Australian Shares Fund

The Australian share market was characterised by one of the largest divergences in individual stock returns seen in recent years. Returns were heavily concentrated in resource and commodity-related companies as rising commodity prices, geopolitical uncertainty and energy security concerns drove strong performance from the Materials sector. In contrast, much of the broader Industrials sector experienced a far more challenging environment, with three consecutive 25bp rate hikes in 2026 adding pressure to rate-sensitive and growth sectors, which lagged despite their generally resilient underlying business performance.

Technology and Artificial Intelligence were prominent themes but they played out very differently in Australia than in the United States. In the US, AI enthusiasm drew significant capital into large-cap technology companies, pushing valuations higher and contributing to the S&P 500's outperformance relative to other markets, particularly in the first half. In Australia, the dynamic ran in the opposite direction. The rapid advance of AI raised fears of disruption, particularly for software businesses. This dynamic weighed heavily on the sector throughout the year, as markets began pricing in the risk of AI displacement well before any meaningful earnings impact had appeared. This dynamic resulted in sell-offs in several of our software stocks despite their strong balance sheets and clear AI strategies, including Siteminder, Xero and PEXA. We are starting to see some reversion in the sector however, with Siteminder for instance posting a 43% return in the June quarter.

The stark divergence between Resources and Industrials created an unusually narrow market leadership and was a defining feature of the year for active investors. Illustrating the bifurcation in markets, the S&P/ASX 300 Materials Index rose 54%, while the S&P/ASX 300 Industrials Index declined 7.5%. This 61.5 percentage point performance gap represents one of the most pronounced periods of sector dispersion in recent years and was a defining feature of the investment environment.

Our limited investment in fossil fuels, defence and many of the carbon-intensive resource companies that rose during the period led to headwinds for relative returns. Although the Fund finished on a stronger footing, outperforming the broader market during the final month as investor interest began to broaden, the late improvement was not enough to offset the significant headwinds throughout the year. The Australian Shares Fund declined 7.9% compared to the benchmark which rose 6.9%. The main driver of the performance differential was sector allocations.

Our portfolios naturally look different to the broader market, shaped by our Ethical Charter over the last 40 years. This isn’t adjusted to reflect short-term market movements. We are more exposed to technology, healthcare and businesses we believe have resilient, long-term operating models and we have limited involvement in commodity-driven industries and cyclical plays. During FY26, those differences were challenged by the unusually narrow market leadership. However, over the longer-term we believe they position the portfolio to benefit from structural growth, innovation and the transition to a lower-carbon economy.

Markets tend to move around underlying value as sentiment shifts. When price disconnects from fundamentals – as it has in selective pockets of the market in our view – that creates opportunity. We have been deploying capital with conviction into areas where market the dynamics described above have created opportunities. At the end of June, the portfolio held minimal cash, reflecting the active deployment of capital at what we believe are attractive valuations. Our disciplined stock selection focuses on businesses trading at attractive valuations, supported by strong balance sheets and durable long‑term earnings profiles. We believe this positioning provides a solid foundation as sector leadership broadens and returns increasingly reflect underlying company fundamentals rather than macro‑driven rotations.

Australian Shares (Wholesale) Fund Performance

As at 30 June 2026^*

^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 30 June 2026^*

Contributors

• PLS Group (PLS) performed strongly over the year as improving lithium market fundamentals supported a recovery in spodumene prices from cyclical lows. Higher realised prices drove a significant improvement in earnings, margins and cash generation, while improving sentiment toward battery materials increased investor interest in high-quality, low-cost producers. We believe PLS is well positioned to fund future growth and benefit from the favourable long-term outlook for lithium demand.

• Cuscal (CCL) was a strong contributor over the year, driven by solid transaction volume growth and positive operating leverage translating into double‑digit earnings growth. Performance was supported by its highly defensive, volume based payments model and entrenched position as a regulated infrastructure provider to banks and fintech clients. Additional upside came from the strategic acquisitions of Indue and Paymark to extend its scale and expand into New Zealand. We continue to see Cuscal benefiting from structural growth in digital payments and market share gains within the non‑major bank segment.

