Australia’s best fund managers chart the course for 2026
How Australian managers are navigating the investment seas.
Last year delivered a complex backdrop for investors. Australia’s resurgent resources sector, exceptional gold performance, and strengthening industrial activity buoyed markets, when defense‑linked DroneShield stood out from the rest as the market’s top performer.
However, fast‑evolving trade negotiations, ongoing geopolitical tensions, and concerns over slowing economic growth introduced volatility and widened performance dispersions. Elsewhere in fixedincome markets, medium-term dynamism persisted as shifting interest rate expectations and an uncertain path for monetary easing confronted investors.
As we enter 2026, we draw on Morningstar’s extensive on‑the‑ground research and frequent interactions with portfolio managers across Australia to explore the key themes shaping their strategies for the year ahead.
Outlook from Australian fund managers
Australian equities were propelled by basic materials companies in 2025, in part reflecting a renewed upswing in the commodity cycle after years of underinvestment in mining and exploration, lifting prices across key industrial inputs such as copper and lithium. The Morningstar Australia Basic Materials Index returned around 36% in Australian-dollar terms, fully reversing its losses of just over 14% in 2024.
However, performance in the sector was driven by gold, whose strength reflected macroeconomic and sentiment-driven factors. Heightened uncertainty around real interest rates, episodic weakness in the US dollar, and ongoing geopolitical tensions sustained demand for defensive hedges, even as broader equity markets remained selectively risk‑on. The gold-mining industry surged by more than 120%, with gold‑leveraged names accounting for seven of the top 10 performers in Australia’s top 200 companies.
Australian REITs were also remarkably strong. Scentre Group continued its winning streak, rising almost 30%, while mega‑cap peer Goodman Group fell around 12% as the market became more cautious about the tenability of the artificial intelligence opportunity for its emerging data center portfolio. The rise of DeepSeek challenged the attractiveness of its large‑scale capacity builds, while Microsoft’s lease withdrawal further reduced occupancy visibility.
This stood in contrast to Asian and US markets, which were led by technology companies amidst the ongoing AI boom. Conversely, the Morningstar Australia Technology Index fell behind by more than 18%, giving back half the gains it made in its exceptional 2024 rally of over 40%.
On the macro front, the broader backdrop remained mixed. Recent trade truces and signs of posturing, rather than escalation, in US policy settings have been welcome developments, yet most fund managers remain reluctant to position portfolios around geopolitical shifts, which are inherently unpredictable. Emerging flashpoints—including the invasion of Venezuela and renewed grandstanding over Iran and even Greenland—continue to serve as ongoing watchpoints rather than tradable themes.
Meanwhile, the Reserve Bank of Australia cut interest rates by 75 basis points in 2025—the most aggressive easing since the covid-19 pandemic—to counter a softening growth outlook and respond to moderating inflation.
Looking past the noise: Liquidity, market structure, and the ongoing disconnect
Dr David Walsh and the team at RQI, managers of the systematically driven RQI Australian Value – Class A strategy, view the market’s continued dislocation from fundamentals as their most pressing challenge heading into 2026. He argues that ample liquidity continues to support asset prices, with investors deploying excess cash into risk assets, even as macro risks build beneath the surface.
Over 2025, factor outcomes outside of momentum were uneven and provided limited support for fundamentally anchored strategies. In the period following the April 2 tariff announcement, market dynamics have increasingly skewed toward riskier exposures—high beta, or high market‑sensitivity names and often those shorted among institutional investors on fundamental grounds. While there are tentative signs that this risk‑seeking behavior may be moderating, RQI remains cautious on the durability of any prospective rotation.
Like Walsh, Simon Mawhinney, portfolio manager responsible for the value-focused Allan Gray Australia Equity A strategy, remains skeptical that a wholesale reconnection between share prices and fundamentals has yet taken hold. That said, he is more receptive to the possibility that recent market behavior reflects the early stages of a rotation, particularly in instances where fundamentals offer some scope for validation.
In his view, however, the persistence of dislocations owes as much to market structure as to sentiment. The growing weight of passive capital continues to provide technical support to index-heavy names irrespective of underlying fundamentals, limiting the speed and breadth with which any such rotation can assert itself. Against this backdrop, Mawhinney points to a succession of destabilizing shocks over the past five years—including the covid-19 pandemic, the ongoing AI investment boom and the April 2 tariff announcement—which he believes have impaired the market’s ability to consistently price fundamentals.
While some comfort has been drawn from selective mean reversion in holdings such as Commonwealth Bank, Mawhinney argues that broader market conditions still reflect abundant liquidity and pockets of exuberance. This is most evident in the valuations of several large-capitalization names—including Goodman Group, Wesfarmers and NextDC—which, in his assessment, do not offer sufficient capital protection.
