International Shares Fund
Global equity markets had a stellar year, with the MSCI World Ex Australia Index rising by more than 31% and achieving record highs. Markets were resilient with any sell-offs shallow and short-lived as global GDP growth proved stronger than expected. In early August, Japan’s Nikkei closed down 12.4% (the worst day since 1987) as disappointing US jobs data triggered a further rise in the yen. This resulted in the somewhat chaotic unwind of the dollar-yen carry trade. In September, the US Federal Reserve delivered a 50bps cut (the first cut since March 2020). This was followed by 2 more 25bps cuts in November and December. In November, Donald Trump won the US election which triggered an equity market rally on excitement surrounding tax cuts, deregulation and a more business friendly backdrop. The year ended with the Fed signaling a slower pace of rate cuts for 2025, which triggered a short-lived dip in global equities.
From a global style perspective, Momentum has been the key driver of equity gains. Despite expectations for a small cap resurgence, large caps outperformed in 2024. Growth outperformed Value as the Technology sector outpaced the broader market with AI mania continuing to be a dominant theme.
The International Shares Fund (Wholesale) (the “Fund”) delivered a second consecutive year of double-digit returns. In 2024, the fund returned 28.1% net of fees, compared to its benchmark which rose 31.2%. The International Shares Fund (Retail) rose 27.6% net of fees for the fiscal year.
At a country level, performance was impacted by stock selection Japanese and US equities. During the year, the Nikkei soared past its previous all-time high set 35 years ago in December 1989. Japanese equities were propelled to record highs by solid economic growth and the Bank of Japan raising rates for the first time in 17 years. There have also been notable improvements in corporate governance. US exceptionalism continued with the S&P500 returning 25% in 2024 (in local currency, total return terms). This robust performance was driven by strong gains in technology and AI-related sectors, along with an easing monetary policy environment.
At a sector level, stock selection in Industrials negatively impacted performance. This was due to our holdings in railway stocks, including Canadian National Railway Company and West Japan Railway, which were impacted by softer freight or passenger volumes and higher operating costs than expected. Our underweight exposure to Consumer Staples contributed positively to performance as companies that we do not hold, such as Nestle SA, Pepsico and L’Oreal, were impacted by demand weakness from tighter household budgets and cost pressures. Our underweight exposure to the Energy and Materials sectors also supported performance.
International Shares (Wholesale) Fund Performance
As at 31 December 2024*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 10.9% | 12.1% |
| 6 Months | 14.8% | 14.7% |
| 1 years p.a. | 28.1% | 31.2% |
| 3 years p.a. | 10.5% | 12.2% |
| 5 years p.a. | 12.8% | 14.1% |
| since inception p.a. | 11.8% | 12.8% |
^Benchmark changed from MSCI Global Climate to MSCI World ex Australia from 1 July 2016. The historical benchmark returns are calculated by linking two indices.
Inception date: 30/06/2015.
Contributors and detractors
Top 3 contributors to Fund return
+70.4%
Fiserv, Inc (FI-)
+49.7%
Alphabet Inc. Class A (GOO)
+76.1%
American Express Company (AXP)
Top 3 detractors from Fund return
-9.1%
Canadian National Railway (CNI)
-13.0%
Elevance Health, Inc (ELV)
9.3%
Eli Lilly and Company (LLY)Top contributors
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Fiserv, Inc (FI-) 70.4% over the year, driven by its dominant position in the financial technology sector, providing crucial payment and financial solutions in an increasingly digital world. The company consistently exceeded financial expectations, demonstrating its ability to capitalize on the growth in digital transactions and financial services. Strategic acquisitions and partnerships further expanded Fiserv's capabilities and market reach, while a thriving global economy fuelled increased consumer spending, directly benefiting its core businesses.
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Alphabet Inc. Class A (GOO) rose 49.7% in 2024, driven by strong double-digit growth in revenue and earnings. This success was fuelled by the continued dominance of its search and advertising businesses, capitalizing on the expanding digital advertising landscape. Simultaneously, Google Cloud emerged as a major player, rivalling established giants like Amazon and Microsoft. Furthermore, Alphabet solidified its position as an innovation leader through significant strides in AI, notably its Gemini models, and the unveiling of its Willow quantum computing chip.
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American Express Company (AXP) rose 76.1% over the year. The company consistently surpassed financial expectations, driven by increased spending from its affluent customer base and higher interest income. Strategic investments in technology and marketing kept Amex at the forefront of the evolving digital payments landscape, while its focus on premium customers and strong credit performance ensured profitability.
Top detractors
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Canadian National Railway Company (CNI) share price performance lagged the benchmark in 2024. A softening global economy, coupled with weaker North American freight demand, hampered revenue growth. Labour disruptions led to service issues and increased operating costs, while unforeseen events like wildfires in Alberta added to operational challenges. Increased competition from other transportation modes further pressured CNR's performance. These headwinds combined to create a challenging environment for the company.
