Led by a buoyant Wall Street, the Australian share market hit a record high at the end of January. Our model portfolios followed suit and recorded solid gains for the month.
At the beginning of the year, we updated our portfolios for 2025. There are two model portfolios – an income oriented portfolio and a growth portfolio. The objectives, methodology, construction rules and underlying economic assumptions can be referenced here: (see: https://switzerreport.com.au/our-portfolios-for-2025/)
These are long-only model portfolios, and as such, they are assumed to be fully invested at all times. They are not “actively managed”, although adjustments are made from time to time.
In this article, we look at how they have performed so far in 2025. To do so, we will start by examining how the overall market has fared.
Financials lead, small caps do better
The tables below show the performances in January of the components (large cap, small cap etc.) and industry sectors that make up the Australian share market.
Reversing the trend of 2024 and buoyed by the expectation of falling interest rates, small caps performed relatively better than big caps in January. Small caps (stocks ranked 101st to 300th by market capitalization) recorded a gain of 4.6%, while big caps (the top 20 stocks) returned 4.0%.
The best performing component of the market was mid-caps (as measured by the Midcap 50 index which tracks stocks ranked 51st to 100th by market capitalization), which rose by 5.6%.
Market Component Performance
With the industry sectors, the largest sector by market weight, financials, which makes up 34.2% of the overall S&P/ASX 200 index, continued to lead with a gain of 6.1%. The prospect of a cut in interest rates boosted consumer discretionary and real estate, with the former recording the strongest gain of 7.1%.
Subdued commodity prices (with the exception of gold and other precious metals) weighed on the materials and energy sectors, while the tiny utilities sector delivered the only negative return of -2.4%.
Consumer staples was also soft, posting a flat return of 0.7%.
Industry Sector Weighting and Performance
Portfolio Performance in 2025
The income portfolio to 31 January has returned 3.15% and the growth oriented portfolio has returned 3.52% (see tables at the end). Compared to the benchmark S&P/ASX 200 Accumulation Index (which adds back income from dividends), the income portfolio has underperformed by 1.42% and the growth portfolio by 1.05%.
Income Portfolio
The objective of the income portfolio is to deliver tax advantaged income whilst broadly tracking the S&P/ASX 200.
The income portfolio is forecast to deliver an income return of 4.3% (based on its opening value at the start of the year), franked to 71.2%.
The portfolio has a defensive orientation and a bias to yield style stocks. On a sector basis, the biases are fairly minor. It is overweight consumer services and utilities (in order to find income), and marginally underweight financials (particularly the major banks), given our view that Australian banks are expensive. It is underweight information technology (where there are very few medium yielding stocks). It is marginally overweight materials and energy.
In a bull market, we expect that the income portfolio will underperform relative to the broader market due to the underweight position in growth oriented sectors and the stock selections being more defensive, and conversely in a bear market, it should moderately outperform.
In the month of January, the income portfolio returned 3.15%, underperforming the benchmark index by 1.42%.
No changes to the portfolio are proposed at this point in time.
The income biased portfolio per $100,000 invested (using prices as at the close of business on 31 January 2025) is as follows:
Growth Portfolio
The objective of the growth portfolio is to outperform the S&P/ASX 200 market over the medium term, whilst closely tracking the index.
The growth portfolio in 2025 is moderately overweight communication services, health care, materials and information technology. It is underweight financials (particularly the major banks), consumer discretionary, industrials, real estate and utilities.
A major inclusion is the Betashares Portfolio Diversifier, EX20, weighted at 10% ($10,000). This ETF invests on an index-weight basis in stocks outside the top 20, providing ready and diversified exposure to mid and small cap stocks.
In the month of January, the growth portfolio returned 3.52%, underperforming the benchmark index by 1.05%.
No changes are proposed to the portfolio at this point in time.
Our growth oriented portfolio per $100,000 invested (using prices as at the close of business on 31 January 2025) is as follows:
