Australian Shares Fund
The Australian Shares Fund (Wholesale) (the ‘Fund’) rose by 17.9% net of fees in the year ended 31 December 2024, outperforming its benchmark which climbed 10.6%. The Australian Shares Fund (Retail) rose 17.2% net of fees for the year, also outperforming the benchmark.
It was the second consecutive year of double digit returns for the Australian share market, as the broad based S&P ASX300 index hit record highs during the year.
The Australian Shares Fund (Retail) reached a milestone in 2024, celebrating its 30th year anniversary. Since inception, the Fund has delivered positive net returns of 9.7% compared to the benchmark of 7.4%. Our track record demonstrates that an ethical screen and investment focus can generate alpha for our investors.
At a Fund level, our investments in the Technology sector were the stand-out contributors during the calendar year, benefiting from positive stock selection. The Fund also benefited from the underweight exposure to the materials sector, as the carbon intensive mining stocks weakened amid a challenging commodity prices backdrop. The Fund always has limited exposure to the Materials sector due to our Ethical screen.
The sectors that detracted from performance during the calendar year were the financials and consumer discretionary sectors. This was largely due to stock specific names, such as not holding Commonwealth Bank, Aristocrat Leisure or Wesfarmers. Our underweight positioning in the consumer discretionary names was a headwind, as consumer spending patterns appeared to be more resilient than our expectations.
There was positive stock selection in both large and small cap names, with positive alpha generation across the market cap spectrum. There was a recovery in the small cap names, as risk appetite returned to the market. This follows several years of large cap outperformance relative to small caps.
The Fund benefited from takeover interest, with deals consummated by Ansarada, Symbio and Capitol Health. We participated in one initial public offering, Cuscal, as we were attracted to the investment fundamentals and growth profile.
Australian Shares (Wholesale) Fund Performance
As at 31 December 2024*
| fund | benchmark^ | |
|---|---|---|
| 3 months | -0.8% | -0.8% |
| 6 months | 9.1% | 6.6% |
| 1 year p.a. | 17.9% | 10.6% |
| 3 years p.a. | 2.6% | 6.8% |
| 5 years p.a. | 8.6% | 7.8% |
| 10 years p.a. | 10.7% | 9.0% |
| since inception p.a. | 12.7% | 9.8% |
^Benchmark is 65% ASX 100 / 35% ASX Small Ordinaries. Past performance is not a reliable indicator of future performance.
Inception date: 23/01/2012.
Australian Shares (Retail) Fund Performance
As at 31 December 2024*
| fund | benchmark^ | |
|---|---|---|
| 3 months | -1.0% | -0.8% |
| 6 months | 8.8% | 6.6% |
| 1 year p.a. | 17.2% | 10.6% |
| 3 years p.a. | 2.1% | 6.8% |
| 5 years p.a. | 7.8% | 7.8% |
| 10 years p.a. | 9.6% | 9.0% |
| since inception p.a. | 9.7% | 7.4% |
^Benchmark is 65% ASX 100 / 35% ASX Small Ordinaries. Past performance is not a reliable indicator of future performance.
Inception date: 19/09/1994.
Contributors and detractors
Top 3 contributors to Fund return
+233.5%
Nuix Ltd. (NXL)
+163.2%
Bravura Solutions Limited (BVS)
+85.6%
Gentrack Group Ltd (GTK)
Top 3 detractors from Fund return
-25.2%
Domain Holdings Australia Ltd. (DHG)
-44.6%
Pilbara Minerals Limited (PLS)
-40.0%
Fletcher Building Limited (FBU)Contributors
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Nuix (NXL) has been a key positive contributor to returns in 2024. Under this management team, there has been transformation of the business, particularly in evolving the product offering and engaging with customers, which has yielded positive results. The company has re-rated significantly over the year, driven by earnings upgrades, a strong FY24 result which highlighted solid underlying cash flow and annualised contract value growth, as well as being added to the S&P/ASX 300 index in September.
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Bravura (BVS) was a strong performer in 2024 and had recently upgraded its FY25 revenue and operating earnings guidance, coming in above consensus expectations. This was mostly driven by further cost outs and favourable currency movements. BVS has a strong balance sheet and the company is returning surplus capital back to shareholders in the form of a capital return, resumption of dividends and an ongoing on-market buyback, which have been received positively by investors.
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Gentrack (GTK) had performed strongly in 2024. The company released a strong FY24 result which provided the market confidence around prior FY25 consensus Revenue and EBITDA estimates being achievable, with the international pipeline appearing strong coupled with signs of inherent operating leverage in the business. We believe GTK is well positioned for further growth and a beneficiary of the structural growth lever in the climate transition.
