech led the rally, while Materials and Energy lagged. Nowhere was the skew more visible than in the performance of Commonwealth Bank of Australia. CBA’s shares soared, driving its P/E multiple near 30x, levels more commonly reserved for high-growth tech. The bank became a proxy for “safe growth,” attracting immense flows from institutional investors seeking stability amid limited alternatives. This created a concentration risk for the market, a vulnerability that could unwind sharply should sentiment shift in FY26. Valuations ended FY25 at elevated levels. Forward P/Es stretched well above historical averages, even as earnings declined. Investors were clearly pricing in a “hope trade” for FY26: a smooth soft landing and a return to growth. That leaves little buffer should the recovery falter. Sector Scorecard: How Resilience, Earnings Discipline, and Structural Tailwinds Created a Starkly Divergent Market Landscape Resources: Hit by softer iron ore, lithium, and nickel prices, with majors reporting lower profits and dividends. Financials: Banks thrived as safe havens, while insurers enjoyed hard pricing and higher investment returns. Technology: AI and data-centre investment drove strong gains, especially for firms with recurring revenue models. Consumer: Value-focused retailers outperformed, staples battled margin pressures. REITs: Benefited from falling bond yields; industrial and logistics assets in demand, offices lagged. Capital Management: Conservative overall, with dividends favoured over buybacks—though some majors bucked the trend. FY26 Outlook: How the Market Will Transition from Liquidity-Driven Gains to Earnings-Led Opportunities Across Select Sectors FY26 is shaping up as a transition year. Last year’s liquidity-driven rally will likely give way to a market more focused on earnings delivery and thematic positioning. We expect a modest domestic recovery underpinned by improving household demand, a major public and private capex cycle, and easing financial conditions. Our base case: GDP growth of 2.1–2.3%, inflation at 2.5–2.7%, and the cash rate falling to 2.85–3.35% by June 2026. Source: Investor Pulse, Research (2025) [1] Household consumption should lift as real wage gains and tax cuts filter through. Housing and construction activity are set to expand, though the government’s 1.2 million homes target by 2029 looks ambitious given persistent supply bottlenecks. Earnings Recovery: Why Positive EPS Growth Will Be Concentrated Outside Mega-Cap Banks and Miners, Creating Opportunities for Active Investors Consensus sees ASX 200 EPS growth turning positive in FY26. But that figure masks the real opportunity: mega-cap banks and miners are expected to post flat-to-low growth, while the median company within the market is forecast to deliver far stronger earnings growth. For active investors, that dispersion matters. The best opportunities are likely to come from sectors with pricing power, high operating leverage, and structural growth drivers, specialised industrials, healthcare, and selected tech, rather than low-margin, competitive industries like supermarkets. The Capex Supercycle: How Decarbonisation, Digitisation, and Public Infrastructure Will Drive a Multi-Year Investment Wave Across Australia This time, it’s not about mining. The next wave of capital expenditure is powered by two megatrends: decarbonisation and digitisation. Public infrastructure projects worth over $200 billion are in the pipeline, from transport upgrades to energy grid modernisation. “Rewiring the Nation” will channel billions into high-voltage transmission to connect renewable zones and replace coal-fired capacity. Meanwhile, the global AI boom is fuelling a data-centre buildout of unprecedented scale. Amazon Web Services alone plans to invest A$20 billion in Australian infrastructure by 2029, creating ripple effects across construction, power supply, and connectivity providers. This sets up a new class of “structural growth cyclicals”, companies that enjoy multi-year demand tailwinds but without the heavy reliance on China or commodity cycles. For investors willing to look past the index heavyweights, FY26 could be the year fundamentals finally take centre stage. Looking ahead to FY26, we expect a gradual recovery and some rotation across sectors, but the path will depend on several critical factors. Economic data will remain front and centre for the Reserve Bank of Australia. Monthly updates on inflation, employment, and retail sales will set the tone for near-term monetary policy, while quarterly National Accounts will provide a clearer picture of the economy’s underlying momentum. The RBA’s eight