The Australian sharemarket ended the year at record highs, after staging a strong rebound in the last quarter of the financial year. The year was characterised by significant volatility as equity markets navigated inflation concerns, geopolitical tensions, and challenges to the global economic system driven by the US’s “America First” strategy.

Overall, it was a healthy year for investors, with double digit returns in the Australian Shares Fund while also delivering on its ethical investing commitment to invest positively for people, planet and animals. For the 12 months to June 30, the Fund (Wholesale, net of fees) ended up 12.3% compared to the benchmark (65% ASX 100 / 35% ASX Small Ordinaries) of 13.4%. While our investments in IAG, Bank of Queensland and Bravura performed well, our relative performance was impacted by the decision not to hold Commonwealth Bank on valuation grounds and having nil exposure to the rising gold sector, which accounted for up to 18% of the Small Ordinaries Index.

Mining has a broad range of negative impacts, so we restrict our investment to mining activities necessary to execute energy transition and for other critical purposes. We can invest in gold so long as adequate action is taken to mitigate impacts and it meets the ‘necessary harm’ threshold in our Ethical Criteria.

Distributions to unit holders were stronger than prior years due to capital gains from our investments in Nuix, Bravura and Helia.

Large cap stocks outperformed small cap names in FY25, with the benchmark S&P ASX100 up 14% compared to the S&P ASX Small Ords up 12.1%. Large caps seem to have benefited from growing passive and international flows in the Australian market, which has amplified interest in the liquid index heavyweights. The S&P ASX Small Ords benefited from gold stocks rallying, however small industrials companies lagged, with the S&P ASX Small Industrials up 9.2%.

Our active stock picking skills are core attributes that enabled our funds to navigate the changing market conditions during the period, presenting opportunities to add new investments. The volatility in the market provided an opportunity for the Fund to invest in new names such as CSL, Netwealth and Block. Backed by our fundamental investment analysis, we believe these companies offer compelling long-term growth potential and offer share price upside.

During the year, we engaged with investee company QBE, requesting more information about its underwriting policies and the exposure to companies involved in fossil fuel expansion. We continue our engagement with QBE as part of the work we are doing under our strategic stewardship pillar to stop unrestricted underwriting of fossil fuel expansion.

Outlook for the Fund

We expect volatility is likely to remain a feature of the investment landscape in FY26, as geopolitical uncertainties dominate headlines. Our investment approach is fundamental, with our team of experienced analysts unearthing opportunities in the market. The focus for the Fund remains on finding stocks that are undervalued in either the Australian or New Zealand market. It is important to remain disciplined in our approach on valuations here, given that FY25 saw share prices driven by rising multiples, rather than earnings growth. As we enter the new financial year, we are finding more valuation appeal in the smaller capitalised companies and expecting the interest rate cutting cycle to be stimulatory to the broader economy.

Australian Shares (Wholesale) Fund Performance

As at 30 June 2025^*

^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 30 June 2025^*

^Benchmark is 65% ASX 100 / 35% ASX Small Ordinaries. Past performance is not a reliable indicator of future performance.

Inception date: 19/09/1994.

Contributors and detractors

Contributors

• Bravura Solutions (BVS) was a strong performer in FY25 due to better-than-expected earnings, mostly driven by cost outs. The company’s strong balance sheet allowed it to return surplus capital back to shareholders through a capital return and reinstatement of dividends – moves that were well received by investors. While we have trimmed our position in Bravura, we’re watching for signs of growth through new client wins, especially following the successful implementation of their technology at Aware Super.

• Insurance Australia Group (IAG) had a solid year in FY25, delivering strong underlying insurance margins. This was helped by a period of benign weather and high interest rates, which boosted the company’s investment returns. To strengthen its financial resilience, IAG entered into a multi-year reinsurance agreement during the year. The arrangement should reduce earnings volatility and provide extra protection against natural perils going forward. IAG also announced plans to acquire two automobile club insurance businesses, including RACQ in Queensland. This acquisition is expected to boost earnings from the first full year of ownership, with the deal set to complete later this year.

• Westpac Banking Corporation (WBC) shares rose in FY25, as earnings proved to be resilient despite market challenges. The bank benefited from its hedging book and the strategic shift towards business and institutional clients, as competition in the mortgage market remained intense. The bank is executing a technology and business simplification initiative over the next few years. The $2b technology investment is expected to create efficiencies across the bank by consolidating legacy systems, improving customer data management and enhancing digital capabilities. This should help to close the cost to income gap relative to competitors.