Detractors
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Pilbara Minerals (PLS) detracted from performance driven weak spodumene pricing, down 38% over the year, as near-term supply outlook is greater than demand. As a result, production curtailments have been occurring across the industry, with prices up 12% over the last 3 months. The longer-term fundamentals and demand for lithium remain strong. Pilbara has a Tier 1 quality asset, a low-cost producer, net cash balance sheet, strongly positioned for improvement in the pricing outlook, and is trading at an attractive valuation, in our view.
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Domain (DHG) had continued to underperform its competitor REA over the year, despite the slightly higher listings growth in 1Q25, with the controllable yield growth declining which was impacted by the win back of free or low yielding listings. We maintain our view that there is room for a no. 2 player in the Australian market and retain our position in DHG on the basis of relative valuation attractiveness, whilst its fundamentals, including earnings growth potential and cash flow, remain solid.
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Fletcher Building (FBU NZ) underperformed over the year following a period of disappointing earnings updates, legacy issues and concerns around the building company’s balance sheet. In addition, there was significant management and board disruption. New management have undertaken a capital raising to address balance sheet concerns and made progress towards resolution of legacy issues. We also expect a strategic update in the 2Q of 2025. Looking forward, we see long term value in FBU, which has a strong market position in the NZ Building products industry and is strongly leveraged to an earnings improvement as and when residential building conditions improve.
We believe Gentrack is well positioned for further growth and a beneficiary of the structural growth lever in the climate transition.
Portfolio changes
Additions to the Fund
-
CSL Limited (CSL) is a global biotech company that develops and manufactures blood therapies, vaccines and other pharmaceutical drugs. CSL has typically traded on lofty multiples in the past and we have remained cautious on valuation. Recent uncertainty provided an opportunity to enter CSL at below average historical valuation levels and we found the opportunity compelling.
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Cuscal Limited (CCL) is a payment services company, providing the infrastructure for non-major financial institutions such as Bendigo Bank, building societies and fintech clients such as Zeller. We added Cuscal as we like the investment fundamentals and growth profile.
Reductions from the Fund
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Healia Group Limited (HLI) – The Government scheme assisting first home buyers has significantly reduced new business. More recently, CBA, Helia’s largest client put their contract up for tender which has led to uncertainty regarding future earnings.
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Symbio Holdings Limited (SYM) – Symbio was acquired by Aussie Broadband (ABB).
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Ansarada Group Ltd. (AND) – Ansarada was acquired by Datasite, a virtual data room competitor backed by private equity.
Recent uncertainty provided an opportunity to enter CSL at below average historical valuation levels and we found the opportunity compelling.
At a Fund level, our investments in the Technology sector were the stand-out contributors during the calendar year, benefiting from positive stock selection.
Sector allocation
Sector overweights
Cash, Communication Services, Financials, Health Care, Industrials, Information Technology, Utilities (renewables)
Sector underweights
Consumer Discretionary, Consumer Staples, Energy, Materials, Real Estate
Outlook for the Fund
With the Australian share market trading near record highs and valuations at elevated levels, we remain disciplined in our approach to stock selection. We continue to see selective opportunities across the market when volatility is at heightened levels, particularly during reporting or trading update periods. Our investment philosophy remains focused on building investment conviction in the companies’ products and services, business model, management team and ultimately valuation.
The Fund is benchmark unaware and tends to have an overweight tilt to technology, due to the efficiencies it brings and to the healthcare sector, as we believe consumers will place value on health and well-being in the ageing populations of developed economies. We believe that these sectors offer a superior growth trajectory compared to the market.
The Fund invests across the market capitalisation spectrum and we are attracted to companies with pricing power and strong balance sheets, although our small and microcap exposures are typically in an earlier stage of commercialisation and investing in growth initiatives.
*Total returns are calculated using the sell (exit) price, net of management fees and gross of tax as if distributions of income have been reinvested at the actual distribution reinvestment price. The actual returns received by an investor will depend on the timing, buy and exit prices of individual transactions. Return of capital and the performance of your investment in the fund are not guaranteed. Past performance is not a reliable indicator of future performance. Figures showing a period of less than one year have not been adjusted to show an annual total return. Figures for periods of greater than one year are on a per annum compound basis. The current benchmark may not have been the benchmark over all periods shown in the above chart and tables. The calculation of the benchmark performance links the performance of previous benchmarks and the current benchmark over the relevant time periods.
Disclaimer
Interests in the Australian Ethical Managed Funds are issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949), the Responsible Entity of the Australian Ethical Managed Funds.
The information in this summary is of a general nature and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances and read the Financial Services Guide, relevant product disclosure statement and Target Market Determination available on our website.
You may wish to seek financial advice from an authorised tax or financial adviser before making an investment decision. Past performance is not a reliable indicator of future performance.
This commentary may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, Australian Ethical accepts no responsibility for the accuracy or completeness of, nor does it endorse any such third party material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material.
The information contained in this document is believed to be accurate at the time of compilation.