scheduled meetings, along with minutes and Statements on Monetary Policy, will be the main source of guidance for interest rate expectations. On the fiscal side, the Mid-Year Economic and Fiscal Outlook will signal government priorities, particularly for infrastructure and industry support programs. In parallel, energy and minerals initiatives, such as the Capacity Investment Scheme for renewables and the Critical Minerals Strategy, could be meaningful catalysts for the utilities and resources sectors. China’s Economic Moves and Industrial Demand as a Major Determinant for Australian Commodity Markets China remains a critical watch-list item for FY26. The effectiveness of Beijing’s stimulus in stabilising the property market and boosting domestic consumption will strongly influence Australian bulk commodity demand. Industrial indicators, including manufacturing PMIs and steel production, will provide early signs of where demand is heading. Trade relations, despite recent easing, remain a key area to monitor, with any resurgence of policy tensions having the potential to disrupt markets. Sector-Specific Catalysts That Will Drive Earnings Momentum Across Banks, Insurers, Healthcare, Technology, Industrials, and REITs Different sectors will react to different catalysts. Banks will be scrutinised for changes in net interest margins, loan growth, and potential credit arrears. Insurers’ profitability will hinge on the balance between ongoing hard pricing and natural catastrophe events, particularly during the summer storm season. In healthcare, clinical trial outcomes, reimbursement decisions in key overseas markets, and foreign exchange movements on offshore earnings will dominate attention. Technology companies will be evaluated on profitability milestones, AI-related contract wins, and recurring revenue quality. Industrials will be measured by order book strength, labour availability, and input cost pressures, offering a view of the domestic economy’s health. Meanwhile, REITs will remain sensitive to bond yields, property revaluations, and leasing spreads, with logistics and data centres offering the clearest growth opportunities. The Possibility of a “Stagflation-Lite” Scenario That Could Challenge Equity Valuations The main risk to our outlook is not a deep recession but a “stagflation-lite” scenario. Our base case anticipates a smooth moderation in inflation alongside a gradual recovery. However, if services inflation remains sticky or global supply shocks persist, the RBA could be forced to maintain tighter monetary policy for longer. That would slow earnings growth and challenge equity valuations, affecting both defensive and cyclical stocks. Other lower-likelihood risks, such as severe weather driving higher insurance claims, or positive developments like easing trade tensions, will also influence market outcomes. Source: Investor Pulse, Research (2025) [2] Our Portfolio Strategy That Balances Structural Growth, Cyclical Recovery, and Defensive Quality Looking ahead to FY26, we see opportunities in companies set to benefit from the domestic recovery as well as longer-term structural growth trends, while keeping a solid core allocation to high-quality, resilient businesses. Reliable compounders offer earnings stability and should be complemented by selective defensives, particularly essential infrastructure operators, where valuations still look attractive. On the cyclical side, the focus should be on the “new capex cycle” rather than traditional consumer-facing sectors, with infrastructure, grid modernisation, and data centre investment offering particularly durable opportunities. In resources, we favour a barbell approach. Copper producers are attractive for long-term electrification and AI-driven data centre demand, while low-cost iron ore producers are kept neutral given China-related headwinds. Small tactical positions in low-cost lithium and nickel producers can serve as optional recovery plays. Contractors and suppliers connected to government-backed capex cycles are also well-positioned to benefit. Within financials, insurers stand out over banks, benefiting from robust pricing cycles and higher investment yields, while banks face potential net interest margin pressure and credit risks. Prioritising Growth and Innovation Investments in Technology, Healthcare, and Data Centres to Capture Durable Earnings Opportunities Growth and innovation remain at the heart of our focus. We prioritise software businesses with strong recurring revenue and mission-critical platforms. The data centre ecosystem continues to offer attractive opportunities, from operators and developers to the