Building resilient portfolios for uncertain times

August 12, 2025

For financial advisers and professional investors only – not for distribution to retail investors. This research paper was written by Macquarie Asset Management Fixed Income (MAM) and represents the perspectives of the MAM Fixed Income team. 

Financial year 2025 saw heightened volatility and economic uncertainty. US equity markets reached new highs, credit spreads reached new tights, and financial markets increasingly embraced the theme of US exceptionalism. However, uncertainty surged as the new US Administration introduced ‘Liberation Day’ tariffs, reshaping global trade, spiking market volatility, and raising stagflation fears of slower growth and higher inflation. This disrupted the global economic and geopolitical landscape, shifting sentiment from US exceptionalism to a ‘Sell-America’ trade. Despite this, bond and equity markets demonstrated strong levels of resilience. Looking ahead, the key question is whether these policy changes could lead to further volatility, or will it remain contained?

Global market trends – what’s next?

• Slower global growth and disinflationary trend: We remain of the view that growth is beginning to soften, disinflation persists, and policy makers will need to support growth as business and consumer caution rises due to global trade policies.
• Stagnant US labour market: The labour market shows minimal quitting, hiring, or firing, aligning with the downtrend in wage growth and broader inflation.
• Central bank confidence: Easing inflation pressures may reassure the US Federal Reserve that tariff-driven price increases won't sustain, potentially reopening the door for rate cuts though policy uncertainty could lead to a more cautious approach.

Key positioning and performance drivers

Macquarie Dynamic Bond Fund

The Fund’s dynamic investment approach allows us to navigate uncertainty with agility and discipline. The team actively manages duration and credit exposures amid changing macro conditions, aiming to deliver strong risk-adjusted return outcomes. The Fund has delivered strong total returns under a range of market conditions, ranking well among global bond peers over the long term.

• Heading into the April volatility period, the Fund capitalised on regional dislocations in bond markets, including being underweight the US long end of the yield curve ahead of Liberation Day. This positioning proved beneficial, as a strong risk-off narrative took hold, with flows moving into alternative safe haven assets such as German Bunds, gold, the Euro and the Yen – at the expense of US Treasuries. The Fund was well positioned for this shift, holding overweight exposures to European, UK and Australian interest rate duration, while maintaining an underweight to US interest rate duration.
• The Fund adopted a conservative credit positioning, particularly in the high yield sector compared to peers. This approach helped shield the portfolio from the sharp spread widening seen across risk assets. The Fund sought to take advantage of heightened volatility by selectively adding to the US high yield sector after the tariff shock, where spreads widened sharply.
• The Fund’s yield curve steepening strategies contributed positively to performance, as central bank policy easing anchored the short-to-intermediate dated securities and global term premiums rose due to fiscal and bond supply concerns.

Macquarie Income Opportunities Fund

The Fund’s flexible investment approach allows us to adapt to prevailing market conditions, preserving capital in times of stress and seeking to capitalise on relative value opportunities. Its active and time-tested approach has delivered investors steady returns across varying market conditions, including recent volatility where credit stress was tested – highlighting the importance of quality active fixed income management. Over a full market cycle, this strategy has consistently delivered strong total returns, ranking strongly amongst income peers.

• Leading up to and amidst sharp volatility in global markets, investment grade credit and high yield sectors were the largest contributors to returns, with additions to high yield positions amidst the sharp sell-off in credit spreads in April, before recently reducing this exposure as spreads rebounded to tights. Emerging markets and securitised holdings were also contributors to performance.
• The Fund was conservatively positioned with a focus on downside protection, with moderate allocations to interest rate duration as a natural risk offset to credit exposures. The Fund has a concentration of exposures in the short-end of the maturity curve.
• Over FY25, we preferred the Financials sector and sectors with structural or regulatory advantages (e.g. electric utilities and communications) based on fundamental grounds, and trimmed exposure to the utilities sector based on valuation grounds.
• Interest rate duration and curve positions also both contributed positively to returns, particularly in Australian rates, as the Reserve Bank of Australia cut rates, global yields generally fell, and curves steepened.
• The Fund increased its cash buffer around Liberation Day, which helped to preserve capital and liquidity amidst market uncertainty.

Investment implications

• Strategic outlook: We anticipate lower bond yields given the weakening growth outlook, and general dependency on the system for a lower cost of capital, making us constructive on duration. However, near-term volatility and range-bound markets call for dynamic, tactical positioning—adding duration when yields are attractive and reducing exposure when markets appear overvalued.
• Yield curve and regional focus: We favour yield curve steepeners and dynamic positioning across regions, with a preference for Europe and Australia due to clearer policies, credible easing cycles, and better relative value opportunities.
• Credit: With spreads near year-to-date tights, we focus on maintaining excess yield, preserving credit quality, and reducing credit beta. We remain opportunistic, adding to credit positions during volatility while maintaining appropriate carry levels to capitalize on both market rallies and sell-offs.
• Geopolitical risks: Bond yields are increasingly influenced by geopolitical factors, including US policy shifts and ongoing tensions in the Middle East and Ukraine, which we continue to monitor closely.

What this means for investors

FY25 highlighted the importance of active, flexible fixed income strategies in navigating market volatility. The Macquarie Dynamic Bond Fund and Macquarie Income Opportunities Fund delivered strong results through tactical sector, security, and duration management, global diversification, and disciplined risk management. Looking ahead to FY26, with potential rate cuts, slowing global growth, and rising geopolitical risks, these strategies are well-positioned to help clients build resilient, adaptable portfolios.

Past performance is not a reliable indicator of future performance. Total returns are calculated based on changes in net asset values and assumes the reinvestment of distributions. Total net fund returns are quoted after the deduction of fees and expenses. Due to individual circumstances, your net returns may differ from the net returns quoted above. For more information speak to your financial adviser, call us on 1800 814 523, email mam.clientservice@macquarie.com or visit macquarie.com/mam