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Australian Shares SMA Portfolio

Australian Shares SMA Portfolio commentary for the calendar year ended 31 December 2023.
Published 23 Jan 2024   |   9 min read

The portfolio recorded a gross return of +11.7% for the year ended 31 December 2023, slightly underperforming the benchmark ASX 200 Accumulation Index’s return of +12.4%.

Equity markets fluctuated throughout the year, driven largely by changing sentiment around inflation and the outlook for interest rates. With inflation remaining sticky, the “stronger for longer” view on interest rates pervaded equity markets for much of the year, keeping a lid on returns. This changed towards the end of the year, with expectations for multiple rate cuts in 2024 signaled by the US Federal Reserve in mid-December providing a backdrop for a strong end of year rally for equity markets, with the ASX 200 benchmark index ending near record levels.

At a sector level, the Financials sector was the strongest performer for the portfolio in 2023, with the portfolio’s overweight in insurance stocks contributing to the positive performance. The market environment for insurers was positive during the year with solid premium growth across the sector and a low claims environment in certain categories. Mortgage insurer Helia (HLI) was the standout performer, benefiting from a low claims environment, enabling the company to increase returns to shareholders via share buy-backs and dividends.

Other sectors contributing positively to portfolio returns during the year were the Industrials and Consumer Staples sectors. Within Industrials, Reliance Worldwide (RWC) was the standout performer, demonstrating operating resilience and strong cash flows despite the softer operating environment. In the Consumer Staples sector, vitamin manufacturer Blackmores (BKL) delivered a strong return after it was the subject of a successful acquisition proposal by Kirin Holdings for $95/share.

Key sectors detracting from performance during 2023 were the Healthcare and Information Technology sectors. While the Healthcare sector benefited from strong performance from hearing implant provider Cochlear (COH), as well as the portfolio’s underweight position in CSL, the exposure to pathology providers Healius (HLS) and Australian Clinical Labs (ACL) negatively impacted. We continue to like the pathology market, however the decline in testing following the elevated Covid period and slower than expected recovery in testing volumes impacted both companies in 2023. Healius brought additional pressure on themselves with a stretched balance sheet requiring an equity raising later in the year, which we declined to participate in and have subsequently exited our position in the stock. We are of the view that Australian Clinical Labs is better placed to navigate the current market conditions and the share price recovered somewhat towards the end of the year.

The Information Technology sector was negatively impacted by the performance of Pexa (PXA). We continue to be strong supporters of the PXA business given their strong franchise in Australia generating good returns and cash flows. However, PXA’s foray into the UK market hasn’t gone to plan so far, with additional capex and extended timeframes to profitability testing the market’s patience. We think this will come and believe PXA is undervalued at current levels.

Also detracting from performance during the year was the portfolio’s natural underweight position in the Materials and Consumer Discretionary sectors. The portfolio has minimal exposure to either sector under the Ethical screening process. Iron ore producers (not owned by the portfolio) performed strongly during the year, while Consumer Discretionary stocks held up better than expected despite the inflationary impacts across the economy.

Australian Shares SMA Portfolio Performance

As at 31 December 2023

fund benchmark^
3 months 3.2 8.4
1 year p.a. 11.7 12.4
since inception p.a. 12.0 13.4

^ Benchmark: S&P/ASX 200 Accumulation Index. Past performance is not a reliable indicator of future performance.

Inception date: 16/04/2020. Source: Praemium portal.

Contributors and detractors

Top 3 contributors to fund return


Cochlear (COH)


Helia (HLI)


Reliance Worldwide (RWC)

Top 3 detractors to fund return


Healius (HLS)


Australian Clinical Labs (ACL)


  • Cochlear (COH) performed strongly this year as the defensive nature of its earnings became evident in its FY23 result. Implants, upgrades, and services revenue growth rewarded investors with an NPAT result at the top end of the guidance range. Cochlear’s strong balance sheet and outlook are helpful in supporting its valuation and we believe it remains an attractive asset given it is a truly global medical device company with limited competitors.

  • Helia (HLI) has experienced a favourable claims environment due to a strong employment market and resilient house prices, with actual conditions better than expected. This has resulted in a period of share buybacks, with a current share buyback of $100 million and the company declaring sustainable annual dividends of 28 cents per share enhancing HLI’s appeal as an income stock. HLI recently gained S&P/ASX 200 index inclusion. Benefits of lower claims experience may continue if macroeconomic conditions hold. This is offset by lower housing credit growth and new business written which should be cyclical in nature.

  • Reliance Worldwide (RWC) had a strong share price performance over the year, demonstrating operating resilience and strong cash flows despite the softer operating environment. The outlook for 2024 is for low to mid-single digit revenue declines, and a flat margin outcome (albeit 2H24 weighted), supported by internal initiatives. New product launches at higher price points and cost out initiatives are further expected to support margin expansion and earnings growth in 2025.