supporting infrastructure like power and high-speed connectivity. In healthcare, we look for companies with innovative pipelines and resilient global demand, less affected by domestic consumer trends. For real assets and income, logistics, industrial, and data centre REITs stand out, while office and retail REITs remain less appealing. Across the board, we place more weight on dividend reliability and growth than headline yield, favouring businesses with strong, recurring cash flows. Incorporating Strategic Hedges and Diversifiers to Manage Uncertainty, Currency Risk, and Geopolitical Shocks Finally, having hedges and diversifiers in the portfolio will be key to navigating uncertainty. Companies that earn a significant portion of their revenue offshore naturally help cushion against AUD weakness if global risk sentiment falters. Low-cost gold producers can also play a valuable role, providing protection against geopolitical shocks or a broader loss of confidence in fiat currencies. Source: Investor Pulse, Research (2025) [3] Portfolio Review: Top Performers, TTM Source: Google Finance, HUB, DVP, GNP, GNG, EVN (2025) [4] Trigg Minerals Ltd (ASX: TMG) Trigg Minerals was busy in July, making solid strides with its Antimony Canyon Project in Utah. The company identified a promising new exploration target and shared updates on its partnership with Metso Ausmelt, focusing on downstream smelting technology. To support these efforts and a potential listing on a US stock exchange, Trigg successfully raised $12.5 million, attracting strong backing from global funds. There were also notable board changes, including the addition of a SPAC expert to lead the US listing plan and a former Rio Tinto executive joining the team. FY25 proved to be a pivotal year for Trigg, highlighted by a significant capital boost and a clear strategic shift towards critical minerals in the US. Looking ahead to FY26, the company is focused on advancing the Antimony Canyon project to tap into growing global demand for non-Chinese antimony supply. That said, Trigg also formally withdrew earlier foreign resource estimates for the project, acknowledging that those figures relied on unverified data, adding a cautious note around the near-term resource outlook. Hub24 Ltd (ASX: HUB) HUB24 had a standout year in the 2025 financial cycle, reinforcing its leadership in the platform space. The company posted record annual platform net inflows of $19.8 billion, marking a 25% rise compared to the previous year. A big part of this came from successfully migrating $4.0 billion in funds from Equity Trustees. This growth pushed total Funds Under Administration (FUA) to $136.4 billion by 30 June 2025, up 30% for the year. HUB24 also continued to gain ground in the market, holding the top spot for both quarterly and annual net inflows for the sixth straight quarter. The number of financial advisers on the platform grew by 13%, reaching 5,097. Looking ahead to FY26, the outlook remains positive. The company benefits from strong structural tailwinds in wealth management, high customer satisfaction, and a solid pipeline of new opportunities. That said, some analysts caution that the stock’s valuation appears stretched, and there could be a slowdown in net inflow growth as competition heats up in the sector. Develop Global Ltd (ASX: DVP) Develop Global made significant progress in the June 2025 quarter, laying the groundwork for faster growth ahead. The company recorded its first sales of copper, zinc, and lead concentrate from the newly commissioned Woodlawn mine in New South Wales. At the same time, substantial earthworks began at its Sulphur Springs project in Western Australia, accelerating the timeline for underground development. To support this faster pace, Develop secured $180 million through a capital raising in July. Over the FY25 financial year, the company successfully transitioned Woodlawn into production, with the June quarter reporting over 106,000 tonnes of ore mined and nearly 13,000 tonnes of concentrate produced. Looking ahead to FY26, the outlook is very positive. As Woodlawn moves toward its targeted 800,000 tonnes per annum run-rate and Sulphur Springs advances through its development stages, analysts anticipate the company moving into profitability. GenusPlus Group Ltd (ASX: GNP) GenusPlus Group delivered a standout performance in the first half of FY25, marking a period of strong momentum across its core power and communications infrastructure operations. Revenue jumped 33% to $333 million, while normalised EBITDA rose 25% to $27.4 million, both record figures for the group. This growth was underpinned by a string of