Australian Shares Fund
The Australian Shares Fund (Fund) entered a more testing market landscape in 2025 after outperforming in the previous 12 months. The Fund rose 2.8% (net of fees) compared to the benchmark of 14.5% for the 12 months to December 31, 2025. Significant sector rotation in 2025 saw Materials significantly outperform the broader index. Within the Materials sector, investor appetite was heavily concentrated in gold-related exposures early in the year, supported by heightened macro uncertainty and a renewed search for defensive inflation hedges. As the year progressed, this momentum broadened across commodities, with rising interest extending to diversified miners and bulk commodity names. While the previous year’s environment rewarded structural growth, balance sheet quality, and idiosyncratic stock drivers, 2025 was dominated by a more cyclical, resource-led advance.
To illustrate the shift in market sentiment, the S&P ASX 200 Materials index rose by 36% in the last 6 months, compared to the S&P ASX 200 Industrials index declining 4%. The fund is perpetually underweight Materials due to the high carbon intensity of the mining and energy companies that dominate the sector. Correspondingly, the fund has maintained overweight positions to technology and healthcare. Whilst these sector positions have detracted value over the last year, they have added significantly more value over the 31-year history of the Fund1.
Despite these headwinds, the consumer sector emerged as a key area of strength for the Fund aided by fundamental stock picks. The Fund’s positioning in quality consumer names—supported by resilient demand profiles and strong competitive positioning—provided a partial offset to the commodity-driven skew of the broader market. Disciplined cost management, strong execution and steady earnings delivery helped these positions contribute positively to an otherwise challenging style environment.
As we head into 2026, the portfolio remains anchored in disciplined stock selection, with focus maintained on long-term fundamentals. As sector leadership gradually broadens and macro conditions begin to normalise, the Fund is well positioned to benefit from a more balanced market, supported by its strong focus on fundamental analysis and its commitment to maintaining quality and resilience across holdings. We also remain disciplined in avoiding over-valued stocks driven by short-term sentiment. Our team of experienced analysts is instead focussed on unearthing under-valued opportunities in the Australian or New Zealand market. This approach has endured the test of times over the long term, enabling the Fund to outperform the benchmark 70% of the time over the past 10 years (based on calendar year relative to benchmark returns net of fees).
Australian Shares (Wholesale) Fund Performance
As at 31 December 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | -4.3% | -0.2% |
| 6 months | -0.1% | 7.5% |
| 1 year | 2.8% | 14.5% |
| 3 years p.a. | 10.4% | 12.4% |
| 5 years p.a. | 5.1% | 10.4% |
| 10 years p.a. | 8.8% | 8.9% |
| since inception p.a. | 11.9% | 10.2% |
^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 31 December 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | -4.4% | -0.2% |
| 6 months | -0.4% | 7.5% |
| 1 year | 2.2% | 14.5% |
| 3 years p.a. | 9.7% | 12.4% |
| 5 years p.a. | 4.5% | 10.4% |
| 10 years p.a. | 7.8% | 8.9% |
| since inception p.a. | 9.5% | 7.7% |
^ Benchmark changed from S&P/ASX 300 Accum Index to 65% ASX 100 Total Return Index/35% ASX Small Ordinaries Total Return Index from 30 Sep 2023. Previously, benchmark changed from S&P/ASX Small Industrials Index to S&P/ASX 300 Accum Index from 13 Aug 2019. The historical benchmark returns are calculated by linking these indices.
*Past performance is not a reliable indicator of future performance. Fund returns are net of fees.
Inception date: 19/09/1994.
Contributors and detractors
Top 3 contributors to Fund return
+79.3%
Domain Holdings Australia Ltd. (DHG)
+92.7%
PLS Group Limited (PLS)
+78.6%
Pepper Money Ltd. (PPM)
Top 3 detractors from Fund return
-71.6%
Nuix Ltd. (NXL)
-37.5%
CSL Limited (CSL)
-65.7%
OFX Group Ltd. (OFX)Contributors
- Domain Holdings (DHG) was acquired by CoStar for $4.43 per share, a significant premium to the pre-bid price in August 2025 following approval of the transaction by shareholders.
