Periods of market noise often tempt investors to chase momentum or retreat entirely to defensives. History suggests more durable outcomes tend to come from discipline, owning businesses that can grow earnings, maintain balance-sheet strength, and trade at reasonable prices.
That thinking continues to shape the Global X S&P World ex Australia GARP ETF (ASX: GARP) following its December 2025 semi-annual rebalance. The latest review was a measured refresh rather than a wholesale change. While some individual holdings shifted, the portfolio’s underlying identity remains intact, with an emphasis on high-quality global companies showing improving earnings momentum, resilient fundamentals, and valuations that have not fully re-rated.
Key takeaways
Discipline over reaction: The December rebalance highlighted a selective approach to stock selection, adding companies such as Rolls-Royce, Walt Disney, and SoftBank, while removing names where growth momentum slowed, balance-sheet risks increased, or valuations became harder to justify. This process reflects a rules-based framework designed to capture upside while managing downside risk.
A track record since launch: Since launching in September 2024, GARP has outperformed the average global equity ETF available in the Australian market, demonstrating how a quality-focused growth strategy can perform through periods of market volatility.
Positioning for a global growth mix in 2026: Following the rebalance, the portfolio leans more toward regions and sectors where earnings momentum appears supportive, including parts of Japan and Europe. As investors increasingly look for growth beyond US mega-caps, valuation discipline and quality selection remain central.
Selective growth, not growth at any price
One defining feature of the December 2025 rebalance was the inclusion of companies where earnings trends have improved, while valuations have yet to fully reflect those changes.
Rolls-Royce: a turnaround with structural tailwinds
Often associated with luxury cars, Rolls-Royce’s core economics sit in aerospace, defence, and power systems. A recovery in commercial aviation, rising engine flying hours, and a growing share of higher-margin servicing revenue have driven a notable improvement in profitability.
Margins have expanded due to higher utilisation, improved pricing, a greater mix of recurring services revenue, and tighter cost control. As shown in analyst forecasts, earnings expectations have been steadily revised upward since 2022, reflecting strengthening fundamentals.
The company is also emerging as a beneficiary of the AI-driven power generation theme through its involvement in small modular nuclear reactors, following recent agreements with the UK and Czech governments. Despite a step-change in margins and cash generation, Rolls-Royce trades at a discount to broader industrial peers, around 16x earnings versus roughly 26x, illustrating a case where growth has improved faster than valuation.
Walt Disney: diversification and capital discipline
Disney’s inclusion reflects improving earnings momentum across a diversified business model. Parks and Experiences continue to anchor profitability, while streaming losses have narrowed toward breakeven. Recent capital allocation decisions, including the resumption of buybacks and dividend increases, alongside ongoing investment in AI-enabled content creation, point to renewed financial discipline after a valuation reset earlier in the year.
Disney’s revenue base is increasingly diversified, spanning streaming platforms such as Disney+ and Hulu, live sports via ESPN, and high-margin Parks and Experiences. At its latest results, the company reported full-year adjusted earnings per share (EPS) growth of around 19% in FY25, with management guiding to double-digit adjusted EPS growth in FY26 and FY27. Return on equity has also moved into the double digits for the first time in six years.
SoftBank: asymmetric exposure to the AI stack
SoftBank is a global technology investment group with exposure across artificial intelligence, semiconductors, robotics, cloud infrastructure, and next-generation software. Its positioning spans the AI value chain, from Arm Holdings’ semiconductor architecture through to enterprise and applied-AI platforms.
This exposure has been reinforced by SoftBank’s US$40 billion investment in OpenAI, giving it direct participation in the core of generative AI. Following a multi-year reset, the group has delivered a sharp financial turnaround, generating returns on equity of around 25% in the first half of FY26, trading on a compressed valuation of roughly 8x earnings, and benefiting from improved balance-sheet discipline.
What left the portfolio matters too
Exits are just as important as additions. Several well-known businesses were removed not because their models were broken, but because growth slowed, balance-sheet risks increased, or valuations became more difficult to justify.
Visa was removed as earnings growth moderated and leverage increased amid intensifying regulatory and competitive pressures.
Costco, despite a strong business model, faced slowing revenue momentum and emerging margin headwinds relative to its premium valuation.
General Motors screened as optically cheap, but weakening margins and falling returns on equity meant it no longer aligned with a GARP framework.
This willingness to exit quality businesses when growth fades or valuations stretch is central to avoiding growth and quality traps.
Performance between rebalances
Since the June 2025 rebalance, GARP returned approximately 9%, with around one-third of that performance driven by stocks added at the prior review. Contributors included a rebound in healthcare holdings, exposure to Japan and select cyclicals benefiting from reflation and corporate reform, and an overweight position in, supporting participation in AI-driven earnings growth.
Detractors largely reflected opportunity cost from stocks sold earlier and an intentional underweight to the most momentum-driven segments of mega-cap technology, consistent with valuation discipline.
Since launching in September 2024, GARP has been among the stronger-performing global equity funds available to Australian investors.
Current positioning and looking ahead
Following the December rebalance, portfolio valuation metrics became more attractive, with the price-to-earnings ratio falling while maintaining a growth and quality premium relative to the broader global equity index. Dividend yield improved modestly, supporting a balance between growth and income resilience.
At a regional level, exposure shifted away from North America toward Europe, Japan, and the UK, where earnings momentum and valuations appear more supportive. Sector tilts favoured healthcare, industrials, and communication services.
Looking into 2026, the rebalance reinforces what a GARP approach is designed to do, not predict markets, but prepare portfolios for changing conditions. By recycling capital toward companies where growth, quality, and valuation align, the strategy aims to deliver a more balanced return profile across market cycles.
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