Navigating uncertainty, finding opportunity

As we move into the second half of 2025, volatility remains elevated but so too does opportunity. The view from the investment coalface can be gleaned from the underlying managers of the Third Link Growth Fund, which are
navigating a highly dynamic environment.

Geopolitical shifts, policy pivots and valuation dispersion are the lot in life of investment managers at present, and just how that is playing-out is well summarised by Third Link Growth Fund’s collation of the mid-2025 views of its manager stable. Their active, research-driven strategies continue to uncover value in overlooked sectors, support long-term growth themes, and avoid overhyped narratives – all while contributing to strong returns and lasting community impact.

It’s a tough market out there, but many of the managers have reported strong results in FY25, demonstrating the value of active management through volatility and dispersion.

1851 Capital’s Emerging Companies Fund notched an 18.3 per cent in FY25, powered by high-conviction holdings like Bravura Solutions (+121 per cent), Generation Development Group (+114 per cent) and ZIP Co (+110 per cent), which helped the fund outperform both the ASX Small Ords and Small Industrials indices.

“Rate cut cycles have historically favoured small caps,” said CIO Chris Stott. “We’re strategically positioned in sectors like property, media, financials, and building materials – all acquired at multi-year trough valuations.”

Chester Asset Management’s Chester High Conviction Fund reported an FY25 YTD return of 17.9 per cent, outperforming the S&P/ASX 300 benchmark, driven by exposure to healthcare, industrials, and select financials, while avoiding banks and tech. “We expect global rates to fall over the next few years, which should support equities,” said portfolio manager Rob Tucker. “The thematic trend of AI is fast-evolving and it is vital that we stay on top of these emerging technologies and software to understand both the threats and opportunities that AI is presenting.”

Auscap Asset Management’s Auscap Ex-20 Australian Equities Fund advanced 15.5 per cent in FY25, with the key contributors being well-diversified across sectors. These included Sigma and Resmed (health care), Nick Scali and Eagers Automotive (consumer discretionary), HUB24 and HMC Capital (financials), Life360 (information technology), Brambles (industrials), Northern Star Resources (gold), and Charter Hall Retail REIT (real estate). Detractors came primarily from the resources sector – Mineral Resources, Champion Iron and Pilbara Minerals (now known as PLS).

“We’ve focused on sector-leading mid-cap businesses with strong earnings and dividend growth,” said Auscap CIO Tim Carleton. “We believe this part of the market offers compelling fundamentals without the valuation stretch seen in large caps.”

Eiger Capital’s Eiger Australian Small Companies Fund posted an FY25 return of 11.6 per cent, benefiting – despite the volatile macro backdrop – from holdings such as Life360 and goldminers Regis Healthcare, and Genesis Minerals, part of the funds strategic overweight to gold. “We’re seeing opportunities in domestic cyclicals and residential construction as rate cuts take hold,” said portfolio manager Victor Gomes. “Gold remains a key hedge, while we’re cautious on commodities given China’s patchy recovery.”

Lennox Capital Partners’ Lennox Australian Small Companies Fund reported a 10.5 per cent FY25 return, led by key contributors that included Megaport, oOh!media, and Superloop, but performance was tempered by an underweight exposure to materials. “Volatility creates opportunities,” said portfolio manager James Dougherty. “We see mispriced value in names like Corporate Travel, Integral Diagnostics and Bapcor.”

At Australian Eagle Asset Management, the Australian Eagle Equities Fund (its long-only strategy)
posted a small underperformance – it returned 11.3 per cent in FY25 – with positive stock selection offset by structural underweights and sector headwinds. Key contributors included Evolution Mining, QBE Insurance, and TechnologyOne, which the manager defines as businesses undergoing meaningful transformation, while detractors included Pilbara Minerals, ARB Corporation, and the fund’s longstanding underweight to the Big Four banks.

“We focus on quality companies experiencing change that can enhance their earnings profile,” said CIO Sean Sequeira. “This disciplined approach has supported long-term outperformance since 2005.”

DNR Capital’s DNR High Conviction Australian Equities Fund returned 4.3 per cent, lagging the benchmark, but DNR sees the current market rewarding momentum over fundamentals, a trend the manager expects to reverse. “Market returns have been narrowly concentrated in expensive names, which has made it a challenging period,” said DNR Capital’s Jamie Nicol. “Despite this, we remain confident that our focus on high-quality businesses trading at attractive valuations will deliver over time.”

The ECP Growth Companies Fund struggled, with an FY25 return of 1.5 per cent. Contributors included Megaport and GQG Partners, while IDP Education and Nuix led the detractors. “We’re macro-aware, not macro-driven,” noted the ECP team. “We see upside in companies like Block, Inc. (ASX:XYZ), where fundamentals remain under-appreciated.”

The managers’ second-half outlook is dominated by themes such as rate tailwinds, repricing opportunities and hidden growth. With central banks globally easing monetary policy, many managers are positioning portfolios to take advantage of lower interest rates, improving sentiment, and repricing in quality names.

1851 Capital is leaning into rate-sensitive sectors including property, media, financials and building materials , while Chester is positioned for a cyclical recovery in healthcare, industrials, and base metals. Eiger sees domestic cyclicals as beneficiaries of rate cuts but is cautious on iron ore and LNG.

Lennox is hunting for opportunities in over-sold quality businesses where short-term issues have masked longer-term fundamentals; while ECP believes the market will begin rewarding true operating leverage over hype, and is focused on founder-led growth platforms. DNR is selectively allocating capital to quality names where valuation support is strong. Australian Eagle sees value in select resource companies with embedded optionality, and in technology names with scalable platforms and sustainable earnings.

Third Link says the Growth Fund’s multi-manager structure continues to deliver benefits through cycles, providing access to a diverse range of insights, sector exposures and investment styles. At the same time, its purpose-driven structure ensures that investment fees are directed where they’re most needed, supporting Australian charities making a lasting impact.

With more than $23 million donated to charities since inception (1 June 2008), while outperforming against its benchmark since inception, Third Link says the Growth Fund remains a rare example of how investing with intention can deliver both market returns and meaningful social impact.