• Qube (QUB) performed strongly over the year, supported by the Macquarie-led takeover bid at $5.20, which represented a significant premium to its pre-bid trading price. Earnings also continued to grow despite macro uncertainty, underpinned by Qube’s diversified exposure across logistics, agriculture and ports, highlighting the quality and scarcity value of Qube's infrastructure platform. The scheme is expected to be implemented in August 2026 following regulatory and shareholder approvals.

Detractors

• CCL (CCL) detracted from performance as it rebased its earnings outlook amid regulatory setbacks in China, continued vaccine sentiment fatigue and the impact of generic competition within its Vifor segment. Despite near-term headwinds, we continue to see CSL as a high-quality healthcare franchise with attractive long-term growth prospects, supported by its global leaderships in plasma therapies and vaccines, significant scale advantages and multiple avenues for earnings recovery. The valuation remains compelling and we see meaningful upside to long-term demand trends for its core portfolio of therapies.

• Gentrack (GTK) underperformed over the year as delays in large contract wins and elongated sales cycles deferred the revenue growth in the short term. Lower project-related revenue weighed on near‑term earnings and led to a reset in market expectations, although management stated that the underlying sales pipeline remains intact. While execution risk has increased in the near term, we continue to see long term growth supported by utilities billing digitisation and the structural energy transition.

• Cochlear (COH) underperformed following an earnings downgrade driven by slower implant market growth and a mix of headwinds, including weaker hearing aid channel referrals, procedure deferrals and disruption across key developed markets. Despite this, the long-term investment case remains intact given Cochlear’s market leading position, product innovation and favourable demand drivers, with valuation providing upside as growth recovers once these pressures ease.

PLS Group performed strongly over the year as improving lithium market fundamentals supported a recovery in spodumene prices from cyclical lows

Portfolio changes

Additions to the Fund

• Capstone Copper (CSC) was added to the fund as a high-conviction copper exposure with significant organic growth, improving cost competitiveness and substantial leverage to the structural demand outlook for copper. We see meaningful upside from the ramp-up of Mantoverde, future development of Santo Domingo and other expansion opportunities that are not fully reflected in the current valuation.

• Paragon Care Limited (PGC) is a leading distributor of medical equipment and consumables across Australasia, serving hospitals, clinics, and pharmacies. In the Australian market, it also operates as a pharmacy wholesaler and distributor. We initiated a position based on our view that improving margins and acquisitive growth, combined with an attractive valuation, present a compelling recovery opportunity.

• Cleanaway Waste Management Ltd. (CWY), Australia’s largest waste management company, was added to the portfolio at an attractive valuation point. We expect a valuation uplift to be driven by the strong earnings growth outlook over the next three years driven by execution of operational efficiency programs, strategic infrastructure investments and earnings contributions from recent acquisitions.

• Judo Capital Holdings Ltd (JDO) – Judo Bank is focused on lending to small and medium‑sized enterprises (SMEs). We initiated the position at an attractive entry price, supported by a strong expected uplift in profitability as the loan book scales and operating leverage improves toward target metrics.

Divestments from the Fund

• Australian Clinical Labs Ltd (ACL) was divested as we believe the company faces ongoing headwinds from rising labour costs, increased industry competition and a regulatory environment where government reimbursement growth has failed to keep pace with cost inflation. While management has executed well, these factors are likely to constrain earnings growth and reduce the attractiveness of the investment opportunity relative to alternatives in the portfolio.
  
  

• Bravura Solutions Limited – The Fund exited its position in Bravura following a strong share price re-rating driven by improved operational execution and capital management initiatives. While the company has executed well, we believe the risk-reward profile became less attractive relative to other opportunities within the portfolio, prompting us to realise gains and reallocate capital elsewhere.
   
  

Qube’s earnings continued to grow despite macro uncertainty, thanks to its  diversified exposure across logistics, agriculture and ports.

Returns were heavily concentrated in resource and commodity-related companies as rising commodity prices, geopolitical uncertainty and energy security concerns drove strong performance from the Materials sector.

Sector allocation

Sector overweights
Communication Services, Financials, Health Care, Information Technology, Utilities (renewables)

Sector underweights
Consumer Discretionary, Consumer Staples, Energy, Industrials, Materials, Real Estate