High Conviction SMA

The High Conviction SMA Portfolio (Portfolio) delivered a 2% return (net of fees) for the 12 months to December 31, 2025, 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.  

With the Materials sector comfortably outperforming the rest of the market over the year, the Portfolio underperformed the benchmark ASX 300 index, which recorded a return of 10.7%. The Portfolio has a material underweight position in the Materials sector relative to the benchmark due to the high carbon intensity of the mining and energy companies that dominate the sector. Correspondingly, the Portfolio has maintained overweight positions in technology and healthcare. Whilst these sector positions have detracted value over the last year, they have added significantly more value over the 30+ years we have been managing Australian equities¹. Positive stock selection softened the impact on the Portfolio’s return. With valuations now looking particularly attractive for technology and healthcare, we retain an overweight position and we expect both sectors to outperform in 2026.

Despite the headwinds, the consumer sector was an area of strength for the portfolio aided by stock selection. A key contributor to the Portfolio was the decision to focus its supermarkets exposure in Coles instead of Woolworths. The management team at Coles executed strongly throughout the year, taking market share and leveraging recent investments in supply chain capabilities. Retaining the Portfolio’s investment in lithium producer, Pilbara Minerals, also benefited the Portfolio, as the notoriously volatile lithium market turned positive in the second half of the year.

The Portfolio’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. Changes to Portfolio holdings during the year reflected this process, with the Portfolio well positioned to deliver positive performance going forward.

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 Portfolio remains on finding stocks that are undervalued in the Australian or New Zealand markets, with our team of experienced analysts unearthing opportunities.

High Conviction SMA Portfolio Performance (net of fees)

Previously the Australian Shares SMA Portfolio

As at 31 December 2025^*

Source: Praemium portal.

^Benchmark changed from S&P/ASX 200 Accum Index to S&P/ASX 300 Accum Index from 30 June 2025. The historical benchmark rturns are calculated by inkking these indices.

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

Inception date: 16/04/2020.

Contributors

• 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.
  
  
• SiteMinder (SDR) rallied following a strong financial result, highlighted by the underlying annual recurring revenue growing 27%, attractive customer acquisition economics and minimal churn. FY26 guidance indicates this momentum should continue, supported by growing adoption of the Smart Platform products, which have been gaining strong traction since launch. We remain positive on the long‑term outlook, with confidence in SDR’s ability to expand both its market share and take rate across a large and under-penetrated global addressable market
  
  
• Westpac (WBC) reported robust FY25 earnings and a stronger-than-expected capital position. This will be further enhanced by the planned sale of the RAMS mortgage book, providing additional balance sheet flexibility. Housing and business credit growth is expected to remain healthy in the year ahead, supported by stable economic conditions. Loan losses are anticipated to stay low. Westpac’s multi-year technology project to consolidate legacy systems is progressing well and is expected to complete within the next few years. This initiative should deliver significant cost reductions and operational efficiencies, bringing the bank’s cost-to-income ratio closer to peers.
  
  

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 graph‑data analytics business, is complementary to Nuix’s offering and provides additional cross‑sell opportunities.
  
  
• CSL Limited (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.
  
  
• 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.
  
  

With valuations now looking particularly attractive for technology and healthcare, we retain an overweight position and we expect both sectors to outperform in 2026.

Portfolio changes

Additions to the Portfolio

• Aussie Broadband Ltd. (ABB) is a fast-growing challenger brand in the Australian telecommunications market, providing a range of services to households, businesses and Government customers backed by investments into its own fibre network. After a challenging period over the last 18 months, ABB has locked in More Telecom as its new major wholesale customer and secured multiple customer wins across its different divisions that leave us confident that ABB will grow strongly in the coming years.

• Xero Limited (XERO) 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.

Divestments from the Portfolio

• 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.

Retaining the portfolio’s investment in lithium producer, Pilbara Minerals, also benefited the portfolio, as the notoriously volatile lithium market turned positive in the second half of the year.

Sector allocation

Sector overweights
Cash, Communication Services, Consumer Staples, Health Care, Industrials, Information Technology, Real Estate, Utilities (Renewables)

Sector underweights
Consumer Discretionary, Energy, Financials, Materials

The consumer sector was an area of strength for the portfolio aided by stock selection. A key contributor to the Portfolio was the decision to focus its supermarkets exposure in Coles instead of Woolworths.