International Shares Fund
Global equity markets delivered strong returns over the financial year to 30 June 2026, although the path was far from smooth. The MSCI World Ex-Australia Index increased 14.9%, and the International Shares Fund (Wholesale) (the “Fund) closely tracked this benchmark, returning 14.7% after fees, while maintaining its strict adherence to Australian Ethical’s investment charter. Market performance was driven by a combination of resilient corporate earnings, continued investment in artificial intelligence (“AI”) infrastructure, and a cyclical improvement in economic activity, offset by periodic volatility stemming from elevated energy prices, geopolitical tensions in the Middle East and persistent inflation pressures. Throughout the year, investors repeatedly reassessed the outlook for monetary policy as inflation proved more durable than anticipated and energy market disruptions temporarily pushed inflation expectations higher.
The year was defined by the AI hardware super-cycle. Robust spending on data centres, semiconductors and related infrastructure supported earnings growth and broader economic activity. Market leadership remained concentrated in hardware, semiconductor and infrastructure-related companies, while software businesses faced a more challenging environment amid growing competition and uncertainty around the long-term impact of AI. Market breadth remained relatively narrow for much of the year, reflecting strong investor preference for a limited group of AI beneficiaries.
Geopolitical developments also played an important role. The temporary closure of the Strait of Hormuz and resulting energy price shock contributed to higher inflation expectations and renewed uncertainty around the timing and extent of central bank easing. While subsequent de-escalation reduced the risk of a prolonged supply disruption, energy prices and inflation remained key drivers of market sentiment throughout the period. Rising bond yields and a “higher-for-longer” interest rate backdrop periodically weighed on equity valuations, particularly in long-duration growth stocks.
From a style perspective, factor leadership broadened relative to prior periods. The year saw stronger performance from Quality and selected cyclical exposures, supported by improving growth expectations and resilient earnings, while Low Volatility and Value characteristics provided diversification benefits during periods of market stress. Dispersion across sectors, regions and individual stocks remained elevated.
Over FY26, the Fund maintained overweight positions in Interface Inc. and Xylem Inc. Interface is a global flooring company designing durable carpet tile and resilient flooring with a focus on responsible consumption and production. Its products contain high levels of recycled and bio‑based materials (around 67% in carpet tiles), and through its ReEntry™ program, the company works with customers to take back and recycle old flooring helping to reducing waste and supporting the circular economy. Xylem is helping solve the global water challenge by providing advanced technologies that enable utilities to deliver clean water, treat wastewater, and improve water efficiency, supporting both public health and long‑term resource sustainability.
Outlook for the Fund
Looking ahead, the outlook remains constructive, although some uncertainties persist. There continues to be a supportive backdrop created by ongoing AI-related investment, resilient earnings growth and the prospect of improving productivity across the global economy. At the same time, markets remain sensitive to the path of inflation, bond yields and central bank policy, particularly given expectations that policy rates may remain restrictive for longer than previously anticipated.
Geopolitical developments and energy markets are also likely to remain important sources of volatility. While expectations for a prolonged energy supply shock have moderated following the reopening of the Strait of Hormuz, inflation risks have not disappeared and further geopolitical disruptions could quickly alter market sentiment.
Against this backdrop, elevated dispersion across sectors, regions and factors should continue to favour systematic investment approaches that emphasise diversification, valuation awareness and disciplined risk management. Market leadership may gradually broaden beyond the narrow group of AI beneficiaries that have driven returns in recent years. The portfolio remains positioned to participate in long-term earnings growth while maintaining adherence to Australian Ethical's investment ethical charter and prudent portfolio construction principles.
International Shares (Wholesale) Fund Performance
As at 30 June 2026*
| Fund | Benchmark^ | |
|---|---|---|
| 3 Months | 15.5% | 12.6% |
| 6 Months | 5.9% | 5.6% |
| 1 Year | 14.7% | 14.9% |
| 3 Years P.A. | 17.0% | 17.8% |
| 5 Years P.A. | 12.0% | 13.4% |
| 10 Years P.A. | 12.9% | 14.0% |
| Since Inception P.A. | 11.8% | 12.7% |
^Benchmark is the MSCI World ex Australia Index
Past performance is not a reliable indicator of future performance.
Inception date: 30/06/2015.
Contributors and detractors
Top 3 contributors to Fund return
+92.2%
Alphabet Inc. Class A (GOOGL-US)
+787.4%
Micron Technology, Inc. (MU-US)
+33.8%
Apple Inc. (AAPL-US)
Top 3 detractors from Fund return
-28.7%
Microsoft Corporation (MSFT-US)
-27.6%
Meta Platforms Inc Class A (META-US)
-49.6%
Netflix, Inc. (NFLX-US)Contributors
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Alphabet Inc. Class A (GOOGL) delivered a strong return underpinned by solid revenue growth highlighting the commercial benefits of its investment in artificial intelligence. Search advertising revenue continued to grow strongly, with search queries at an all-time high, while Google Cloud reported accelerating growth as customers increased spending on AI infrastructure and services. Importantly, the integration of Gemini across Google's products demonstrated that AI could enhance user engagement and monetisation rather than displace the company's core Search franchise.
