Monthly Market Update – Jul 2026

Fixed Income

• Fortlake truly flying now, the dip a year ago was a mega buying opportunity.
• Names at the bottom of the table represent duration - long end of the curve is flying and hitting multi-decade highs.
• So anyone want to tell me when US dollars come back into demand?
  • I don't think it will be structural demand, but I can see a month or 3 where a "flight to quality" leads to duration rallying.
  • Lots of geopolitical things floating about means it is a catalyst rich environment.
  • Ultimately you have 2 options:
    • Either make a trade here with the view that a catalyst kicks in, and trade duration back out, OR
    • You just accept higher volatility.
  • I don't like either trade.

Private Credit

• Lots of questions about property/development lending and very few actual honest answers.
• You need to make your own conclusions.
• "Loan underwriting" doing lots of heavy lifting at the moment.
  • The quality of loan underwriting doesn't matter if you cannot sell assets outside firesale price - exits and settlement matter.
• One of the best trades in the last decade was buying residual stock apartments at cost. This was also the private credit escape route, and one relied upon more than people realise.
  • This pathway is dead with the negative gearing rule changes.

Domestic Large Cap

• Lots of funds managed to catch a break this month.
• Avoiding tech and holding healthcare was extremely helpful.
• 3 funds now that have generated negative returns over 5 years, absolutely painful event for investors.
  • This would be mums & dads invested in an "active fund" for better risk management and the opportunity to outperform.
  • How they're still running money amazes me, some of the hardest working BDMs in Australia!

Domestic Mid/Small Cap

• Bennelong -8%pa over 5 years, -34% cumulative, insane!
• Crazy month for many funds, Regal down an impressive -16%, amazing considering the market was nowhere near this number but also part of the price with that fund.
• Tax changes are not helpful for this part of the market.

• Crazy amounts of capital leaving this sector, and I think there are some interesting opportunities popping up again.

International Equities

• "Quality" finally gets the reprieve it's been looking for, biggest bounce in the longest time. Sell the rip?
• Flipside is the bottom of the list this month was merely the ones who had the largest exposure to memory names.
• Quality managers will have you know that the bounce is in, and the growth tech managers will tell you it is an opportunity.
• Do you want to make a call on which is more structural? "Quality compounders" or the AI trade?
• Or do you just go the index and not worry about this?
  • Even better, do you just go buy NASDAQ?

Infra + REITs

• Was the infra sell-off related to rates or AI?
• Interestingly, the more I speak to family offices and larger private wealth groups, the keener they are on allocating to the private version of these public vehicles. Fair enough - similar returns without the vol.

Other

• The systematic fund bounce continues.
• Resources names got slapped around last month. Part AI risk off, part gold risk off, part the market just needing to take a breather when it's up 2x in a year.
  • Dip buying opportunity anyone?
  • It's the only geopolitical hedge with positive carry.

GICS Sectors

• Energy with a ripsnorter month as investors are waking up to the notion that the Straits are probably relevant for Energy markets.
• Banks bounced again post 30-Jun.
• Healthcare rallying again, though a -40% 1Yr return is unusual.
  • A -25% year in small caps makes you think hmm, let alone a -40% in a large cap sector.
• Aussie tech a story in terrible governance.
  • Sector for the longest time has had its own (lack of) rules, as growth has meant everyone has turned a blind eye to tech CEO shenanigans.
  • A comment for all jurisdictions, and it covers everything from stock issuance to control rights to efficient uses of capital.
  • The time for letting tech management idiocy slide is over.

Crypto

• -50% 1yr now for Bitcoin!
  • Still challenged though - institutional ownership keeps climbing while the all-important retail participation is non-existent.
  • Why invest in crypto when you can just invest in memory stocks?

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Thoughts of the Month

The Path to 3% - Part II

This is Part II of my comments on inflation I made 6 months ago.

Mission Accomplished

Firstly, mission accomplished from me. I said "June seems to be pinned around 3.8% annualised too" and managed to nail it - Chris Joye would be proud of me.

