Diversified Shares Fund
Global and Australian equity markets delivered another strong year in 2025, with both markets delivering double-digit returns and finishing the year near their highs. The S&P/ASX 300 index returned 10.66% in 2025, and the MSCI World ex Australia index returned 12.53%. The Diversified Shares Fund also delivered a solid result, closely tracking its benchmark while maintaining strict adherence to Australian Ethical’s investment charter. The Diversified Shares Fund (Wholesale) (the “Fund”) returned 8.76% over 2025. The Diversified Shares Fund (Retail) returned 8.28% net of fees over the year.
The year was marked by sharp swings: early optimism following President Trump’s policy agenda gave way to a steep correction in February and March as aggressive tariff announcements triggered risk-off sentiment and an unwind in momentum trades. In April, a V-shaped recovery was staged as a 90-day tariff pause helped sentiment. Middle East tensions lifted energy prices in June and Australia lagged the US in September amid shifting rate‑cut expectations and domestic inflation. Into year‑end, a more stable backdrop and earnings recovery supported prices, capping a constructive calendar year.
From an Australian-style perspective, Value outperformed Growth driven by the strong returns for the Mining sector, while Technology and Healthcare lagged. Small Caps delivered a notably stronger performance in 2025, outperforming Large Caps. This strength was largely driven by exceptional gains in gold-related stocks, highlighting the influence of Australia’s index composition. In contrast, US factor returns continued to favour Growth and Large Caps, underscoring the divergence in market leadership across regions. Globally, the Technology sector again led the market, with AI (artificial intelligence) remaining the defining theme.
In the domestic component of the portfolio, performance was impacted by the strength of the Materials sector. Ethical screening leads to a natural underweight in the Materials sector (due to the high carbon intensity of the mining and energy companies that dominate the sector), which detracted from performance in 2025. Stock selection in the Consumer Discretionary and Staples sectors assisted performance, partly due to our zero exposure to Aristocrat Leisure and Treasury Wine Estates for ethical reasons. Stock selection in the Real Estate sector positively contributed driven by our overweight exposure to Charter Hall Group which outperformed on the back of strong operational delivery, earnings upgrades and strategic positioning for future growth.
In the international component of the portfolio, our underweight exposure to Consumer Discretionary and Staples assisted performance. In particular, Amazon Inc, which is not held by the Fund for ethical reasons, underperformed the broader market as investors favoured higher-growth AI names. The Fund’s overweight exposure to Financials also assisted performance with stocks such as Societe Generale SA and ING NV posting strong returns as Europe’s continuing recovery led investors to seek cyclical value stocks. Meanwhile, stock selection in Industrials and IT negatively contributed to performance, partly due to our position in Fiserv Inc, which announced an earnings downgrade under new management.
Global and Australian equities enter 2026 with a constructive backdrop, supported by earnings growth, falling policy rates and an AI-driven investment cycle. Globally, the AI theme is broadening beyond mega-cap technology into financials, utilities and logistics with corporates investing for productivity, while elevated valuations—particularly in US Tech—require sustained earnings expansion. Geopolitical and policy risks remain non-trivial, warranting diversification and a selective approach. In Australia, mid-to-high single-digit earnings growth and strong corporate fundamentals provide support, though fiscal reform debates and elevated valuations call for some caution. We favour companies leveraging AI and automation for productivity gains, alongside defensive sectors benefiting from easing monetary policy globally, while maintaining robust diversification to navigate episodic volatility.
Diversified Shares (Wholesale) Fund Performance
As at 31 December 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | -1.2% | 0.0% |
| 6 months | 1.7% | 5.3% |
| 1 year | 8.8% | 11.2% |
| 3 years p.a. | 13.7% | 14.2% |
| 5 years p.a. | 9.1% | 11.5% |
| since inception p.a. | 12.0% | 12.4% |
^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: 23/01/2012.
