Diversified Shares Fund

Equity markets experienced a challenging March quarter, as a volatile macro environment drove a broad repricing of risk assets. Inflation concerns resurfaced, geopolitical tensions escalated, and expectations for interest‑rate cuts were reassessed. These dynamics weighed on both Australian and global equity markets, with performance increasingly shaped by sector composition and rapid rotations in market leadership. The S&P/ASX 300 index fell by -2.04%, and the MSCI World ex Australia index fell by -6.22% (in AUD terms). The Diversified Shares Fund returned -6.04%, while maintaining strict adherence to Australian Ethical’s investment charter. The Diversified Shares Fund (Wholesale) (the “Fund”) returned -6.26% over the quarter. The Diversified Shares Fund (Retail) returned -6.36% net of fees over the quarter.

The escalation of conflict in the Middle East emerged as a key macro influence over the quarter. Higher energy prices introduced a renewed inflationary impulse, disrupting earlier expectations of a smooth disinflationary path. In response, markets recalibrated expectations for central‑bank policy, particularly in the United States, where optimism around near‑term easing gave way to a more cautious outlook. Rising bond yields reduced support for equity valuations globally and contributed to increased volatility across markets.

The domestic market experienced heightened dispersion as higher oil prices supported strength in the Energy sector, while most other sectors delivered weaker returns. Defensive characteristics outperformed on a relative basis as uncertainty increased, while growth oriented and interest rate-sensitive sectors faced valuation pressure. The combination of rising input costs, elevated discount rates and a more cautious global risk backdrop weighed on sentiment across the broader market.

A prominent feature of the quarter was the sharp divergence within technology. Software stocks experienced widespread weakness as investors reassessed earnings sustainability, competitive pressures and valuation levels in a higher‑for‑longer rate environment. This sell‑off contrasted with more resilient performance in hardware and semiconductor‑related companies, where demand linked to AI infrastructure investment continued to provide support. The divergence was reflected in both domestic and international holdings and highlighted the increasingly selective nature of technology‑related market leadership.

Style performance shifted materially during the quarter. Momentum and growth factors reversed sharply, particularly in March, while lower‑risk and more defensive characteristics regained favour. Value‑oriented exposures benefited from the rotation away from crowded growth trades and stronger performance in energy‑exposed areas.

For the Fund, performance over the quarter was influenced by its diversified exposure across domestic and global equities. Structural underweights to Energy and exposure to growth‑oriented sectors, particularly software, detracted amid the sharp style rotation. On the positive side, stock selection in Consumer Staples assisted performance as Woolworths rallied 25% after demonstrating improved execution and stronger customer momentum from investment in value, fresh and convenience, alongside signs that market share was stabilising in Australian Food. Our stock selection in the Consumer Discretionary sector also boosted performance due to not owning (on Ethical grounds) Aristocrat Leisure, Light & Wonder, Amazon and Telsa, which underperformed over the quarter.

Outlook

Looking ahead, market outcomes are likely to remain sensitive to inflation dynamics, energy prices and central‑bank policy decisions. While near‑term uncertainty remains elevated, particularly if geopolitical risks persist, medium‑term fundamentals continue to offer support. Earnings growth is expected to broaden over time, financial conditions should become more supportive as policy uncertainty diminishes, and technology‑led capital investment remains a structural tailwind across multiple sectors.

Valuations across both Australian and global equities have adjusted meaningfully, increasing dispersion across sectors and styles. This environment favours diversified equity portfolios with disciplined risk management and valuation awareness. While volatility may persist in the near term, the Fund remains positioned to participate in a more balanced phase of market leadership as macro pressures stabilise and fundamentals reassert their influence.

Diversified Shares (Wholesale) Fund Performance

As at 31 March 2026^*

^75% S&P/ASX 300 Accumulation Index and 25% MSCI World ex Australia Index. Past performance is not a reliable indicator of future performance.

Inception date: 23/01/2012.

Diversified Shares (Retail) Fund Performance

As at 31 March 2026^*

^Benchmark is 75% S&P/ASX 300 Accumulation Index and 25% MSCI World ex Australia Index. Past performance is not a reliable indicator of future performance.

Inception date: 03/11/1997.

Contributors and detractors

Contributors

• Commonwealth Bank of Australia (CBA) returned 5.8% in March quarter as investors leaned on its defensive, high‑quality bank profile after the February half‑year result reinforced solid core operating momentum, improving credit quality and strong balance‑sheet/capital settings, alongside an interim dividend that underpinned income demand. However, sentiment was tempered by ongoing margin headwinds—management highlighted competitive intensity (especially in home lending) and the drag from funding/mix pressures and continued investment spend, keeping the market focused on the trade‑off between earnings durability and near‑term profitability.

• Woolworths Group (WOW) returned 25.5% in March quarter as investors responded positively to its February half‑year update, which pointed to improving execution and stronger customer momentum from investment in value, fresh and convenience, alongside signs that market share was stabilising in Australian Food. The result also highlighted continued cost savings/productivity focus and solid eCommerce growth, supporting a “turnaround gaining traction” narrative, even as management noted a still highly competitive environment with value‑focused shoppers.

• PLS Group (PLS) returned 21.3% in March quarter as sentiment toward the lithium complex improved on signs of a meaningful price recovery and tighter supply expectations, including volatility sparked by policy headlines (e.g., Zimbabwe’s move to restrict raw mineral/lithium concentrate exports), which lifted spodumene pricing and brought buyers back into the market. Against that backdrop, PLS benefitted from investor confidence in its low-cost, scaled Pilgangoora operating platform and improving cash generation as realised pricing rebounded, while management reiterated a disciplined approach to growth sequencing and flagged optionality such as a potential Ngungaju lithium spodumene plant restart decision as market conditions improved.