Detractors

• OFX (OFX) faced a challenging trading environment in FY25, with market volatility weighing on operating performance. The market is expecting earnings to soften in FY26, as the fintech accelerates its investment in the rollout of its new client platform. This strategic platform roll-out is aimed at accelerating growth in non-FX revenue streams, helping OFX diversify its client base and deepen engagement. We are closely tracking the company’s strategic shift toward expanding non-FX offerings, which has strong potential to boost corporate active client numbers and increase revenue per client over time.

• Pilbara Minerals (PLS) faced headwinds in FY25, with operating performance impacted by weak spodumene pricing, as near-term supply exceeds demand. These market dynamics have led to production curtailments across the industry, as higher cost producers become uneconomic. Despite the short-term challenges, the longer-term fundamentals for lithium remain strong, supported by growing demand from the energy transition. Pilbara has a Tier 1 quality asset, a low-cost producer, net cash balance sheet, strongly positioned for improvement in the pricing outlook, and in our view is trading at an attractive valuation.

• Web Travel Group Limited (WEB) underwent a demerger during the year, and the Fund retained its position in the newly separated travel-tech business. The company faced some operational headwinds in FY25, including a re-set of revenue margins and more recently, investors have become more concerned about global travel demand amid a backdrop of geopolitical uncertainty. Despite that, WEB remains a profitable, growing tech company with a strong balance sheet. We see structural growth drivers supporting the business over the long term and believe that WEB is well positioned to grow market share in the global travel technology space.

Bravura’s strong balance sheet allowed it to return surplus capital back to shareholders through a capital return and reinstatement of dividends – moves that were well received by investors.

Portfolio changes

Additions to the Fund

• Block, Inc. (XYZ) is a global payments provider consisting of Square, which offers POS software and hardware for >4m merchants, Cash App, which provides >57m consumers a platform to transfer money, buy/sell stocks & Bitcoin, and file tax returns. We added Block to the Fund as we view the valuation as undemanding and has the potential to re-accelerate growth with the rollout of Cash App's Borrow and Afterpay Cash App Card products.

• Netwealth Group Ltd. (NWL) provides financial advisors with wealth administration and management services. NWL has over $100 billion of funds under administration and is one of the few providers growing market share. We added NWL to the fund during a period of share price volatility and concerns regarding NWL’s administration fee that is linked to listed market share price valuations. In the medium term, the company continues to grow the number of clients using its services

• Spark New Zealand Limited (SPK) – We added shares in the NZ telecommunications and digital services provider during the quarter, as we felt that the halving of the share price was overdone. While there have been some challenges in the business, we are seeing some green shoots including improved competitive dynamics in the NZ mobile market and stabilisation of the government business after a cost re-set. We expect a partnering deal on the data centres, which should alleviate balance sheet and dividend concerns.

• Tower Limited (TWR) is a general insurer listed on the NZX. We added Tower to the Fund recently as we see valuation and earnings upside as it executes on its strategic priorities. Following a multi year technology transformation, Tower is focused on market share gains and managing exposure using the internal risk pricing engine. The stock is trading at a P/E multiple of 9x and a dividend yield of 7.9%, which is a material discount to other listed peers.

Reductions from the Fund

• Resimac Group Limited (RMC) was exited after a series of disappointing events – including the unexpected departure of its long serving CEO, followed by a trading update in February 2025 signaling increased impairment charges and provisions in its Asset Finance business.

• Webject Group Limited (WJL) – We divested from Webjet during the quarter as the company no longer met the criteria required under our Ethical Charter. Following demerger of Webjet into WEB travel Group and Webjet B2C, Webjet B2C is estimated to early more than 67% of its revenue from facilitating air travel and without sufficient attention to minimising the climate change contribution of this activity. WEB travel has a more diversified revenue base and so is assessed investible.

We added shares in NZ telecommunications and digital services provider Spark New Zealand during the last quarter as we felt that the halving of the share price was overdone.  

The volatility in the market provided an opportunity for the Fund to invest in new names such as CSL, Netwealth and Block 

Sector allocation

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

Sector underweights
Consumer Discretionary, Energy, Industrials, Materials, Real Estate