major contract wins, including the 250MW Reeves Plains Battery Energy Storage System (BESS) project and ongoing maintenance work for Western Power. In June, the company upgraded its earnings guidance and reaffirmed expectations of at least 20% EBITDA growth for the full year. Looking ahead, GenusPlus enters FY26 with confidence, supported by a record $1.5 billion order book and a $2.2 billion tender pipeline. With Australia’s energy transition driving sustained infrastructure investment, the company is well placed to capitalise on long-term sector tailwinds. GR Engineering Services Ltd (ASX: GNG) GR Engineering Services delivered a strong first-half result for FY25, highlighting the momentum in its core operations. Revenue rose to $272.1 million, up from $187.3 million a year earlier, while EBITDA climbed to $34.5 million. Backed by $56.1 million in operating cash flow, the company lifted its interim dividend by 11% to 10.0 cents per share, fully franked. Recent wins, including an EPC contract for the Eloise Copper Expansion Project awarded in June, further strengthen the growth outlook. Management is upbeat heading into FY26, with a healthy pipeline across both the mineral processing and oil and gas services divisions. The balance sheet remains rock solid, with no debt and a net cash position of $111.8 million, giving the business plenty of financial firepower for future opportunities. Evolution Mining Ltd (ASX: EVN) Evolution Mining delivered a standout result for the first half of FY25, reporting a record statutory net profit of $365 million and an all-time high underlying EBITDA of $1.014 billion. The performance was underpinned by solid operational execution and favourable gold prices, allowing the company to lift its interim dividend by 250% to a fully franked 7.0 cents per share. In its June quarter update released on July 16, Evolution confirmed it remains firmly on track to meet full-year FY25 production guidance. Looking ahead to FY26, the company expects to produce between 710,000 and 780,000 ounces of gold and 70,000 to 80,000 tonnes of copper. Operationally, the Mungari mill expansion is progressing ahead of schedule, while growth studies at Ernest Henry and Northparkes continue to advance, reinforcing Evolution’s long-term development pipeline. SRG Global Ltd (ASX: SRG) SRG Global delivered a standout result for the first half of FY25, reporting record financials and lifting its full-year profit guidance. For the six months to 31 December 2024, the company generated $619.7 million in revenue, up 21%, and a 31% increase in underlying EBITDA to $59.0 million. This strong result was driven by excellent cash generation and the smooth integration of Diona, the company’s recent acquisition. In June, SRG Global secured $850 million in new contracts across key sectors including transport, energy, and social infrastructure, with major wins like Snowy 2.0 and the Sydney Metro. Looking ahead, the company is well-positioned for continued growth, supported by a record $3.4 billion work-in-hand and a robust $8.5 billion pipeline of opportunities, providing strong visibility into FY26 and beyond. Qantas Airways Ltd (ASX: QAN) Qantas hasn’t released its FY25 results yet, but broker consensus suggests it’s shaping up to be a strong year. UBS is forecasting a net profit of $1.68 billion and earnings per share of $1.10. On the corporate front, the airline recently announced its decision to exit Jetstar Asia, a move that will allow it to repatriate 13 aircraft and bolster its domestic network, an important step as it undertakes a capital-intensive fleet renewal program. Looking ahead to FY26, earnings growth is expected to continue, underpinned by resilient travel demand and ongoing expansion of the high-margin Qantas Loyalty business. That division is aiming for underlying EBIT of between $800 million and $1 billion by FY30. Still, there are some headwinds. Analysts are keeping a close eye on rising competition on international routes and the pressure that the fleet renewal could place on Qantas’ net debt, which is forecast to increase in the coming years. SHAPE Australia Corp Ltd (ASX: SHA) SHAPE Australia has delivered a strong trading update for FY25, lifting its full-year guidance on the back of solid operational momentum. The company now expects revenue to come in between $950 million and $960 million, up roughly 14% on FY24, with EBITDA forecast to rise around 25% to between $32.0 million and $33.0 million. This uplift reflects a year of record project wins, underpinned by growth across SHAPE’s key strategic pillars: geographic reach, capability, and sector diversification. A standout