The ASX All Ords (inc. dividends) rose 3.2% in August and our key portfolios outperformed, with Growth +4.5%, Balanced +5.4% and High Conviction +5.6%. This brings the quarterly returns to 12-15% (All Ords 7%) and the rolling one year returns to 14-25% (All Ords 15%). The patient investor continues to be rewarded. We have been taking profits into strength and cash weightings remain elevated at 15-18%. Giving us flexibility to take advantage of opportunities as they arise.
Macro Backdrop
Equities were supported by an improving earnings outlook, easier monetary policy, ongoing fiscal spending, and strong private investment in technology and quality growth sectors. Softer U.S. labour data and Powell’s Jackson Hole remarks confirmed the Fed’s pivot toward supporting growth, reinforcing expectations for rate cuts. Stimulus in key regions, including China, also helped sustain risk appetite. In Australia, the RBA cut the cash rate by 25bps to 3.60% with a more dovish tone, revising down growth expectations and noting signs of easing in the labour market. Inflation remains within the 2–3% target band, though momentum has slowed, while housing activity and consumer confidence have improved on easier borrowing conditions. Against this backdrop, earnings season showed resilience and market breadth widened, with small caps beginning to deliver stronger profit growth and share price performance.
The Passive Bubble
A rising share of capital is being blindly funnelled into index ETFs, which buy companies based on index weight rather than fundamentals. ETFs are designed to provide market returns for a low fee, not outperform it. This has created crowding in areas like Australian large caps and USA tech, where some valuations have stretched well beyond fundamentals. As markets rise, passive flows chase momentum, pushing some prices further from fair value. This brings risks for ETF investors (e.g. low margin of safety and forced selling in down markets) but for active managers like us, it creates opportunity. We do the work, meet management, and avoid crowded names where risk/reward is poor. We also focus on quality businesses where fundamentals drive returns, or position early before ETF flows arrive. By staying disciplined and active, we aim to protect clients from the risks of the passive bubble and capture the mispricings it creates – a clear advantage as passive money dominates markets.
August Newsletters
Outlook
With high cash levels and portfolios tilted toward quality companies in sectors benefiting from structural change, we are well positioned to take advantage of opportunities. The combination of disciplined stock selection, strong balance sheets in core holdings, and exposure to emerging growth trends gives us confidence in continuing to deliver attractive long term returns. The Endeavor Team
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*Note: Performance of the strategy group is representative of individual client portfolios, although performance can differ due to inherent differences between clients portfolios such as initial entry timing, legacy holdings or requested stock exclusions. Performance measured is after fees, taxes and franking credits. Monthly performance figures include an accrual for fees charged quarterly.
