Emerging Companies Fund
Geopolitical confrontation escalated sharply during the March quarter, precipitating a fall in equities particularly for small companies. Markets are watching to see the extent to which higher energy costs flow into broader inflation, whether central banks can eventually ease interest rates, and whether growth slows smoothly or starts to show stress in jobs and credit. The jury is also out on whether AI ultimately proves to be a productivity accelerator or a driver of unemployment. As we navigate this uncertainty, what is clear is that equity valuations in selective areas are now very attractive.
Even with the abovementioned volatility and uncertainty, companies are still in need of capital to fund development, particularly those with innovative healthcare diagnosis and treatment opportunities. It has been a hallmark of Australian Ethical’s long term approach to back early-stage opportunities that aim to improve patient care and outcomes as well as providing favourable investment returns.
During the quarter, we participated in capital raisings for PYC Therapeutics, OncoSil Medical and Cyclopharm. Our investment in PYC supports the development of new treatments for Retinitis Pigmentosa (a blinding eye disease) and Polycystic Kidney Disease, both long-term conditions with no effective cures. We supported OncoSil to fund the business through its upcoming clinical trial results, with prior studies showing that adding its treatment to chemotherapy significantly improves the chances of successful surgery and patient outcomes. Finally, we invested in a Cyclopharm capital raising to support the rollout of Technegas in the United States, a lung imaging technology that uses less radiation and no contrast dye, making it safer for patients who are unwell or unsuited to conventional imaging. Importantly, these investments allow companies to progress their innovations through uncertain times and fulfil our requirement for long term favourable investment characteristics.
The fund’s long term holdings in the Utilities sector were the strongest contributors to relative investment performance over the quarter with New Zealand ‘Gentailers’ (companies that operate as both generators and retailers of electricity) Contact Energy (-1.6%), Mercury (-5.3%) and Meridian Energy (-3.4%) all significantly outperforming the benchmark as investors sought the stability and safety of more defensive sectors. The Gentailers are also experiencing better profit outlooks as the drought conditions in the prior period eased.
The sectoral laggards included travel Technology company Siteminder (-53.0%) underperforming the market given AI concerns and fears of business disruption. This also hurt education software provider Janison Education (-60.3%). Our view is that these businesses retain significant competitive advantages capable of withstanding threats from AI, which appear overdone, and there is attractive value on offer. Consumer Discretionary company Web Travel Group (-45.4%) also fell amidst the geopolitical risk that emerged during the period.
Outlook for the Fund
While we were satisfied with the level of profit growth delivered across the portfolio during the important reporting season period in February, the first quarter of 2026 proved difficult for small industrial companies to outperform. There remains substantial uncertainty in the outlook for markets and consumer confidence has pulled back to levels not seen since Covid-19. Our long-term view of company valuations has changed during recent events and we believe markets are prone to react favourably to any continued news of de-escalation in the Middle East. Portfolio activity has continued in the period as we contribute to the important task of providing funding to companies with innovative solutions and good investment prospects. We end the quarter with a relatively low level of portfolio cash, indicating that we have found attractive opportunities to invest during market weakness.
Emerging Companies (Wholesale) Fund Performance
As at 31 March 2026*
| fund | benchmark^ | |
|---|---|---|
| 3 months | -17.9% | -14.3% |
| 6 months | -22.0% | -17.8% |
| 1 year p.a. | -6.8% | -0.8% |
| 3 years p.a. | 5.0% | 4.7% |
| 5 years p.a. | -0.1% | 0.0% |
| since inception p.a. | 9.9% | 5.4% |
^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 31 March 2026*
| fund | benchmark^ | |
|---|---|---|
| 3 months | -18.0% | -14.3% |
| 6 MONTHS | -22.4% | -17.8% |
| 1 year p.a. | -7.5% | -0.8% |
| 3 years p.a. | 4.5% | 4.7% |
| 5 years p.a. | -0.6% | 0.0% |
| since inception p.a. | 9.3% | 5.4% |
^Benchmark: S&P ASX Small Industrials 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
+13.3%
PEXA Group Limited (PXA)
+30.0%
Sims Ltd. (SGM)
+10.3%
OFX Group Ltd. (OFX)
Top 3 detractors from Fund return
-53.0%
SiteMinder Limited (SDR)
-45.4%
WEB Travel Group limited (WEB)
-60.3%
Janison Education Group Ltd. (JAN)Contributors
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PEXA (PXA) delivered a solid share price performance over the March quarter with its 1H26 earnings and cash flow above expectations. The UK rollout is on track with its first tier one bank customer NatWest now live on the platform for remortgage transactions, albeit with ongoing investment as PEXA invests to scale the platform and build lender and conveyancer adoption. Whilst there is increased regulatory uncertainty from the IPART pricing review for the Australian business, we continue to see long‑term value in PEXA’s infrastructure‑like domestic cash flows and the optionality embedded in the UK expansion.
