Another financial year is in the books. And if you’re an Australian investor, the numbers are worth sitting with.
The All Ordinaries finished FY26 up 2.4%. The S&P 500 was up 21%. The Nasdaq, which is heavily weighted toward technology, was up 31%. That’s not a one-off. This is the fourth consecutive year that the Australian market has underperformed global markets. And understanding why matters more than feeling bad about it.
The Gap Comes Down to One Thing
The US market’s extraordinary run has been driven by a concentrated group of companies sitting at the centre of the artificial intelligence story. Australia simply doesn’t have an equivalent sector. What we do have is banks, resources, and traditional income-producing businesses. Reliable, yes. Capable of 31% annual returns driven by a technology revolution, no.
Strip the AI-driven names out of global indices and the picture looks far less dramatic. But that’s the world we’re investing in right now, and portfolio construction needs to reflect it.
Where Australian Investors Actually Won
Not everything on the ASX had a tough year. The materials sector was a genuine standout.
Rare earths and critical minerals had a remarkable run. Mineral Resources was up 186% for the year. Lynas finished up 115%. BHP climbed around 62%, finishing near the $60 mark. Rio Tinto was similarly strong. For investors with meaningful exposure to this part of the market, FY26 delivered. It was one of the most powerful years the sector has seen.
Where It Hurt
The Aussie tech sector, limited as it is, copped a serious beating. Fears around AI making traditional software redundant hit software-as-a-service stocks hard across the board.
Xero finished the year down 60%. WiseTech Global was off 69%. These are companies that have been portfolio staples for Australian investors for years. Their declines weren’t a reflection of business failure. They were a reflection of where the market’s attention shifted. Healthcare was similarly disappointing. Cochlear finished in the red, joining a pattern of names that investors typically expect to hold up through volatile periods.
The ESG Angle
Investors in ESG-specific portfolios had a particularly difficult year. The sectors that ethical investing frameworks tend to favour heavily, including technology, software, and healthcare, were the underperformers. The sectors they typically exclude, including energy and materials, were where the returns were.
This is not an argument against ethical investing. Over time, the expectation is that ESG and standard portfolios will increasingly converge as companies across every sector are assessed on environmental, social, and governance grounds regardless of what label is on the fund. But short-term, the sector tilts created meaningful drag for ESG investors this year.
The Real Lesson From FY26
Home country bias has a cost. Australian investors who kept their exposure predominantly local experienced 2.4% returns while globally diversified portfolios captured something much closer to the 21% that global shares delivered.
This isn’t about abandoning Australia. Franking credits, income stability, and resource exposure all have genuine value in a well-constructed portfolio. But concentration in any single market, including your own, is a risk that shows up clearly in years like this one.
The new financial year is a good moment to review whether your portfolio is positioned where the growth actually is, not just where it feels most familiar.
To find out how we can help see our Financial Planning.