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Micron Technology (MU-US) was one of the Fund's strongest contributors in 2026 as accelerating investment in AI infrastructure drove strong demand for memory semiconductors. High-Bandwidth Memory (HBM) and data centre products benefited from robust demand and tight industry supply conditions, supporting significant growth in revenue, margins and earnings. Reflecting these favourable conditions, Micron reported record fiscal third-quarter results, with revenue, gross margin and earnings per share all exceeding the high end of management's guidance. Management noted that data centre revenue exceeded US$25 billion during the quarter, highlighting Micron's position as a key beneficiary of the rapid growth in AI infrastructure.
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Apple Inc. (AAPL-US) delivered strong operating performance during 2026, reporting record March quarter revenue of US$111.2 billion, up 17% year-on-year. The result was driven by record iPhone revenue, supported by demand for the iPhone 17 product range, while Services revenue reached a new all-time high. Apple also reported double-digit revenue growth across every geographic segment and a 22% increase in earnings per share compared to the prior year period.
Detractors
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Microsoft Corporation (MSFT-US) declined 28.7% in 2026 despite reporting strong operating results. In its fiscal third-quarter 2026 result, the company reported revenue growth of 18% year-on-year to US$82.9 billion, while net income increased 23% and its AI business surpassed an annual revenue run rate of US$37 billion. Microsoft also highlighted continued growth in Azure and cloud services, however the company forecast capital expenditure of approximately US$190 billion for 2026 as it continued to invest heavily in AI infrastructure and data centre capacity.
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Meta Platforms Inc. (META-US) declined 27.6% in 2026. During the year, Meta reported strong underlying business performance, with first-quarter revenue increasing 33% year-on-year to US$56.3 billion and net income rising 61%. The company also reported growth in advertising activity, with ad impressions increasing 19% and average price per advertisement increasing 12%. During the quarter, Meta increased its expected 2026 capital expenditure guidance to US$125–145 billion from a prior range of US$115–135 billion, citing higher component pricing and additional data centre costs required to support future capacity.
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Netflix, Inc. (NFLX-US) declined 49.6% in 2026 despite continued growth in its underlying business. The company reported first-quarter revenue growth of 16% year-on-year (14% on a foreign-exchange-neutral basis), while operating income increased 18%, with both results exceeding management's guidance due to stronger-than-expected subscription revenue. Netflix also reaffirmed its full-year revenue guidance and stated that its advertising business remained on track to double revenue in 2026. The company noted that content amortisation growth would be weighted towards the first half of the year, with the second quarter expected to have the highest year-on-year content amortisation growth rate of 2026.
Xylem, an investment in the Fund, is helping solve the global water challenge by providing advanced technologies that enable utilities to deliver clean water, treat wastewater, and improve water efficiency, supporting both public health and long term resource sustainability.
Portfolio changes
Additions to the Fund
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Agnico Eagle Mines Limited (AEM-CA) – Agnico Eagle Mines Limited operates a portfolio of gold mines across Canada, Australia, Finland and Mexico, with the majority of its production sourced from Canada. This company recently received ethical approval and the holding was initiated as part of the optimisation process which aims to reduce tracking error.1
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Public Storage (PSA-US) – Public Storage is the world's largest owner of self-storage facilities. The company owns, develops and operates more than 3,500 self-storage facilities across the United States, serving over two million customers. Revenue is primarily generated through self-storage rental operations. This company recently received ethical approval and the holding was initiated as part of the optimisation process which aims to reduce tracking error.
- Hudbay Minerals Inc (HBM-CA) – Hudbay Minerals Inc. is a copper-focused critical minerals mining company with operations in Canada and Peru. Hudbay also maintains a pipeline of development projects in Canada, Peru and the United States. The company recently received Ethical approval and was initiated as part of the optimisation process which aims to reduce tracking error.
Reductions from the Fund
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Mid-America Apartment Communities, Inc. (MAA-US) – The Fund exited Mid-America Apartment Communities after it was removed from Australian Ethical's investable universe following a review by the Ethics team.
Micron Technology was one of the Fund's strongest contributors in 2026 as accelerating investment in AI infrastructure drove strong demand for memory semiconductors.
The year was defined by the AI hardware super-cycle. Robust spending on data centres, semiconductors and related infrastructure supported earnings growth and broader economic activity.
Sector allocation
Sector overweights
Communication Services, Financials, Industrials, Information Technology, Real Estate
Sector underweights
Consumer Discretionary, Consumer Staples, Energy, Health Care, Materials, Utilities (renewables)
1 Gold and companies whose business is linked to gold (eg gold miners) were recently added to our investible universe (provided any such company appropriately manage their social and environmental impacts). This change is in recognition that gold plays an important role as a defensive asset that can help stabilise portfolios and cushion system wide shocks that might otherwise translate into higher living costs, abrupt policy responses, or reduced support for communities. While gold has played this defensive role for centuries, its significance has grown further in recent times as central banks have been increasing their gold holdings, reflecting concerns about long-term monetary and geopolitical instability. In increasingly uncertain and volatile economic environments, the defensive qualities of gold have become ever more pertinent.
Interests in 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 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 (PDS) and Target Market Determination (TMD) 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.
Investing ethically and sustainably means that the investment universe will generally be more limited than non-ethical, non-sustainable portfolios in similar asset classes. This means that the portfolio(s) may not have exposure to specific assets which over or underperform over the investment cycle, and so the returns and volatility of the portfolio(s) may be higher or lower than non-ethical, non-sustainable portfolios over all investment time frames.
*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.
The information contained in this document is believed to be accurate at the time of compilation.