INVESTMENTS | FUND COMMENTARY
Australian Shares Fund
The Australian Shares Fund (Wholesale) (the ‘Fund’) fell 18.0% in the quarter ended 30 June 2022, underperforming its benchmark which fell 12.2%. The Fund fell 17.3% in the 2022 financial year, underperforming its benchmark which fell 6.8%.
25 July 2022
Fund commentary
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The primary reason for the underperformance is the divergence in performance between the S&P/ASX Small Industrials Index (which fell 18.4% during the quarter and 24% for the year) and the S&P/ASX 300 Accumulation Index (which fell 12.2% during the quarter and 6.8% for the year); noting the Fund has more than 50% invested in small companies.
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This underperformance is specifically attributed to the Fund’s significant overweight allocation in the information technology sector, the weakest performing sector in the ASX300 over the period, with healthcare also a laggard. The technology sell-off has been led out of the US, with Australian microcap and small-cap companies in their earlier stages of commercial development hit particularly hard. The Fund’s significant underweighting in materials and energy, compared with the index, were also detractors.
Outlook for the Fund
The Fund has an all-cap strategy with investments spread across small, mid and large-cap names.
Small and microcap companies typically in an earlier stage of commercialisation and investing into growth initiatives have been disproportionately affected by rising global interest rates. The combination of an increased discount rate used to value company earnings and the fact small company earnings are typically expected further out results in their share prices being hit harder in a rising interest rate environment.
We continue to believe superior growth attributes are the primary reason for investing into small and microcap companies. We like to align our small-cap investment with intellectual property and global sales aspirations, a potentially powerful combination.
Australian Shares (Wholesale) Fund Performance
As at 30 June 2022*
| fund | benchmark | |
|---|---|---|
| 3 months | -18.0% | -12.2% |
| 1 year p.a. | -17.3% | -6.8% |
| 3 years p.a. | 6.8% | 3.4% |
| 5 years p.a. | 7.9% | 6.8% |
| 10 years p.a. | 12.7% | 9.1% |
| since inception p.a. | 12.4% | 9.1% |
*Benchmark is composite S&P/ASX Small Industrials Accumulations Index till 12 August 2019 and S&P/ASX 300 Accumulation Index thereafter. Past performance is not a reliable indicator of future performance.
Inception date: 23/01/2012.
Australian Shares (Retail) Fund Performance
As at 30 June 2022*
| fund | benchmark | |
|---|---|---|
| 3 months | -18.2% | -12.2% |
| 1 year p.a. | -17.8% | -6.8% |
| 3 years p.a. | 6.0% | 3.4% |
| 5 years p.a. | 6.9% | 6.8% |
| 10 years p.a. | 11.3% | 9.1% |
| since inception p.a. | 9.5% | 6.9% |
*Benchmark is composite S&P/ASX Small Industrials Accumulations Index till 12 August 2019 and S&P/ASX 300 Accumulation Index thereafter. Past performance is not a reliable indicator of future performance.
Inception date: 19/09/1994.
The number one detractor over the quarter ending 30 June 2022 was consumer finance company Pepper Money (PPM) which fell 42%.
Contributors
Detractors
Portfolio changes
Fund strategy
Australian Ethical offers investors the opportunity to invest in a diversified share portfolio of companies predominately listed on the ASX and selected on the basis of their social, environmental and financial credentials. The Australian Shares Fund utilises an active stock-picking management style with stocks selected for growth rather than income, with a bias towards smaller capitalisation stocks listed on the ASX. All stocks are chosen on the basis of relative value where we deem the risks are being adequately priced.
*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.