was the modular construction division, where new project wins are expected to exceed $70 million, more than double last year’s result. Looking ahead to FY26, the outlook remains positive. SHAPE enters the new financial year with a forward project pipeline valued at $4.0 billion, offering strong visibility and a solid foundation for continued growth. Perenti Ltd (ASX: PRN) Perenti delivered a solid set of results for the first half of FY25, broadly in line with market expectations. The company reported revenue of $1.73 billion and underlying EBIT(A) of $155 million. It reaffirmed full-year guidance and declared an interim dividend of 3.0 cents per share. Recent news flow has centred on strong contract momentum, including the award of a major $1.1 billion underground mining contract with Endeavour Mining in West Africa. The company also announced that free cash flow for FY25 is expected to exceed earlier guidance. This positive momentum was somewhat tempered by a claim of approximately $46 million filed by MMG against Perenti’s subsidiary Barminco, relating to a completed contract. Perenti has stated it will vigorously defend the claim. Looking ahead, the outlook for FY26 appears constructive. The company is currently in late-stage negotiations on over $2 billion in new contracts, and earnings per share are forecast to grow by more than 10%. Portfolio Review: Laggards, TTM Source: Google Finance, S32, NHC, GNC, LYL, CSL (2025) [5] South32 Ltd (ASX: S32) South32 released its June 2025 quarterly report on July 21, confirming it had exceeded group production guidance for the full FY25 year. This strong finish was underpinned by a 20% lift in copper production and a 6% increase in aluminium, enabling the company to deliver 102% of its full-year targets. In line with its strategy to streamline the portfolio, South32 also announced in July the divestment of its Cerro Matoso nickel asset in Colombia. Over the year, it returned US$350 million to shareholders through dividends and its on-market buy-back. Looking ahead to FY26, the company remains focused on advancing its key growth asset, the Hermosa project in the U.S., with broker forecasts suggesting a sharp uplift in net profit and dividends, assuming commodity markets remain favourable. New Hope Corporation Ltd (ASX: NHC) New Hope posted a strong first-half performance for FY25, with net profit after tax up 35% to $340.3 million. The result was underpinned by a 33% lift in saleable coal production and a 24% drop in unit cash costs, thanks to the continued ramp-up at its Bengalla and New Acland mines. Reflecting confidence in its outlook, the company launched a $100 million on-market share buy-back and lifted its fully franked interim dividend to 19.0 cents per share. New Hope remains on track to meet full-year guidance, with further cash generation expected as New Acland ramps up. Looking ahead to FY26, thermal coal prices will play a key role in determining performance, but the company’s low-cost operations should help sustain strong profitability and shareholder returns even as earnings normalise from recent record levels. Graincorp Ltd (ASX: GNC) GrainCorp delivered a solid performance in the first half of FY25, with underlying EBITDA rising to $202 million, up from $164 million a year earlier. The result prompted the company to upgrade its full-year earnings guidance. The strong first-half showing was driven by a large east coast harvest, especially in Queensland and northern New South Wales, which helped offset drier conditions further south. Reflecting confidence in its outlook, GrainCorp declared a 24-cent interim dividend, including a 10-cent special dividend, and expanded its on-market share buy-back program to $75 million. Looking ahead to FY26, the picture is mixed. A favourable planting window in the northern regions suggests another strong winter crop, while the outlook for Victoria and southern NSW remains uncertain due to patchy rainfall. While we expect earnings to continue growing, revenue may soften as part of the industry’s usual seasonal swings. Lycopodium Ltd (ASX: LYL) Lycopodium’s first half of FY25 results reflected some challenges, with revenue down 6% to $167.4 million and net profit after tax falling 16% to $25.2 million compared to the same period last year. Despite this softer performance, the company remains confident, maintaining full-year revenue guidance between $320 million and $340 million and declaring an interim dividend of 10 cents per share. A key highlight was securing the EPCM contract for OreCorp’s Nyanzaga Gold Project in Tanzania, announced at the end of July. Looking ahead to FY26, much will depend