INVESTMENTS | FUND COMMENTARY
Balanced Fund
The Balanced Fund (Wholesale) (the ‘Fund’) returned –7.6% for the quarter ended 30 June 2022, underperforming its benchmark which fell 6.7%. The Fund returned -7.1% for the 2022 financial year, also underperforming its benchmark which fell 5.0%.
25 July 2022
Fund commentary
Outlook for the Fund
Increasing volatility has been a persistent feature of the past year, and this quarter has been no different with the Ukraine war and Covid restrictions in China driving volatile commodity prices and markets oscillate between growth and inflation fears. The VIX (Volatility Index) has remained elevated in the mid-20s, a level on par with 2020 when we grappled with a very uncertain Covid future, but also the late 1990s and early 2000s in the wake of the dotcom bubble.
If history is a guide, while we could be encountering turbulence for a protracted period yet, volatility didn’t start to decline until the real economy entered into and started to recover from a recession a few years after the dotcom bust – but the opportunities provided to patient investors then could be the same now. Those with a longer time horizon stand to benefit if they can identify those companies with brightest opportunity amongst the selling by those who are shaken out by the volatility. Already we are starting to find very attractively valued smaller companies.
In the immediate term, we continue to focus on deploying capital into diversifying growth exposures, like venture capital and private equity where we believe there is significant prospect for individual outcomes to be more significant than the market. We are encouraged to move a little faster now that we are getting feedback that valuations in those markets are becoming more competitive again. Further, following the rapid increase of bond yields over recent months it now leaves fixed income assets in a much better position to resume their historical role of offering income and the potential to appreciate during economic uncertainty.
From a broader sustainability perspective, we see long term trends continue to favour the portfolio. The recent federal election has put in place increased ambition in our pathway to net zero, which will see companies preferred by our approach and charter with a stronger growth profile. Additionally, our focus on sustainable commodities, continues to be an area of long-term support.
Balanced (Wholesale) Fund Performance
As at 30 June 2022*
| fund | benchmark | |
|---|---|---|
| 3 months | -7.6% | -6.7% |
| 1 year p.a. | -7.1% | -5.0% |
| 3 years p.a. | 4.3% | 3.7% |
| since inception p.a. | 6.4% | 5.9% |
*Source: FE fundinfo. Benchmark: Australian Ethical Balanced Composite. Past performance is not a reliable indicator of future performance.
Inception date: 28/03/2018.
Balanced (Retail) Fund Performance
As at 30 June 2022*
| fund | benchmark | |
|---|---|---|
| 3 months | -7.7% | -6.7% |
| 1 year p.a. | -7.7% | -5.0% |
| 3 years p.a. | 3.5% | 3.7% |
| 5 years p.a. | 5.4% | 5.9% |
| 10 years p.a. | 7.5% | 8.5% |
| since inception p.a. | 6.5% | 7.2% |
*Source: FE fundinfo. Benchmark: Australian Ethical Balanced Composite. Past performance is not a reliable indicator of future performance.
Inception date: 16/10/1989.
Our investments in global healthcare names was the only sector within our equity portfolios to perform positively over the quarter ending 30 June 2022.
Contributors
Detractors
Portfolio changes
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In December, we finalised an investment into Generation Investment Management’s Sustainable Solutions Fund IV. Generation is a well-established and well-aligned growth stage private equity manager with an excellent track record across its growth equity strategies. Our investment provides an exciting opportunity as the portfolio’s first entry into the private equity market. The fund primarily targets growth stage private businesses in North America and Europe across three thematics:
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People health
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Planetary health
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Financial inclusion
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In our domestic equities portfolio, we directed flows towards larger cap stocks through our investment in the High Conviction Fund from October 2021. The High Conviction Fund’s greater allocation to large caps and financials, and lower allocation to information technology complemented the tech and small cap bias of our other active exposures. The re-positioning towards this fund helped to partially offset the underperformance of our domestic equities portfolio through the volatility of the last 6-months, with the High Conviction Fund outperforming its benchmark by 2.4% over the 6-month period.
Fund strategy
Australian Ethical offers investors the opportunity to invest in a diversified portfolio of asset types and markets to reduce the volatility of returns. Asset classes include Australian and international equities, property, fixed income securities and cash. The Balanced Fund is built around long-term benchmark asset allocations which are regularly reviewed and as otherwise required to adapt to significant changes in market conditions. We determine the asset allocation with the potential to consistently deliver outperformance across the investment horizon.
*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.
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.