Hot Money Monday: How Aussie fundies will play it smart on the ASX this year

Aussie fundies are shifting gears in 2025, eyeing bonds, and both large and small caps are in play.

Aussie fundies are seriously strategising for 2025. Pic via Getty Images

• Aussie fundies are making tactical moves in 2025

• Bonds could be one move to make

• Large cap and small cap stocks both have potential

As we settle into 2025, Australian investors are bracing for another unpredictable year.

With global economic uncertainty, tariffs and geopolitical jitters, the markets could be a tricky place to navigate.

Morningstar’s latest research has revealed what’s top of mind for Aussie fund managers, and which sectors and stocks they think could shine.

First, fixed income

2024 wasn’t a banner year for Aussie bonds, but they still posted a solid 2.93% return. Global bonds were in the same boat, with the Bloomberg Global Index at 2.72%.

The corporate credit scene had some wins, especially in banking. Banks stayed profitable, capital ratios stayed solid and shorter-duration bank bonds outperformed.

Morningstar’s analyst Ibrahim Guled-Warfield said “positioning in Australian fixed-income markets has become especially beneficial for managers”.

He added that credit spreads are tightening, so active bond strategies could be looking even better in 2025.

For example, PIMCO’s Australian Bond Fund is sticking with high-quality bonds, especially in banking, which remains strong post-GFC (global financial crisis).

And here’s the most interesting part.

Talk of a possible easing cycle by the RBA makes long-duration bonds more appealing, especially with 10-year Aussie bonds around 4.4% in late January.

Note that lower interest rates mean higher bond prices, and vice versa.

UBS is bullish on Aussie bonds, while New Zealand is also in the mix for rate cuts.

But not everyone’s on the same page.

Franklin Templeton thinks rate cuts may be premature given Australia’s strong employment and inflation.

“There is little rush to cut,” they say, positioning for a steeper yield curve through 2025.

Equities: Large and small, both have their play

Large-caps – the key themes

2024 wasn’t a walk in the park for Australian equities. While the S&P/ASX 200 managed a solid 11.44% return, the story was really a mixed bag.

Energy stocks took a hit, down 14%, due to worries over global demand. On the other hand, tech stocks exploded, up nearly 50%, thanks to the AI boom.

Financials surged, too, up 34%, bolstered by the resilient Aussie property market.

Looking ahead to 2025, fund managers are keeping a close eye on a few key themes.

Martin Conlon and Andrew Fleming of Schroders have their sights set on the Chinese economy and its impact on Australian commodities.

“Schroders’ team highlights Alcoa Corporation (ASX:AAI) and South32 (ASX:S32) as compelling investment cases,” said Guled-Warfield, adding they have a focus on iron ore, bauxite, and alumina.

The outlook for iron ore is shaky due to declining Chinese steel demand, but alumina’s stable demand makes Alcoa and South32 attractive plays.

Meanwhile, Crispin Murray and his team at Pendal are all about structural changes and identifying companies benefiting from those shifts.

They see Qantas (ASX:QAN) as a key stock for 2025, thanks to post-pandemic efficiency and consolidation.

For Hyperion Australian Growth, tech is the name of the game.

Their tech-heavy portfolio, with stocks like Xero (ASX:XRO), Block Inc (ASX:SQ2), and WiseTech Global (ASX:WTC), has been a top performer.

And they’re looking at Guzman y Gomez (ASX:GYG) for strong growth ahead, with the potential for a three-fold increase in stores over the next decade, Guled-Warfield added.

Small caps: A little more risk, a lot more reward

Small-cap stocks didn’t have the best year in 2024, underperforming the large-cap stocks by around 3%.

But managers say the sector is looking undervalued and ripe for picking in 2025.

Phillip Hudak and Matt Griffin from Maple-Brown Abbott are particularly optimistic. They point out that the market is pricing in rate cuts for 2025, which should boost small-cap stocks.

Hansen Technologies (ASX:HSN), with its strong cash flow and high margins, is a standout in their eyes.

Dawn Kanelleas and her team at First Sentier are also bullish on small-caps.

They’re positioning their portfolio to benefit from companies with solid fundamentals like Breville (ASX:BRG) and NextDC (ASX:NXT).

“Management quality is the foremost basis for investment,” Kanelleas says, which is why Breville’s innovation in product design and supply chain structure makes it a top pick.

The views, information, or opinions expressed in this article are solely those of the analysts mentioned and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article. 

Originally published as Hot Money Monday: How Aussie fundies will play it smart on the ASX this year