High Conviction Fund

The High Conviction Fund (Fund) delivered a 5.7% return (net of fees) for the 12 months to December 31, 2025, with stock selection supporting performance amidst a challenging market backdrop for our fundamentally driven, ethical investment style. The first half of the year was characterised by persistent market flows concentrated into companies with large index weights (e.g. the Big 4 banks) despite elevated valuation multiples, while gold stocks rallied strongly as the gold price strengthened on heightened macro uncertainty. As the year progressed, growing confidence in the market outlook saw a broadening of risk appetite into stocks with relative valuation appeal and new IPOs coming to market, while the rally in gold stocks broadened into a rally across the Materials sector on strengthening commodity prices.

Sector allocation created an unfavourable headwind for the portfolio in 2025, which underperformed the ASX 300 benchmark with a 10.7% return. The carbon intensive Materials sector was a significant driver of the benchmark’s return, rising 36% over the year. The Fund has a material underweight position in the Materials sector relative to the benchmark due to the high carbon intensity of the mining companies that dominate the sector. Conversely, the Fund has an overweight position in long-term thematic growth sectors, Healthcare and Information Technology, which were the two sector laggards of the market in 2025. Whilst these sector positions detracted from performance over the year, they have added significantly more value than the Materials sector, as well as the broader market over the 30+ years we have been managing Australian equities¹.

The Fund’s investment focus remained on leveraging our team’s fundamental research capability to find attractively priced companies within our ethical investment universe, that will outperform over time. Pleasingly, this process delivered positive contribution from stock selection during the year. This was most evident in the Financials sector, which the Fund maintains an underweight position in relative to the benchmark, yet was the best performing sector for the Fund during the year. Stocks with strong valuation appeal, including Challenger and NIB, were some of the best performers for the Fund. Reflecting our long-term investment horizon, we also maintained positions in out-of-favour stocks like Pilbara Minerals and Domain. This approach benefited the portfolio, as the lithium market roared to life in the second half of the year, while Domain became the subject of an attractive takeover offer.

As we head into 2026, the portfolio is well positioned to benefit from normalising macro conditions and a more balanced market. The focus for the Fund remains on finding stocks that are undervalued in the Australian or New Zealand markets, with our team of experienced analysts unearthing opportunities in the market.

High Conviction (Wholesale) Fund Performance (with performance fee)

As at 31 December 2025^*

^Benchmark is the S&P/ASX 300 Accumulation Index.

*Past performance is not a reliable indicator of future performance.

Inception date: 01/10/2021.

Contributors

• PLS Group (PLS) 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.
  
  
• Challenger (CGF) remains a key player in Australia’s retirement income market, offering guaranteed annuity products that require significant capital backing. In November, APRA proposed changes to capital requirements for annuity providers, allowing them to hold less capital. The objective is to encourage competition and increase adoption of retirement income solutions across the market. CGF’s return on equity should improve from holding less capital. Dai-ichi Life became a major shareholder (holding a 19.9% stake in July this year), reinforcing confidence in Challenger’s long-term strategy.
  
  
• 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.

Detractors

• CSL (CSL) nderperformed 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.
  
  
• 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 graph‑data analytics business, is complementary to Nuix’s offering and provides additional cross‑sell opportunities.
  
  
• Reliance Worldwide's (RWC) share price underperformed the market during the period, impacted by US tariffs headwinds and ongoing softness in residential activity and end market demand, particularly in the US and UK. While the cost of tariffs will have a US$25-$30m impact during the current financial year, management have implemented mitigation measures, such as price increases and product sourcing changes to minimise the impact going forward. Reliance is a high quality, well-managed company with a strong balance sheet trading at an attractive valuation. We expect upside to emerge over the medium term.

A strong rally in the gold price drove gold miners higher, a headwind for the portfolio given our natural underweight position to these companies. It was pleasing to outperform the broader market despite this market dynamic.  

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 longterm buying opportunity for a high-quality software business in our view.

Divestments from the Fund

• Orora Limited (ORA) is a manufacturer of packaging solutions for beverage products, operating in Australia, Europe and the US. ORA has faced a challenging operating environment with a downturn in glass volumes impacting its Saverglass business, compounded by uncertainty over the potential impact of tariffs. While P/E valuation metrics appear cheap, the timing and quantum of volume improvements remains uncertain. The position was exited to reinvest the capital in other high conviction opportunities where we see a greater upside in the near term.
  
  
• Australian Clinical Labs (ACL) runs an extensive pathology services network in Australia. Near-term uncertainty is present due to regulatory and competitive pressures. The divestment frees capital to pursue opportunities in other sectors with better growth potential.

Additions/reductions are for the most recent quarter

We added global cloud based accounting and payments software business Xero to the fund. We believe the indigestion of the acquisition of US payments business Melio had created a long-term buying opportunity for a high-quality software business.

Sector allocation

Sector overweights
Communication Services, Consumer Staples, Health Care, Information Technology, Utilities (renewables)

Sector underweights
Consumer Discretionary, Energy, Financials, Materials

The Financials sector was the best performing sector for the Fund during the year even though we maintain an underweight position in relative to the benchmark. Stocks with strong valuation appeal including Challenger and NIB were some of the best performers for the Fund.