INVESTMENTS | FUND COMMENTARY
Emerging Companies Fund
The Emerging Companies Fund (Wholesale) (the ‘Fund’) fell 21.5% in the quarter ended 30 June 2022, underperforming its benchmark, which fell 18.4%. The Fund slightly outperformed its benchmark over the 2022 financial year, falling 22.8% against the S&P/ASX Small Industrials Index which fell 24%.
25 July 2022
Fund commentary
At a sector level, the Fund’s financials outperformed while its technology investments detracted. The technology sell-off has been led out of the US, with microcap and small-cap Australian companies in their earlier stage of commercial development particularly hard hit. We are pleasingly seeing some of our investee companies recognise the cost of equity has risen and consequently pivoting their business models towards free cashflow generation. We don’t believe the rationale for investing into small companies has changed and feel there are currently relatively attractive valuations in the Technology sector.
Outlook for the Fund
Small and microcap companies, which are 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 and consequently have been adding to some of our underperforming names.
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 aspirations, a potentially powerful combo.
Emerging Companies (Wholesale) Fund Performance
As at 30 June 2022*
| fund | benchmark | |
|---|---|---|
| 3 months | -21.5% | -18.4% |
| 1 year p.a. | -22.8% | -24.0% |
| 3 years p.a. | 9.9% | -2.2% |
| 5 years p.a. | 12.0% | 3.3% |
| since inception p.a. | 12.9% | 5.3% |
*Source: FE fundinfo. Benchmark: S&P ASX Small Industrials Index. Past performance is not a reliable indicator of future performance.
Inception date: 30/06/2015.
Emerging Companies (Retail) Fund Performance
As at 30 June 2022*
| fund | benchmark | |
|---|---|---|
| 3 months | -21.5% | -18.4% |
| 1 year p.a. | -23.1% | -24.0% |
| 3 years p.a. | 9.4% | -2.2% |
| 5 years p.a. | 11.3% | 3.3% |
| since inception p.a. | 12.1% | 5.3% |
*Benchmark: S&P ASX Small Industrials Index. Past performance is not a reliable indicator of future performance.
Inception date: 30/06/2015.
Small and microcap companies, which typically in an earlier stage of commercialisation and investing into growth initiatives, have been disproportionately affected by rising global interest rates.
Contributors
Detractors
Portfolio changes
Fund strategy
Australian Ethical offers investors the opportunity to invest in a diversified portfolio of shares in small capitalisation companies on the basis of their social, environmental and investment credentials. The Emerging Companies Fund utilises an active stock-picking management style with stocks selected for capital growth rather than income. 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.