23 Mar 2026 - Glenmore Asset Management - Market Commentary

The volatility of the last few months was amplified in February due to reporting season, persistent AI disruption fears and ongoing geopolitical tensions. Domestically, large caps materially outperformed small/mid caps, resulting in the All Ordinaries Accumulation Index rising +3.3% compared to a -2.6% decline in the ASX Small Ordinaries Accumulation Index. The ASX50 had an extremely strong month, increasing by +7.9%, whilst at the smaller end, the Small Ords Industrials declined -4.5%. Capital light businesses, such as software and technology companies fell sharply due to investor fears around disruption from AI, whilst resources and mining services outperformed.

In comparing the fund's performance versus the benchmark in February, it should be noted the fund has a strong small/mid cap focus. Over the long term, there is clear evidence that these companies deliver superior returns to large caps, however during periods of investor risk aversion (such as the current environment where the RBA is raising interest rates to combat inflation), investor funds typically move out of small caps to the perceived safety of large cap companies.

In the US, the tech heavy NASDAQ was weighed down by similar factors, resulting in a -3.4% decline in the month, underperforming the S&P 500 which fell -0.9%. Outside of the US, the Euro Stoxx 50 and FTSE 100 maintained their recent momentum, rising +3.2% and +6.7%, respectively.

As we have discussed, the expectation of further RBA rate hikes has continued to drive a rotation back into large caps. Bluechip names rebounded in February, including CBA (+17%), NAB (+13%), BHP (+16%) and Woolworths (+16%). Whilst the market continues to expect 1-2 more RBA rate hikes over the next 12 months, past cycles have shown that the underperformance of small/mid caps tends to bottom well before the end of a rate hiking cycle.

In bond markets, the US 10-year bond yield recorded a sharp decline, falling -30 basis points (bp) to 3.94%, whilst its Australian counterpart fell -16bp to 4.65%. The Australian dollar continued to rise, increasing +2.2% to US$0.71, implying an increase of 1.5 cents.