Growth at reasonable yield (GARY) keeps outperforming as growth to value rotation takes over

The global rotation from growth to value is accelerating into its third consecutive month—the longest such phase in nearly three years—and Australia continues to lead this shift. Australian markets moved toward value well before the global turn, while large passive international funds prolonged the growth cycle by funnelling substantial capital into the AI‑driven technology rally. Diverging monetary policy is reinforcing this pattern: the US Federal Reserve is holding rates steady, while the RBA has become the first major developed‑market central bank to resume tightening. Historically, Australia’s growth‑to‑value rotations have preceded global shifts, a trend that is likely to persist as rising debt burdens and cost‑of‑living pressures constrain household and corporate balance sheets. With global equity markets stretched and increasingly concentrated in a narrow set of sectors, volatility risks are building as inflation pressures re‑emerge and the rotation challenges the dominance of growth‑oriented US equities.

The rotation is now affecting expensive growth sectors across the board. Years of excess liquidity conditioned investors to “buy the dip” in growth stocks, but when markets begin pricing a decade of high growth into an environment of slowing global demand, the underlying mathematics eventually breaks down. Much of the past two decades of expansion was driven by pulling future growth forward; once inflation began to recover, the imbalance became unsustainable. The so‑called “SaaS‑pocalypse” has become a convenient narrative, but it obscures the broader reality: investors were paying excessive premiums for growth while overlooking second‑order effects. If AI is positioned as the next dominant technology platform, the question becomes what happens to the technologies that were previously expected to reshape the world. The rotation has not been confined to SaaS—it has repriced expensive growth across all segments of the market. Many companies wanted to “rule the world,” but the market is now reassessing which business models can genuinely sustain that ambition.

Macro Cycles

Markets are navigating a combination of trade uncertainty, rising geopolitical tension, and a slowing economic backdrop, while central banks are increasingly constrained by strong labour markets and a renewed inflation pulse. The rotation from growth to value has now extended for three consecutive months—the longest stretch in nearly three years—reflecting a shift toward earnings resilience and balance‑sheet strength. The RBA’s decision to resume rate hikes after previously pausing and easing underscores the policy inconsistency emerging late in the cycle, particularly as earlier settings contributed to further inflation in an already stretched property market. These types of misalignments tend to surface when political and vested‑interest pressures intensify to keep asset prices elevated despite weakening fundamentals.

Inflation‑linked exposures across gold, food, and energy continue to outperform, with related ETFs reaching multi‑year highs. Within our strategy framework, these remain core allocations as the current cycle shows increasing signs of unsustainability and economic strain is likely to deepen. A familiar late‑cycle dynamic is re‑emerging: public narratives shifting blame toward low‑income groups and migrants, diverting attention from the corporate pricing power that has driven much of the inflation impulse.

Recent policy signals and incoming data suggest that consumers will bear the heaviest burden of the downturn. Political responses are likely to emphasise cost‑of‑living relief without delivering meaningful structural follow‑through, while central banks globally may be forced to consider further tightening despite deteriorating growth conditions. In this environment, disciplined portfolio risk management remains essential as markets transition through a narrowing and increasingly fragile phase of the cycle.

Data Analytics and AI takeaway

The preferred investment factors remain with inflation, value, dividend yield, profitability and size. Portfolio risk management remains the main strategy.

Investment Strategy

Yield investing in today’s high-risk macroeconomic environment requires a data-driven, balanced approach—especially as US policy decisions continue to fuel inflation and interest rate uncertainties. Factors such as weaker government spending, shifting policies, and geopolitical tensions have heightened economic volatility, making the Federal Reserve’s hawkish stance on interest rates a key driver of fixed-income investments and yield-bearing assets.

In this landscape, investors face a critical challenge: balancing income generation with capital preservation. While high-yield bonds and dividend-paying stocks offer attractive returns, they also come with heightened exposure to market fluctuations and default risks. Meanwhile, conservative options like Treasury bonds provide stability but may struggle to keep pace with inflation, particularly if price pressures intensify.

The Growth at Reasonable Yield (GARY) strategy remains a compelling approach in this uncertain environment, catering to investors seeking a balance between income and risk management. By prioritizing adaptability and strategic positioning, Deep Data Analytics’ GARY strategy delivers consistent premium outperformance over the long term—helping investors navigate elevated interest rates, slowing growth, and geopolitical uncertainty with confidence.

Portfolio Strategy

Global markets continue to hold their ground as large passive funds maintain support for US mega‑cap equities, even though this concentration has begun to weigh on their own relative performance. That drag is being offset by the strategic value these funds gain through exposure to US‑linked global infrastructure and reconstruction initiatives, which remain a powerful anchor for capital flows. In Australia, international inflows have pushed the market back toward recent highs, driven by concentrated buying in CBA and BHP—together representing a significant share of the index and acting as de facto stabilisers.

Inflation is re‑accelerating while growth momentum continues to soften, reinforcing a late‑cycle environment where defensive positioning becomes increasingly important. Our strategy remains centred on inflation‑linked exposures across gold, food, and energy, complemented by defensive yield to balance volatility and preserve capital. This phase of the cycle often attracts investors seeking a turnaround narrative, but the underlying risk profile remains elevated, and selectivity is critical.

Disciplined portfolio risk management remains essential as markets navigate the tension between fading growth, persistent inflation pressures, and increasingly narrow leadership dynamics.

Model Portfolio

The best performers YTD in the Growth at Reasonable Yield (GARY) Top 10 are: Evolution (ASX: EVN), New Hope (ASX: NHC), Woodside (ASX: WDS) and Regis Resources (ASX: RRL).

Note: DDA may or may not have made changes to the model holdings since end of February update. The data driven model portfolios will continue to evolve with the economic and market cycles.