L1 Long Short Fund Limited (ASX: LSF) has reported a strong performance for the December 2025 quarter and full calendar year, substantially outperforming the Australian equity market during a period marked by inflation volatility and shifting interest rate expectations. The listed investment company said its portfolio returned 14.1% for the December quarter, compared with a 1.0% decline in the S&P/ASX 200 Accumulation Index, lifting its full-year 2025 return to 46.8%.
L1 Long Short Fund Limited reported strong full-year 2025 returns, significantly outperforming the broader Australian equity market. (Source: nextmedia)
The result extends the fund’s long-term outperformance, with LSF delivering average annual returns of 18.1% over the past five years and 19.9% per annum since strategy inception in 2014. Over the same periods, the ASX200 Accumulation Index returned materially lower annualised gains, reinforcing the fund’s position as one of Australia’s strongest-performing long-short strategies.
The December quarter performance was achieved against a challenging macroeconomic backdrop, as domestic inflation reaccelerated and markets repriced interest rate expectations both locally and globally.
Key Performance Highlights
LSF attributed its quarterly and full-year gains to broad-based stock selection across sectors and geographies, with 22 individual positions each contributing more than 0.5% to returns during the December quarter.
Key performance metrics included:
- December quarter return:1% (ASX200AI: -1.0%)
- Calendar year 2025 return:8% (ASX200AI: 10.3%)
- Five-year return:1% per annum (ASX200AI: 9.9%)
- Strategy since inception (2014):9% per annum
The fund noted that its ability to deploy both long and short positions allowed it to manage volatility and capitalise on sector dispersion more effectively than long-only portfolios.
Economic and Market Conditions
Australian equity markets lagged global peers during the December quarter as inflation surprised to the upside. Core CPI reached 3.3% in October, exceeding market expectations and sitting above the Reserve Bank of Australia’s 2–3% target range. This prompted a hawkish shift in market pricing, with investors moving from expecting rate cuts to factoring in the possibility of policy tightening in 2026.
By contrast, the United States experienced stronger economic growth and easing inflation, leading the Federal Reserve to cut interest rates twice during the quarter. This divergence in monetary policy settings widened interest rate differentials between Australia and the U.S., shaping global capital flows and currency expectations.
Gold and Resources as Key Drivers
One of the most significant contributors to LSF’s performance was its exposure to gold and resource stocks. Gold prices rose 12% in U.S. dollar terms during the December quarter and finished 2025 up approximately 65%, driven by U.S. fiscal deficits, dollar weakness, central bank accumulation, and a global interest rate cutting cycle.
Rising gold prices were a key contributor to portfolio performance during 2025. (Source: investingnews)
Strong commodity prices helped offset weakness in other sectors of the Australian market, where Information Technology, Consumer Discretionary, and Healthcare stocks underperformed. Materials stocks, by contrast, were among the strongest contributors to benchmark returns during the period.
Portfolio Positioning and Strategy
During the quarter, LSF reduced its net market exposure, exiting several long positions that had reached assessed fair value following sustained share price rallies. The portfolio remains diversified across infrastructure, gold, travel, uranium, and U.S. cyclicals, with an increased tilt towards lower P/E “value” stocks.
Management said many Australian large-cap equities are trading above historical valuation multiples and global peers, while more compelling opportunities exist offshore, particularly among companies with strong balance sheets, earnings momentum, and shareholder-aligned management.
Market and Strategic Context
L1 Long Short Fund Limited shares were recently trading at $4.20, up 0.48% on the day, with volumes of approximately 408,000 shares and a narrow bid–offer range of $4.19 to $4.20. The company’s market capitalisation stands at around $2.64 billion, reflecting sustained investor confidence following its strong full-year performance.
L1 Long Short Fund Limited Share Price (Source: ASX)
The share price stability and liquidity highlight continued institutional interest in active long-short strategies as investors navigate elevated equity valuations, inflation risks, and divergent global monetary policy settings.
Also Read: AFT Pharmaceuticals Accelerates Global Expansion and R&D Pipeline in December Quarter Update
Outlook
Looking ahead, L1 Capital said it remains cautious on the Australian equity index at an aggregate level but optimistic about selective opportunities in global markets. The fund expects valuation dispersion, macroeconomic uncertainty, and sector rotation to continue creating opportunities for active management.
With a diversified portfolio, disciplined valuation approach, and proven long-term track record, L1 Long Short Fund enters 2026 positioned to pursue risk-adjusted returns as market conditions remain complex and uneven.
Disclaimer
