Catholic Values Trust & Income Trust update – Q2 2025

Catholic Values Trust & Income Trust update: Strong equity performance and falling yields lift Q2 returns

In this update, David Chen, Portfolio Manager of both the Catholic Values Trust and Income Trust, recaps Q2 2025 results.
Both funds benefited from equity gains, falling bond yields, and resilient credit markets despite early-quarter volatility.
David also outlines the portfolio positioning and why both funds remain well-positioned to provide steady income and low volatility in uncertain conditions.

Watch/Listen to the Catholic Values Trust update and Income Trust update ⏬

Transcript:

Q2 performance summary

So, what drove our fund performance last quarter? It was a strong quarter across the board. The Catholic Values Trust returned just under 6%, and the Income Trust delivered about 1.09%. Both results were driven by a mix of strong equity returns and falling bond yields. The biggest driver of performance within the Catholic Values Trust were equity markets, with both the Australian and global markets delivering strong gains.

Markets rebound after tariff-driven volatility

And while the markets initially dipped following the Liberation Day tariff announcements, that weakness proved to be short-lived. As many of those tariffs were later walked back and progress was made on trade deals, investor sentiment turned around and momentum picked up meaningfully into the end of the quarter. Australian equities rose by nearly 10%, led by strength in the financial, real estate, and technology sectors. That rally was supported by a clearer trend of inflation, which helped shift market expectations around the rate cuts. The market is now pricing in around three to four cuts before the end of the year.

Inflation trends, global equities, and bond market strength

The most recent May CPI also shows a declining trend, with the headlining inflation and the trimmed mean both within the RBA’s target range. Labour markets remained resilient, although some underlying weakness is beginning to surface. The latest labour force data showed some moderate job losses, a sign that the broader economy may be calling.

Global equities also performed well, rising 7.8% over the quarter, supported by strong returns in technology, communication services, and financials. The US markets reached new highs, aided by solid economic data, improving sentiment, and optimism surrounding trade deals with China and the EU.

There was also considerable continued optimism for AI-related themes, with the majority of gains driven by the so-called Magnificent Seven tech stocks. Although there was some renewed conflict in the Middle East late in the quarter between Iran and Israel, markets held up relatively well. And that was helped along, obviously, by the quick resolution of this conflict.

Bond markets also performed well. Yields fell across the curve, with the 3-year government bonds down 44 basis points, and the 10-year falling about 22 basis points. Clearly, investors have priced in the increasing likelihood of RBA rate cuts over the next 12 months.

Income Trust positioning

On the Income Trust side, performance was pretty good, supported by consistent income from floating-rate note credit and hybrid securities. Credit spreads ended the quarter relatively stable, but spreads initially did spike following the Liberation Day announcements. They’ve since narrowed and recovered most of the earlier drawdowns. Hybrids remain in high demand from yield-seeking investors, which is partly helped by APRA’s gradual phasing out, with the limited supply supporting the tightening in spreads.

Overall, it was a strong quarter, with equity delivering the lion’s share of the gains, while bond and credit markets also made significant contributions. With inflation easing and rate cuts firmly back on the radar, I believe the outlook remains quite constructive for diversified portfolios.

Portfolio positioning and economic outlook

In terms of positioning, we continue to maintain a defensive positioning across portfolios. Equities remain underweight, as there is still a degree of uncertainty surrounding the consumer, inflation, and global growth risks, particularly regarding US tariffs and China’s recovery. And while valuations in some sectors have moderated, others remain stretched, especially within large-cap financials and technology.

Our fixed income exposure remains overweight. The RBA is expected to continue its easing cycle in August, and due to uncertainty surrounding tariffs, we believe high-quality bonds will continue to provide income and diversification. As term deposit rates begin to drift lower, we believe the case for an overweight bond allocation remains strong.

Our investment process remains adaptable to near-term developments, but we remain firmly aligned with our long-term goals.

Why invest in the Catholic Values Trust and Income Trust

In terms of the three key reasons why we believe the Catholic Values Trust and Income Trust remain compelling investment options:

One is for a strong yield. The Income Trust remains suitable for yield-focused investors. We offer strong income through a diversified mix of fixed interest in hybrid securities. With term deposits continuing to decline, the Trust continues to deliver returns of at least 1% above cash.

Number two is our values-driven investing approach. We invest with purpose, guided by a Catholic values framework that excludes harmful sectors and favours ethical, responsible companies. The Catholic Values Advisory Board also provides independent oversight to ensure alignment with Catholic social teaching.

And third, our balanced and dynamic approach to investing. Our portfolios are diversified and actively managed, not set and forget. We adjust our positioning often, based on the economic and market developments. We’re able to protect capital in volatile environments, but we’re also ready to capture opportunities as they emerge.

 

Click HERE to find out more about the trusts. Follow us on LinkedIn.

*The text has been edited for clarity.

 

---

Disclaimer:

This trust update has been prepared by SG Hiscock & Company (SGH) to provide general information only and is not intended to take the place of professional advice. It does not take into account the investment objectives, financial situation or particular needs of any particular person.

Equity Trustees is the responsible entity for the Catholic Values Trust and Income Trust. Neither SGH, Equity Trustees nor any of its related parties provide any warranty of accuracy. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Information Memorandum before making a decision about whether to invest in this product. Follow the link for the full disclaimer: https://sghiscock.com.au/podcast-disclosures-and-disclaimers/.