  • Healius (HLS) shares fell throughout the period as diminishing Covid-19 testing revenues combined with solvency concerns around its balance sheet. Towards period end, these factors resulted in a capital raise required by lenders to pay down debt. The raise was accompanied by full-year guidance that implied a material 1H vs 2H skew at the midpoint and was priced at a 30% discount, further impacting the share price.

  • Australian Clinical Labs (ACL) detracted from performance due to a weaker FY23 result and guidance. Unfortunately, similarly to HLS, FY24 remains a transition year as general practitioner (GP) volumes continue to lag historic levels. However, we acknowledge ACL’s strong fundamentals with a robust balance sheet, low relative PE multiple and 5% yield. We continue to be optimistic of an ACL rerate as pathology volumes return to pre-COVID-19 levels.
  • PEXA (PXA) shares declined as shareholders became frustrated by the progress in the UK, where management is investing in a platform for digitisation of property transactions. The core Australian exchange, which has a strong market position, has performed resiliently despite a more challenging property market. Our investment thesis in PEXA reflects our view that the market is placing nil value to the potential market opportunity in the UK.


Cochlear performed strongly this year as the defensive nature of its earnings became evident in its FY23 result.

Portfolio changes

Additions to the portfolio
  • Coles (COL)Coles (COL) is a leading supermarket chain in Australia, with an extensive national store footprint. The share price fell materially after the FY23 earnings result in August, driven by a weaker result (due to theft) and delays to their customer fulfillment centre. We believe these issues are short-term in nature and with an increasingly cost conscious consumer we think COL is well-placed to benefit from the current uncertain economic environment.

  • Resmed (RMD)RMD is a leading global MedTech player in the sleep and respiratory care markets, providing Continuous Positive Airway Pressure (CPAP) machines for treating obstructive sleep apnea (OSA). RMD is the market leader in a large addressable market, with devices expecting high single digit growth annually. We added the stock to the portfolio as we believe a valuation gap opened up following concerns around the margin outlook were compounded by fears that weight loss drugs under development will reduce demand for RMD’s products going forward. While uncertainty as to the eventual impact on RMD will likely remain for some time, we think a lot of this downside risk is already factored into the share price.

Divestments from the portfolio
  • Blackmores (BKL)BKL was acquired by Japanese conglomerate Kirin for $95/share, with shareholders voting to approve the takeover and receiving the final proceeds on August 10th. As a result, BKL was delisted from the ASX and removed from the portfolio.

  • Healius (HLS) We divested our Healius shareholding as whilst we fundamentally like the pathology sector, we view Healius as the expensive opportunity with higher risk given its FY24 guidance skew. It currently also trades at a material premium to SHL and ACL, which is difficult to justify in light of the continued risks.


A series of factors resulted in Healius completing a capital raise required by lenders to pay down debt.

Current expectations for multiple rate cuts should be supportive of equity markets in 2024, particularly growth sectors. 
Sector allocation

Sector overweights
Healthcare, Utilities (Renewables), Industrials

Sector underweights
Materials, Energy, Consumer Discretionary

Outlook for the portfolio

While we were disappointed with the portfolio’s modest underperformance in the 2023, we continue to believe the portfolio has the right mix of exposures to deliver strong returns for investors over the long-term. The portfolio maintains significant exposure to key growth sectors in Information Technology, Healthcare, and Renewables that we expect will outperform the rest of the market over the long-term. These sectors account for a ~35% weighting in the portfolio, compared to less than 15% in the ASX 200 index.

Macro factors will likely play a role in continued market volatility during 2024, with inflation easing but potentially remaining stubborn. The path for interest rates therefore remains uncertain, although current expectations for multiple rate cuts should be supportive of equity markets in 2024, particularly growth sectors.

See portfolio info

This is general information only and is not intended to provide you with financial advice or take into account your individual investment objectives, financial situation or needs. You should obtain and consider the relevant Financial Services Guide, Product Disclosure Statement and Target Market Determination relating to this product before making a decision

*Total returns are calculated using the sell (exit) price, net of management fees, transaction costs and performance fees where applicable and are calculated based on distributions being reinvested. The actual returns received by an investor will depend on the timing of the buy and exit prices of individual transactions. Distributions 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.

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 Fund may not have exposure to specific assets which over or underperform over the investment cycle, and so the returns and volatility of the Fund may be higher or lower than non-ethical, non-sustainable portfolios over all investment time frames.

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.

Australian Ethical acknowledges the Traditional Owners of the country on which we work, the Gadigal people of the Eora Nation, and recognise and celebrate their continuing connection to land, waters and culture. We pay our respects to Elders past and present and thank them for protecting Country since time immemorial.

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