Commentary from Industry Leaders

Below are key takeaways on an update from Phil Knight, CIO of Long Short Equities from Regal:

• Market volatility creating opportunities: July's sharp sell-off was driven primarily by leverage and forced selling rather than deteriorating fundamentals. As de-leveraging events become shorter and sharper, these periods continue to create attractive buying opportunities for long-term investors.

• AI investment remains a structural growth theme: Despite volatility across AI-related equities, hyperscaler capital expenditure continues to accelerate. Regal remains focused on the long-term beneficiaries of this investment cycle, including semiconductor manufacturers and critical infrastructure providers.

• Copper outlook supported by structural demand: Copper remains one of Regal's highest-conviction commodity themes, underpinned by growing demand from AI, electrification and grid infrastructure investment, alongside a constrained long-term supply outlook.

• Australian small caps offer compelling value: There is a significant valuation gap between Australian large and small caps, with takeover activity beginning to emerge as investors recognise value across the small-cap universe.

• AI reshaping funds management: While AI will continue to improve productivity and market efficiency across the investment industry, sustainable competitive advantages are expected to increasingly come from specialised strategies, private markets and niche investment opportunities.

• Capital gains tax changes may reduce market efficiency: Australia's recent capital gains tax changes could discourage capital from flowing into higher-growth sectors, potentially reducing market efficiency and weighing on long-term investment returns.

Podcast Series

Our partners at Clime Investment Management release a weekly podcast covering the latest market and economic insights.

This week John and Michael cover AI, data centres and the property market. 

Click the preview below to tune in.

Economic News

Australia's property downturn, which began in Sydney and Melbourne's most expensive suburbs, has now spread almost everywhere and even smaller capitals once thought safe from big falls are being dragged in. In Sydney and Melbourne, around 97-98% of suburbs recorded price falls over the past three months, while in Adelaide, Perth and Brisbane, between half and two-thirds of suburbs also declined, a sharp reversal after strong growth the year before.

Nationally, average prices fell 0.7% last month, the biggest monthly drop since December 2022 and NAB expects Sydney and Melbourne could fall as much as 9% overall. The trigger is a combination of three interest rate rises this year and May budget changes that wound back negative gearing and capital gains tax concessions for investors buying existing homes, changes that hit hardest in markets like Perth, Brisbane and Adelaide, which had been propped up by investors chasing capital growth.

The uncertainty is now expanding further as sellers in the smaller capitals are rushing to list before conditions worsen (listings rose 13% in July), while in Sydney and Melbourne, listings actually fell 16% as would-be sellers hold off. There are also early signs the slump is denting broader consumer confidence, retailers like Myer have pointed to the weaker housing market as a reason shoppers are tightening their spending, a "wealth effect" where falling home values make people feel poorer. This puts the government in an awkward position because it wants credit for making housing more affordable for younger buyers, but is wary of being blamed for spooking the market or eroding the wealth of existing homeowners.

Market Snapshot

• Australia: The ASX has recovered some losses from this morning. 

• United States: Dow -0.9%, S&P 500 -0.2%, Nasdaq -0.1%. 

• Bonds: US 10-year yield at 4.68% and Australian 10-year yield at 4.92%.  

• Gold: Slightly declined overnight.

Investment Opportunity

Opportunity Overview

A specialist APAC credit hedge fund is proposing an ASX-listed LIT feeder structure (Australian Unit Trust) into its existing Asia credit fund, targeting wholesale investors only. Strategy has traded since July 2019.

Manager

Specialist active investment firm, 28+ years' track record, ~$3.2bn AUM, offices in Sydney, Melbourne, Brisbane and Singapore. Portfolio Manager has 15+ years' Asia investing experience (12 years at a global multi-strategy hedge fund).

Strategy

• Long/short, bottom-up fundamental credit: USD-denominated Investment Grade and High Yield APAC corporate/sovereign bonds.

• Return drivers: Value mispricing + event-driven catalysts (refinancing, restructuring, M&A, IPO, ratings changes), plus selective new-issue participation.

• FX hedged to AUD; shorts (index/sovereign CDS) used defensively, not for alpha

• Strong downside discipline: Fully avoided China property developers through the 2021–23 sector dislocation.

Performance (net, to June 2026)

• 3-yr annualised: 12.4% return / 6.8% volatility.

• Since inception: 76.6% cumulative vs 13.6% for a 50/50 Asia HY/IG benchmark.

• Outperformed Asia HY index by ~7% p.a. and Asia IG by ~6% p.a. net of fees since inception.

• Low correlation to equities (0.38 to S&P 500).

Fund characteristics

• Target yield: 10–12% gross YTM; ~8% p.a. distributions, paid monthly.

• Average credit rating BB+; 40–50 issuers, 60–70 securities.

• Highly liquid — 1–2 day liquidation, hourly mark-to-market, 100% Level 1/2 assets.

• Modest duration (~3.2) and low rate/spread sensitivity.

Portfolio fit

Modelling shows adding the strategy (replacing ~15% of a fixed interest allocation) improves both return and volatility across 1–4 year horizons in a balanced portfolio.