- PLS Group (PLS) share price returned 93% over the year as spodumene prices rebounded strongly over the second half of the period, as demand continues to grow steadily on a curtailed supply base. While further near-term price movements are difficult to predict, PLS is strongly positioned with a Tier 1 asset, strong balance sheet with an approximate $850M cash balance, and relatively favourable position on the cost curve. In addition, we remain positive on the longer-term demand/supply fundamentals of the nascent lithium industry, and our investment in PLS is well placed to benefit and realise further upside from current levels.
- Pepper Money (PPM) has delivered strong loan growth over the past 12 months across both mortgages and asset finance. A significant portion of asset finance relates to lower-risk salary sacrifice car loans, supporting a stable credit profile. Loan losses are expected to remain low. Strong lending growth has enabled Pepper to sell portions of its loan book to third parties. These transactions generate an upfront profit on sale and ongoing servicing fee income, reinforcing Pepper’s capital-light business model. In June, Pepper paid a special dividend, highlighting its strong cash generation and disciplined capital management.
Detractors
- Nuix (NXL) experienced significant share price volatility during the year following slippage on the timing of signing enterprise deals and the unexpected departure of the CEO. We view the current valuation as attractive, with a pathway to restoring double digit annual contract value growth over the medium term. The acquisition of Linkurious, a French graphdata analytics business, is complementary to Nuix’s offering and provides additional crosssell opportunities.
- CSL (CSL) underperformed during the year, driven by a softer FY26 outlook, ongoing uncertainty surrounding US regulatory impacts and lower vaccination rates in the US. Despite this, the long-term investment thesis remains intact, supported by sustained global demand for plasma-derived therapies. The stock continues to trade at an attractive discount to all industrials (excluding banks and REITs), while targeting high-single-digits EPS growth p.a. over the mid-term.
- OFX Group (OFX) faced a difficult trading environment in FY25, with market volatility weighing on operating performance. Earnings are expected to be significantly lower in FY26 as OFX invests heavily in rolling out its new client platform for corporate clients. This strategic investment aims to enhance client experience and broaden service capabilities. The migration of existing clients onto the new platform should drive non-FX revenue growth, helping diversify OFX’s revenue streams beyond traditional foreign exchange services.
Cleanaway, Australia’s largest waste management company, was added to the portfolio for its attractive valuation and strong earnings growth outlook over the next three years.
Portfolio changes
Additions to the Fund
- Xero Limited (XRO) is a global cloud based accounting and payments software business with a market leading position in A&NZ and a solid growth trajectory in the UK and US. The indigestion from the acquisition of the US payments business Melio had created a long term buying opportunity for a high-quality software business, in our view.
- 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) 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.
Reductions from the Fund
- Reece Limited (REH) was exited from the portfolio as we opportunistically participated in the off-market buy-back at an attractive valuation point.
- hipages Group Holdings Ltd. (HPG) was exited from the Fund following an in line FY25 result which guided to low double digit revenue growth and solid free cash flow generation in FY26. Whilst the business is well positioned for growth with a large net cash position, it will require meaningful net customer growth going forward whilst reducing its historically high churn rate.
Additions/reductions are for the most recent quarter
Domain Holdings contributed to the Fund’s returns after it was acquired by CoStar at a significant premium to the pre-bid price in August 2025 following approval of the transaction by shareholders.
Sector allocation
Sector overweights
Cash, Consumer Staples, Financials, Health Care, Information Technology, Utilities (renewables)
Sector underweights
Communication Services, Consumer Discretionary, Energy, Industrials, Materials, Real Estate
While the previous year’s environment rewarded structural growth, balance sheet quality, and idiosyncratic stock drivers, 2025 was dominated by a more cyclical, resource‑led advance.
1 Since September 1994, the Information Technology GICs (Global Industry Classification Standard) sector has returned 19.2% per annum. This is almost twice as much as the Materials GICs (+9.7%) and three times more than Energy GICs (6.32%) in this period.
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.