Source: ABS monthly CPI indicator.
Jul-25 outlined which is going to be replaced by a new month on 26 Aug.

From the above table you can see that 1.31% from Jul-25 is about to roll off, and if Jul-26 prints +0.5% or lower, we get to below 3% CPI.

And if that happens, in the words of the great George Bush Jr, mission accomplished.

It's the motion of the ocean, not the size of the boat

So that's my ballsy call: inflation goes below 3% at the next release. It is a call I will brag about but of little risk to me if I get it wrong.

But even if I am wrong, I am going to be directionally correct, which is what matters when thinking about allocating. Pathway below.

Annual CPI for the next six months at different CPI run-rates. Anchored to Jun-26 ABS actual.

So we get to 3% (or near it) briefly, after which reality slowly bleeds back in over a few months and we head back towards 4% inflation.

If inflation dips to 3%, everyone is going to think inflation is solved and rate cuts are coming. Think about the impact to:

• RBA signalling.
• Aus bond yields.
• Inflation expectations.
• Confidence in property.
• Consumer spending.

And what happens to the above items as inflation actually remains persistent through the rest of the year and rate cut expectations disappear again?

There is a bit of a trade here maybe, if you are ballsy enough? But at the same time, I'm not sure there is enough juice in it and frankly it is a whipsaw.

Pain and our inability to take enough medicine

The RBA had the least restrictive policy setting relative to other comparable economies in the previous rate cycle.

Since the start of the previous rate cycle (2022), we've had 2 quarters below 3% trimmed mean inflation. TWO! None below the midpoint test.

Can we call it what it is? Because it looks awfully like policy failure.

And the problem is going to persist as everyday Australians suffer over the long run because we couldn't fix the problems in the short term.

If we use Jun-21 as the baseline, inflation has averaged 4.41%pa (!) for half a decade, meaning the price level has increased from 100 to 124.1. A 3% increase in inflation today is 3.7% in Jun-21 dollars.

This is the absolute worst part of inflation: a +3% CPI is point in time, but the price level continues to increase and never goes backwards. A permanent erosion of utility.

If you earn a salary, I hope you're on a +25% higher wage than during covid, otherwise you've truly gone backwards.

The worst off

Absolutely everyone reading this can agree that they know more people retiring in the next 5 years than in the last decade.

Say you retired in June 2021 with $1m. Assuming no return, that $1m has the same buying power as $806k. Or alternatively, you need your portfolio to have reached $1.241m to have the same buying power.

Inflation ran at 4.41%pa over the last 5 years, while investing in cash (let's use Betashares AAA here) has run at 3.24%pa over the same period. Negative real return.

Let's say you wanted to preserve real capital while drawing 5%pa (the minimum pension). That portfolio had to have generated +9.6%pa over the same period. Vanguard High Growth Index Fund (90/10 growth/defensive) did +9.1%pa.

This is brutal, and anecdotally highlights the reason why I've heard of retirees either going back to work or cutting back on spending significantly. I've heard of 2 cases of retirees running out of super early.

The future

The inflation pathway isn't smooth, and lots can happen between now and then (then being the future).

• I think we go back above 3.5% CPI by Nov-26.
• Then under 3.5% at the end of 2026.
• Then we dip below 3% (even flirt with 2%!) by Mar/Apr 2027 as the base effects from the Iran War fuel spike disappear.
• CPI goes back to 3.5% by this time next year.

The same bands over the full window. Every path dips below 3% at some point; only the 1.81%pa path stays there. The excise laps in Aug-27, from which point annual CPI equals the underlying annualised rate.

If the RBA can get average running inflation to 2.5% (+0.2% per month), then we're back within the 2-3% band by December 2026 and can talk about rate cuts.

And therein lies the story. We might get to 3% or lower in the next 12 months, perhaps even more than once. But if we flirt with monthly inflation staying around 3% implied (+0.25% per month), then we mechanically cannot get to under 3% CPI persistently until July 2027.