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Elevance Health's (ELV) share price performance lagged the benchmark in 2024. A key challenge was the decline in Medicaid membership resulting from policy changes and eligibility redeterminations, leading to a loss of revenue. Simultaneously, rising medical costs, particularly driven by seniors resuming elective procedures that were postponed during the pandemic, squeezed profit margins.
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Eli Lilly (LLY) was a detractor for the fund, as the stock was purchased in March, missing its full-year performance gains despite the fund holding an overweight position relative to the benchmark. In 2024, Eli Lilly's stock emerged as a standout performer, driven by the remarkable success of its innovative medications. Mounjaro, a groundbreaking treatment for type 2 diabetes and obesity, and Donanemab, a promising Alzheimer's drug, experienced tremendous demand, generating substantial revenue and establishing Lilly as a leader in these critical therapeutic areas. The company consistently exceeded financial expectations throughout the year, demonstrating the effectiveness of its research and development efforts.
Fiserv shares rose 70.4% over the year, driven by its dominant position in the financial technology sector, providing crucial payment and financial solutions in an increasingly digital world.
Portfolio changes
Additions to the Fund
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Hilton Worldwide Holdings Inc. (HLT) – Hilton is a global hospitality company managing and franchising a portfolio of hotels and resorts across multiple brands, including luxury and budget segments, in over 100 countries. It was added to the portfolio after gaining Ethical approval during the year.
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Lowe's Companies, Inc. (LOW) – Lowe’s is a US-based home improvement retailer offering a wide range of products, including hardware, tools, appliances, and building supplies, catering to both DIY customers and professional contractors. It was added to the portfolio after gaining Ethical approval during the year.
- Schneider Electric SE (SU) – Schneider Electric is a multinational company specializing in energy management and automation solutions, including software, hardware, and services aimed at optimizing efficiency and sustainability for industries, homes, and infrastructure. It was added to the portfolio after gaining Ethical approval during the year.
Reductions from the Fund
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Telefonica SA (TEF) – Telefónica is a leading telecommunications company based in Spain, providing mobile, fixed-line, broadband, and digital services to consumers and businesses across Europe and Latin America. The holding was reduced as part of the optimization process which aims to reduce tracking error.
- Tryg A/S (TRYG) – Tryg is a Danish insurance company offering a variety of non-life insurance products, including car, home, health, and commercial insurance, primarily in the Nordic countries. The holding was reduced as part of the optimization process which aims to reduce tracking error.
- Randstad NV (RAND) – Randstad is a Dutch multinational specializing in human resource services, including temporary and permanent staffing, recruitment, and workforce solutions for businesses across various industries. The holding was reduced as part of the optimization process which aims to reduce tracking error.
Hilton, the company with a portfolio of global hotels and resorts based in over 100 countries, was added to the portfolio after gaining Ethical approval during the year.
Despite expectations for a small cap resurgence, large caps outperformed in 2024. Growth outperformed Value as the Technology sector outpaced the broader market with AI mania continuing to be a dominant theme.
Sector allocation
Sector overweights
Communication Services, Financials, Industrials, Information Technology, Real Estate
Sector underweights
Consumer Discretionary, Consumer Staples, Energy, Health Care, Materials, Utilities (renewables)
Outlook for the Fund
The International Shares Fund invests in a diversified portfolio of global equities which meet our Ethical Criteria. The Fund utilizes a systematic approach to reduce tracking error with the aim of tracking the MSCI World ex-Australia index before fees and expenses over a 3 year period.
Global growth in 2025 is expected to be powered by the US economy. As such, markets will be focused on US policy changes under the new administration. Most of President Trump’s economic policies appear inflationary, including tariffs, tax cuts and immigration curbs. The potential impact from changes to US tariffs is dependent on how tariff costs are distributed between importers, exporters, consumers and governments. Markets have broadly priced in a base case that sees the US raising tariffs by 60% for China, but tariffs for the rest of the world are not fully priced at this stage. This is likely to drive volatility in 2025.
Technological advancements and the expanding AI revolution are set to remain key themes in the market narrative, with a sharper emphasis on monetization expected in the coming year. The predicted surge in productivity driven by AI could assist to offset any concerns about fading corporate earnings growth.
From a style perspective, the outperformance of Momentum over 2024 has led to a higher-for-longer regime (where winners continue “winning”). This was driven by the US Fed’s higher-for-longer rates policy and the AI capex boom, which created ever-narrowing equity leadership and increased Momentum Crowding. While the timing of reversals and rotations can be difficult to predict, we continue to expect a broadening out in factor performance, likely triggered by further reductions in rates in 2025 amidst still resilient growth.
* All data is prepared in accordance with FSC Standard No. 6. 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.
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The information contained in this document is believed to be accurate at the time of compilation.