Detractors

• CSL (CSL) shares fell 17.4% in March quarter as the share price was pressured by a disappointing first‑half update that highlighted earnings headwinds in CSL Behring, including softer immunoglobulin performance and albumin weakness (notably linked to policy and market disruption in China), alongside the impact of one‑off restructuring/impairment items and a CEO transition, which together weighed on investor confidence despite management maintaining full‑year guidance. While CSL pointed to a stronger second‑half ambition (Ig, albumin recovery and newer products) and supported the stock via an expanded buyback, the market remained focused on the near‑term execution challenge and whether the plasma margin recovery and growth trajectory can re‑accelerate after the softer interim result.

• Goodman Group (GMG) shares fell 17.6% in March quarter as the broader real‑estate sector remained sensitive to interest‑rate expectations, but the stock was relatively supported by Goodman’s positioning at the centre of the AI / cloud data‑centre build‑out. Investor sentiment leaned on the company’s February half‑year result, which highlighted continued execution across logistics and data centres, strong partner capital inflows to fund its expanding development program, and reaffirmed its full‑year operating earnings growth target.

• Stockland (SGP) shares fell 24.8% in March quarter as the market de‑rated interest‑rate‑sensitive property names, with Australian REITs broadly selling off amid a more hawkish rates backdrop and higher-for-longer rate expectations. This macro pressure outweighed company‑specific positives from Stockland’s February half‑year update, which highlighted disciplined execution, stronger development settlements (particularly in masterplanned communities), and maintained full‑year guidance—all supportive fundamentals but not enough to offset the sector‑wide risk‑off move and valuation compression.

PLS Group Limited (formerly Pilbara Minerals), the miner of lithium used in batteries, contributed positively as improving lithium prices and stronger investor confidence pushed the share price higher.

Portfolio changes

Additions to the Fund

• Breville Group Limited (BRG-AU) – Breville Group Limited is a global small kitchen appliance company, best known for the Breville brand (and Sage in Europe). This company recently achieved ethical approval.

• Capstone Copper Corp. Shs Chess Depository Interests Repr 1 Sh (CSC-AU) – Capstone Copper is a copper mining company with a portfolio of long‑life operations across the Americas, including Pinto Valley (Arizona, USA), Cozamin (Mexico), and the Mantoverde and Mantos Blancos mines (Chile), plus the fully permitted Santo Domingo development project in Chile. This company recently achieved ethical approval.

• EDP Renovaveis SA (EDPR-PT) – EDP Renováveis, S.A. is a global renewable energy company that develops, builds, operates, and maintains power generation assets—primarily wind and solar—across multiple regions including Europe and the Americas. This company recently achieved ethical approval.

• Nippon Prologis REIT, Inc. (3283-JP) – Nippon Prologis REIT, Inc. is a Japan-listed J‑REIT that invests primarily in high‑quality “Class‑A” logistics (industrial) facilities in Japan, aiming to generate stable income and portfolio growth with sponsor support from the global logistics real estate group Prologis.

• Taylor Wimpey plc (TW-GB) – Taylor Wimpey plc is one of the UK’s leading homebuilders, investing in land and developing new homes and communities through its network of regional UK businesses, with a smaller operation in Spain, and managing the process endtoend from initial land investment through to completion and aftersales care.

• Terna S.p.A. (TRN-IT) – Terna S.p.A. is Italy’s national highvoltage electricity grid operator, responsible for transmitting power and balancing supply and demand in real time (dispatching) to keep the system reliable and secure.

Reductions from the Fund

• Bureau Veritas SA (BVI-FR) – Bureau Veritas SA is a global testing, inspection and certification company that helps clients ensure their assets, products, infrastructure and processes meet standards and regulations for quality, health & safety, environmental protection and social responsibility.

• SGS SA (SGSN-CH) – SGS SA is the world’s leading Testing, Inspection and Certification (TIC) group, providing independent services that help organizations improve quality, compliance and sustainability through a global network of laboratories and facilities.

• Trend Micro Incorporated (4704-JP) – Trend Micro is a global cybersecurity firm providing software and services that protect cloud, network, and endpoint environments, anchored by its Trend Vision One™ security platform.

• Tryg A/S (TRYG-DK) – Tryg A/S is a leading Nordic non‑life (P&C) insurer, offering insurance to private and business customers across Denmark, Norway and Sweden.

• Trend Micro Incorporated (4704-JP) – Vend Marketplaces ASA operates a family of leading Nordic online marketplaces—including FINN, Blocket, DBA, Bilbasen, Tori and Oikotie—connecting buyers and sellers across key verticals such as mobility, real estate, jobs and recommerce.
   

Copper mining company Capstone Copper, with operations across the Americas, recently achieved ethical approval and the holding was initiated as part of the optimisation process which aims to reduce tracking error.

While volatility may persist in the near term, the Fund remains positioned to participate in a more balanced phase of market leadership as macro pressures stabilise and fundamentals reassert their influence.

Sector allocation

Sector overweights
Cash, Communication Services, Financials, Health Care, Industrials, Information Technology, Real Estate, Utilities (renewables)

Sector underweights
Consumer Discretionary, Consumer Staples, Energy, Materials