Q1 InvestorPulse Wealth Update: Strategic Divestments and 2026 Market Outlook

As we navigate the second quarter of 2026, we are proactively adjusting our portfolio to align with a shifting macroeconomic Hi Eason, *Q1 InvestorPulse Wealth Update: Strategic Divestments and 2026 Market Outlook* As we navigate the second quarter of 2026, we are proactively adjusting our portfolio to align with a shifting macroeconomic environment. The ASX 200 has recently faced headwinds, drifting lower as persistent inflation, now tracking at 4.6% to 4.8% annually, and heightened energy security concerns weigh on investor sentiment. With the Reserve Bank of Australia potentially looking to increase the cash rate to curb sticky services inflation, we believe now is the time to crystallize gains in large cap names that have reached full valuation. Our current positioning reflects a pivot toward "high quality value." Specifically, we continue to favour small and medium cap industrials, which are currently trading at their largest valuation discount to large caps in over two decades. While the ASX 50 remains expensive at roughly 18x forward earnings, the Small Ordinaries have de-rated to approximately 14x, offering a rare opportunity to capture superior earnings growth at a significant discount. Against this backdrop, our portfolios continue to demonstrate resilience and outperform the benchmark with optimized risk-adjusted returns. Our *Growth Portfolio* has delivered an exceptional *176.6%** over the past five years, maintaining its momentum with a *44%* *** return on a rolling 12-month basis (including reinvested dividends). Similarly, our *Income Portfolio* has proven its yield-generating strength, returning *43.6%** over the past three years and rising *9.3%** over the last 12 months. Our *Balanced Portfolio* , focused on risk-adjusted capital returns and a superior income yield exceeding *3.5%** , also continues to beat the market, gaining *25.6%** over the past year including dividend reinvestment. *Past performance is not indicative of future performance Below is the rationale for our recent SELLS and move into CASH, across our Growth, Income, and Balanced portfolios: *Financials & Wealth Management* *HUB24 Limited (ASX: HUB):* While HUB24 delivered a robust FY25 with underlying NPAT rising 44% to $97.8 million and Funds Under Administration (FUA) hitting a $136 billion milestone, we are closing this position to lock in capital amidst a maturing growth cycle. The platform market is becoming increasingly saturated, and with the 47% dividend hike already priced in, the immediate catalysts for further outsized expansion have moderated. We are transitioning away from high-multiple growth stocks as broader market volatility increases. *National Australia Bank Limited (ASX: NAB):* We are exiting NAB following its Q1 2026 update, which highlighted a net interest margin (NIM) of 1.8%. Despite this slight resilience, asset quality pressures are mounting, with non-performing loans climbing to $11.7 billion by the end of 2025. With a P/E ratio significantly higher than the global bank average and a softening net profit margin (down from 35.5% to 33.9%), the risk-to-reward profile has shifted toward the downside as credit growth in the Australian market slows. *Macquarie Group Limited (ASX: MQG):* Macquarie's recent interim report showed a profit of $1.65 billion, a 21% decrease from the previous half. While the Commodities and Global Markets (CGM) division remains a powerhouse, the Banking and Financial Services arm is facing margin compression due to intense domestic lending competition. We have decided to close this position to de-risk our exposure to global capital market fluctuations and the higher operating expenses tied to their ongoing digital transformation. *Energy & Resources* *New Hope Corporation Limited (ASX: NHC):* The investment thesis for New Hope has reached its conclusion as thermal coal prices continue to normalize from post-pandemic peaks. The company recently reported a significant 84% decline in half-year NPAT to $54.3 million. Although production at Bengalla remains stable, the era of "windfall" pricing has passed, and with the sector facing broader ESG-related headwinds, we are capturing our gains and exiting before further earnings compression occurs. *Santos Limited (ASX: STO):* Santos delivered a solid FY25 with $1.8 billion in free cash flow and successfully de-risked major projects like Barossa and Darwin LNG, which saw first cargo in early 2026. However, with unit production costs already at a decade-low of $6.78 per boe, the "easy" operational gains have been realized. We are closing this position as the company enters a transition phase focused on head-count reduction and rightsizing, preferring to step aside during this corporate restructuring. *Woodside Energy Group Ltd (ASX: WDS):* Woodside has benefited significantly from a tight LNG market, but we are closing