This means rate cuts remain unlikely until next year.

Now imagine if we get another exogenous inflation shock. AI build out led inflation, Oil & Gas supply nonsense, fertiliser stuff, El Niño stuff, food inflation. There are lots of scenarios where inflation can go higher, while falling inflation is mostly due to bad news. Therefore the risks are to the upside.

Property Prices

I can't talk about inflation without talking about property prices.

Cotality to Jun-2026 and ABS All groups CPI.

Sydney and Melbourne siders in shambles.

+1.77% real price growth for Sydney is honestly not that much. I acknowledge rates and therefore the economic price of holding these assets is higher, but the real values haven't actually budged much. And if you look back at just the last 5 years instead, the real return has been terrible.

Deflating the property bubble is the right thing to do. If/when the commodity cycle goes out we can pump the property sector back up.

AI

I could write 5000 words on this each month. Last time I read this many papers over such a short period of time was in uni.

Stuff at the top of my mind, in no particular order:

• Deploying AI in a legacy enterprise environment is harder than it looks.
  • Every business needs its own solution, and harness engineering is the way forward.
• AI is being used in all cases to address a cost centre, and is becoming a cost centre instead. No one has the balls to fire anyone because AI has replaced their job.
• I've only come across 2 people working on making AI linked to revenue generation (GTM & Marketing/Communication).

Chinese AI Models

"Once men turned their thinking over to machines in hope that this would set them free. But that only permitted other men with machines to enslave them." - Frank Herbert (I wrote about this here)

• You may have heard of the term "alignment", and Chinese models are the best example of expressing issues around what alignment looks like.
• Every model is harmonised/optimised/agreed towards some kind of values system and a bunch of objectives.
• So whenever you hand over some kind of responsibility to an LLM, you're adopting someone else's value system.
• From a freedom of thought perspective, we spend so much time ensuring external parties (ie China) cannot control narratives.
• Too many people are giving up narrative control to LLMs, and this is a general statement.
  • Personally, I'm going backwards now - all my notetaking is by hand again and I'm going through notebooks like mad.
  • Context is the single most valuable piece of information you have. Don't give it to LLMs without reason.
• Using Chinese open source models flies in the face of this concept. How do we know that Chinese models don't all have low-grade misalignment?
  • A 1% tilt in values and objectives is massive, despite it being imperceptible.

• Alignment decays rapidly, where even a 1% tilt in your views - or in something you're building on (imagine a creative process) - can change the end result completely over enough iterations.
• At some point, sooner rather than later, these models get regulated out. Governments will treat alignment problems more seriously, and running a model whose alignment is done by political adversaries will lead to it being treated as a breach within a commercial environment, and ultimately uninsurable.

Vibe-coded Reporting

• Everyone is vibecoding their reports and communication pieces now.
  • Fundies, advisers, and everyone in between - I can see you're relying on Claude to do your monthly/quarterly reporting.
  • It shows you have absolutely zero taste if you rely on Claude to design your template too.
  • It looks like slop.
  • Go spend 30 seconds and tell Claude to apply your brand guidelines ffs.
  • If you let Claude write your newsletter, I'm going to delete that shit. Put in a bit of effort - I expect better and so do your investors.
    • Especially if you're running over $1b (there are multiple of you and I know you all read this).

Thanks

Well done for making it this far and it pleases me you are reading this sentence. I thank you for reading the above and I hope it has provoked some thoughts.

Please feel free to email me on contact@ausyield.com.au if you have any questions.

This publication contains factual information and general commentary only, provided for informational and educational purposes. It does not constitute financial product advice under section 766B of the Corporations Act 2001 (Cth) and has been prepared without taking into account any reader's objectives, financial situation, or needs. Nothing in this publication is intended as a recommendation to acquire, dispose of, or hold any financial product. Readers should consider whether the information is appropriate to their circumstances and seek advice from an appropriately licensed adviser before acting on any content. Ausyield does not hold an Australian Financial Services Licence and does not provide personal financial advice.