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Sims Ltd (SGM) delivered a strong contribution over the period as market sentiment turned increasingly bullish on Sims Lifecycle Services, which provides data‑chip recycling and repurposing solutions to hyperscale data‑centre customers. As the resulting share price appreciation pushed the stock beyond our internal valuation, the fund exited the position and redeployed capital into opportunities offering superior valuation upside.
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OFX (OFX) – Share price appreciation during the quarter was primarily driven by renewed hopes of corporate activity, following OFX’s announcement of a formal strategic review in February. The move reflects a valuation rerating as investors reassessed underlying value, with supportive data points from recent listed peer transactions occurring at higher multiples than those implied by OFX’s prevailing share price, despite there being limited change in near-term operating conditions.
Detractors
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SiteMinder (SDR) underperformed during the quarter as market sentiment shifted negative from the software AI disruption and Middle East conflict risks. Operationally, underlying ARR growth and customer metrics remained sound, supported by continued penetration of larger hotel groups and steady uptake of the Smart Platform product suite. Management remains focused on balancing growth with improving operating leverage, and we continue to view SDR as well positioned to expand its share of a large global hotel technology market. The key medium‑term focus remains sustained ARR growth alongside improved free cash flow as the company tightens its cost growth.
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Janison Education (JAN) underperformed during the quarter as the 1H26 result highlighted a slowdown in revenue growth following the prior NZ Ministry of Education contract win, and loss of the lower margin venue/logistics revenue from the NSW Department of Education. The company’s balance sheet remains solid as it continues to invest in its digital assessment platform and development of its sales pipeline which we view as critical to improving revenue growth and margin expansion over the medium-term.
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WEB Travel Group (WEB) underperformed during the quarter as sentiment toward travel stocks weakened, with heightened geopolitical uncertainty raising concerns around near term travel demand. The expectation of subdued travel led to consensus earnings downgrades and alongside a company specific tax matter flagged in Spain, contributed to a derating of the shares. We continue to see fundamental value in WEB, which is trading on a single digit P/E multiple alongside expectations of double digit earnings growth. WEB plays a critical role in the global travel ecosystem, contracting hotel inventory at scale, aggregating and merchandising this content on its technology platform, and distributing it globally via APIs and B2B booking portals.
During the quarter, we participated in a capital raisings for PYC Therapeutics. Our investment in PYC supports the development of new treatments for Retinitis Pigmentosa (a blinding eye disease) and Polycystic Kidney Disease, both long-term conditions with no effective cures.
Portfolio changes
Additions to the Fund
- PYC Therapeutics Limited (PYC) – We initiated a position in PYC through its recent capital raising. The company is developing novel treatments for Retinitis Pigmentosa and Polycystic Kidney Disease, two chronic conditions with limited effective treatment options. With funding secured through upcoming efficacy readouts, we see PYC as an attractive long‑term investment opportunity.
- Reliance Worldwide Corp. Ltd. (RWC) – Reliance Worldwide Corp was added to the fund over the quarter, reflecting compelling relative value following its transition out of the ASX/S&P 100. Despite a challenging operating environment, Reliance Worldwide remains a high‑quality, well‑managed business with a strong balance sheet, trading at an attractive valuation. We see clear medium‑term upside as fundamentals stabilise and earnings leverage to a normalising housing cycle re‑emerges.
Reductions from the Fund
- Mayfield Childcare Ltd. (MFD)
- Shriro Holdings Ltd. (SHM) – The Fund exited a small position in Shriro, which is a household appliances and consumer electronics marketing distribution company. Due to the strong cashflow generation and robust balance sheet, the company was able to conduct two off-market equal access buybacks, which the Fund participated in. The remaining small position was exited on market
- Sims Ltd. (SGM)
The fund’s long term holdings in the Utilities sector were the strongest contributors to relative investment performance over the quarter with New Zealand ‘Gentailers’ Contact Energy, Mercury and Meridian Energy all outperforming the benchmark as investors sought the stability and safety of more defensive sectors.
Sector allocation
Sector overweights
Cash, Financials, Health Care, Information Technology, Utilities (renewables)
Sector underweights
Communication Services, Consumer Discretionary, Consumer Staples, Industrials, Materials, Real Estate
We believe markets are prone to react favourably to any continued news of de-escalation in the Middle East
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.
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The information contained in this document is believed to be accurate at the time of compilation.