the trade following the achievement of key milestones in their production ramp-up. Current macro conditions suggest a potential softening in global energy demand heading into late 2026. Given the significant capital expenditure required for future projects, we believe the current valuation fully reflects the success of their recent merger and project delivery. *Infrastructure & Logistics* *Ventia Services Group Limited (ASX: VNT):* Ventia has performed exceptionally well, underpinned by a defensive contract profile in essential services. However, as interest rates remain "higher for longer," the cost of servicing debt for infrastructure-heavy models is becoming a more prominent headwind. We are closing this position to rotate capital into sectors with higher growth sensitivity, as the valuation has reached our internal fair value targets based on FY25 earnings. *Brambles Limited (ASX: BXB):* Brambles reported a strong 1H26 with underlying profit up 7% and an upgraded free cash flow guidance of up to $1.1 billion. While their "Brambles of the Future" digital initiative is yielding efficiency, the flat volumes in like-for-like sales reflect a weakening global consumer demand. We are exiting the position to capture the upside from their recent share buy-back program before slowing global trade volumes impact pallet demand. *Service Stream Limited (ASX: SSM):* Service Stream's FY26 half-year results showed a massive 55% increase in their work-in-hand order book to $9.2 billion. Despite this, the stock has faced selling pressure following its dividend distribution in February 2026. We have decided to exit as the expansion into the Defence sector requires significant upfront investment, which may weigh on short-term cash realization despite the healthy $87.6 million net cash position. *Consumer & Real Estate* *Stockland (ASX: SGP):* The residential property market is facing persistent headwinds from high borrowing costs and a tightening credit environment. While Stockland has diversified its portfolio, the macro-outlook for 2026 remains clouded by sluggish consumer sentiment and rising construction costs. We are closing this position to reduce our exposure to the sensitive Australian interest rate cycle and the potential for slowing settlement volumes. *Universal Store Holdings Limited (ASX: UNI):* Youth fashion retail is feeling the pinch of reduced discretionary spending. Although Universal Store has managed its inventory well, the broader trend in the 2026 retail landscape is one of cautious consumption. With cost-of-living pressures remaining a primary concern for their core demographic, we are exiting the trade to avoid the volatility of the upcoming reporting season. *Metcash Limited (ASX: MTS):* Metcash reported a 5.9% decrease in underlying profit to $126.7 million for the last half, despite growth in their food and liquor pillars. The rapid decline in tobacco sales and intense competition from larger supermarket chains are squeezing margins. While their digital marketplace "Sorted" is growing, it is not yet enough to offset the earnings pressure in their core hardware and grocery divisions, leading to our decision to sell. *Transportation & Diversified* *Qantas Airways Limited (ASX: QAN):* In an April 2026 market update, Qantas warned that jet fuel costs for the second half of the year are expected to hit $3.1–$3.3 billion due to geopolitical volatility. While they have successfully increased fares to mitigate this, the reduction in domestic capacity and the suspension of their buy-back program signal a more defensive stance. We are closing our position to protect capital against the rising risk of an oil price shock. *Betashares Australian Dividend Harvester Active ETF (ASX: HVST):* This ETF has provided consistent monthly income, but the fund's heavy weighting toward financials (35.9%) and materials (25.5%) makes it vulnerable to the specific margin pressures we are seeing in the banking and mining sectors. We are closing this position to move toward a more concentrated, direct equity strategy in undervalued small-cap industrials rather than a broad-based yield harvester. *We have started to redeploy capital into opportunities where valuations remain attractive, and price action provides a favourable entry point. As markets adjust to shifting sentiment driven by international events, the case for owning high quality companies with strong cash flow generation becomes even more compelling.* *Rather than deploying capital indiscriminately, we are taking a measured approach - using market volatility to identify and build positions in businesses where the long-term fundamentals remain strong, but short-term price action has become more attractive.* Mark Elzayed, CIO *Complimentary Portfolio Review* If you would like to arrange *your Free Portfolio Review, please reply or click here* ( mark.elzayed@investorpulse.com.au ). 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