Value peer Perpetual Australian Share, led by CIO and portfolio manager Vince Pezzullo, broadly concurs that market valuations remain elevated despite pockets of normalization. The team is, however, increasingly constructive on the relative prospects for value companies into 2026, following an extended period of growth and momentum outperformance.
In contrast to more strictly valuation-led frameworks, Ausbil Australian Active Equity, led by CIO Paul Xiradis, remains focused on the outlook for earnings, with its assessment of opportunities over 2026 anchored in anticipated revisions across the market. From this perspective, the team is constructive, forecasting above-consensus earnings growth for fiscal 2026 across a diverse range of sectors, including resources—where it projects growth of 14.7%, materially ahead of prevailing expectations—alongside select diversified financial services, technology and software, and segments of pharmaceuticals and biotechnology. On the other hand, they project bank earnings to be below consensus.
Against a market backdrop that appears increasingly distorted from fundamentals, most managers remain focused on identifying specific opportunities within Australian equities.
AI: Downstream exposure amid a capital-intensive buildout
Ausbil identifies several such opportunities, with Block—a global financial-payments and digital commerce platform—standing out across multiple dimensions.
Block is viewed by Ausbil as a beneficiary of a strengthening consumer environment. The investment case rests primarily on the quality of its core, high‑margin digital finance offering, with the medium‑term acquisition of Afterpay seen as having enhanced the broader product mix and reinforced the resilience of the business model.
Beyond its consumer exposure, Ausbil also sees Block as offering a degree of indirect leverage to the AI thematic—an area where Australia’s listed equity market offers relatively limited exposure beyond data center, connectivity, and other enabling infrastructure. The launch of Block’s Goose AI Agent is expected to support both cost efficiency and revenue generation, including through enhanced customer engagement.
While Ausbil seeks derivative exposure to the AI thematic through downstream beneficiaries, many managers remain generally circumspect. Hugh Giddy and Daniel Moore of Investors Mutual WS Australian Share invest through a strict quality lens and note that the AI industry is currently in a supply‑led buildout, with billions of dollars of upfront capital already deployed despite much of the value chain continuing to generate negative earnings and free cash flow.
While they expect AI to be influential over time, they caution that tangible evidence of clearly defined, repeatable use cases and their resulting economic impact remains limited. They further note that rapid technological change shortens the economic life of deployed capital, forcing continual reinvestment and increasing the risk that excess capacity erodes returns. With large language models increasingly converging into utilitylike platforms and competitive advantages proving hard to sustain, they view AI not as a bubble but as a familiar technology cycle in which durable economics—not narrative force— will determine outcomes.
Housing: Structural supply constraints create a platform for residential recovery
Another theme emerging across portfolios is Australia’s structural housing shortage and the implications this holds for residential construction activity. Ausbil points to new housing supply remaining at its lowest level in over a decade, with a material net shortfall continuing to underpin affordability pressures.
Against this backdrop, the team at Perpetual is positioning for an upturn in residential development and activity, both domestically and offshore, which they expect to support volumes across a range of Australian-listed, housing‑exposed businesses. Reflecting this view, they are maintaining targeted exposure—particularly within environmental, social, and governance‑focused portfolios—to select building‑products and plumbing‑technology companies, including Reliance Worldwide and GWA Group.
Healthcare: Valuation reset and diverging quality views
Elsewhere, positioning has shifted in response to valuation resets among some of the market’s largest constituents, most notably within healthcare. Perpetual has moved to an overweight position in the sector for the first time in an extended period, driven by a recent decision to increase exposure to CSL after a sustained derating. Views on CSL’s outlook have diverged meaningfully among managers, following a prolonged stretch of market‑darling status, during which expectations for high and sustained earnings growth became embedded in the share price.
Mawhinney argues that while CSL has not delivered the growth implied by its 2020 valuation, those expectations were unrealistic. However, from its current base—with the share price having almost halved since 2020—Mawhinney contends that a five‑year earnings growth profile of around 6% per year is both credible and attractive, particularly relative to a broader market growing at a slower pace.
On the other side of the aisle, Platypus Australian Equities – Wholesale, led by Prasad Patkar, has taken a firmly negative view on CSL, recently exiting the position after being a long‑term supporter of the business. The decision reflects a breakdown in perceived quality, citing increased reporting opacity, remuneration adjustments that lowered return hurdles, and a deteriorating record of corporate actions and execution. More recently, shifting management communication, guidance, and expectations have further undermined Platypus’ confidence in the durability and transparency of CSL’s investment case.