Diversified Shares (Retail) Fund Performance
As at 31 December 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | -1.3% | 0.0% |
| 6 months | 1.5% | 5.3% |
| 1 year | 8.3% | 11.2% |
| 3 years p.a. | 13.2% | 14.2% |
| 5 years p.a. | 8.6% | 11.5% |
| since inception p.a. | 8.4% | 8.6% |
^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
Top 3 contributors to Fund return
+92.7%
PLS Group Limited (PLS)
+24.8%
Westpac Banking Corporation (WBC)
+7.9%
Commonwealth Bank of Australia (SGM)
Top 3 detractors from Fund return
-37.5%
CSL Limited (CSL)
-43.3%
Wisetech Global Ltd. (WTC)
-32.4%
Xero Limited (XRO)Contributors
- PLS Group (PLS) returned 92.7% in 2025 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.
- Westpac Banking Corp (WBC) returned 24.8% in 2025 as the market rewarded its successful "self-help" turnaround and organisational simplification. This performance was driven by strong momentum in business lending, which complemented stable earnings from its retail division. Financially, the bank maintained resilient net interest margins and delivered solid cash earnings growth through disciplined cost management and a leaner operating model.
- Commonwealth Bank of Australia (CBA) returned 7.9% in 2025, hitting historic record highs driven by its dominant retail scale and industry-leading return on equity. The bank’s robust cash earnings were supported by its massive deposit base and the successful integration of AI-driven tools that deepened customer loyalty. However, its premium valuation led to a late-year correction as investors weighed a contracting net interest margin caused by intense mortgage competition.
Detractors
- CSL (CSL) shares fell 37.5% in 2025 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.
- WiseTech (WTC)shares declined in 2025 despite strong operational performance, as internal instability overshadowed results. The company delivered robust organic revenue growth through global expansion of CargoWise and launched new AI-driven logistics tools. While increased investment in R&D and acquisitions weighed on margins, these initiatives position WiseTech for long-term innovation and growth.
- Xero (XRO) shares were weaker in 2025 as costs associated with international expansion tempered sentiment. Nevertheless, the company achieved record revenue growth and improved underlying margins, meeting key efficiency targets. Strategic investments, including a major acquisition, support Xero’s global scale and future profitability despite near-term integration costs.
Globally, the Technology sector again led the market, with AI (artificial intelligence) remaining the defining theme.
Portfolio changes
Additions to the Fund
-
Telix Pharmaceuticals Limited (TLX-AU) is a biopharmaceutical company that develops and commercialises therapeutic and diagnostic radiopharmaceuticals, primarily for oncology (cancer) and rare diseases. Its products use targeted radioactive compounds to help image and treat disease, with its lead prostate cancer imaging agent approved in key markets. Telix has a global footprint with operations in the US, Europe, Japan and Canada, and a pipeline of radiopharmaceuticals in clinical development.
-
American Water Works Company, Inc (AWK-US) is the largest publicly traded water and wastewater utility in the US, providing regulated drinking water and wastewater services to residential, commercial, industrial, and government customers across multiple states.
-
Capgemini SE (CAP-FR) is a global French IT services, consulting, and digital transformation company that helps organisations improve and modernise their business through technology.
Reductions from the Fund
-
Contemporary Amperex Technology Co., Limited (3750)is world’s largest manufacturer of lithium-ion batteries, especially for electric vehicles (EVs) and energy storage systems.
All of the stock changes described above were initiated or reduced as part of the optimisation process which aims to reduce tracking error.
Small Caps delivered a notably stronger performance in 2025, outperforming Large Caps. This strength was largely driven by exceptional gains in gold-related stocks, highlighting the influence of Australia’s index composition
Sector allocation
Sector overweights
Cash, Communication Services, Financials, Industrials, Information Technology, Real Estate, Utilities (renewables)
Sector underweights
Consumer Discretionary, Consumer Staples, Energy, Health Care, Materials
From an Australian-style perspective, Value outperformed Growth driven by the strong returns for the Mining sector, while Technology and Healthcare lagged
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.