on how well Lycopodium executes its major projects pipeline, including Nyanzaga and the Koné Gold Project in Côte d’Ivoire, as it continues to strengthen its focus on core EPCM services within the global resources sector. CSL Ltd (ASX: CSL) CSL released its half-year results for FY25 in February, highlighting a 5% revenue growth at constant currency to $8.48 billion. This growth was primarily driven by a strong 15% rise in sales of its core immunoglobulin products, although some headwinds came from the Seqirus vaccine business, which faced challenges due to low immunisation rates. The company confirmed its full-year guidance, expecting net profit after tax at constant currency (NPATA) to grow between 10% and 13%. A notable recent milestone was the FDA approval of its Andembry product in June, which adds to CSL’s growth story. Looking ahead to FY26, the outlook remains positive, with forecasts suggesting NPAT growth around 14-15%. This is expected to be supported by a recovery in plasma collection volumes, new product launches from its R&D pipeline, and improved performance in the Seqirus division. GQG Partners Inc (ASX: GQG) GQG Partners continues to build strong momentum, with their monthly updates reflecting steady growth in Funds Under Management (FUM). By the end of May 2025, FUM had reached USD 168.5 billion, supported by solid net inflows of USD 7.4 billion during the first five months of the year. A key recent development was the launch of the company’s first Exchange Traded Fund (ETF) in the US market this past July. Looking ahead, GQG is set to release its half-year results for the period ending June 30, 2025, on August 22. For FY26, the outlook points to continued growth in FUM, though at a more moderate pace. Analysts expect earnings per share to grow modestly, around 6% annually, while the stock’s attractive dividend yield remains a central part of its appeal for shareholders. Pilbara Minerals Ltd (ASX: PLS) Pilbara Minerals showed a solid operational rebound in the June quarter of FY25, with spodumene concentrate production jumping 77% quarter-on-quarter to 221,300 tonnes after completing its P1000 expansion. Over the full FY25 year, the company beat its production targets, delivering 754,600 tonnes. However, financial results were weighed down by tough lithium market conditions, as the average realised price dropped 43% year-on-year to US$672 per tonne. Despite this, Pilbara Minerals maintained a strong balance sheet, finishing the year with around $1.0 billion in cash. Looking ahead to FY26, the company is optimistic operationally, expecting higher production volumes and lower unit costs as the expanded Pilgangoora operation ramps up, putting it in a good position to benefit should lithium prices recover. Novonix Ltd (ASX: NVX) Novonix is making strong moves to become a key supplier of synthetic graphite for the growing North American battery supply chain. A major step came on July 23, when the company announced a funding agreement for up to USD 100 million in convertible debentures, which will help fuel its growth plans. Recent US trade policies have also played in Novonix’s favour, with the Department of Commerce imposing steep antidumping tariffs on Chinese graphite, the company’s US-based production is becoming more cost-competitive. While FY25 results are still pending, operational updates show steady progress on the Riverside facility in Tennessee, positioning Novonix to meet supply commitments with major customers like Panasonic Energy. Looking ahead to FY26, the focus is on scaling up commercial production and tapping into the strong demand for locally made, high-performance battery materials. Overall, the long-term outlook remains optimistic. Austin Engineering Ltd (ASX: ANG) Austin Engineering shared an update on its 2025 financial year in June, raising its revenue guidance to around $370 million, an 18% jump from FY24. This growth was largely driven by strong results in its Americas division, especially in the USA, where a recent capacity expansion has allowed the company to fulfill more orders. On the other hand, the company lowered its underlying EBIT guidance from about $50 million to roughly $41 million. This revision reflects margin pressures on a large, multi-year contract in Chile, where a significant production ramp-up has put a strain on local capacity. To tackle this, Austin is shifting some of this production to its Batam facility in Indonesia. Looking ahead to FY26, the company plans to focus on boosting operational efficiencies and margins in both Chile and the USA, supported by a solid group order book that remains strong at over $200 million.