Diversified Shares Fund
Australian and global equity markets experienced a year characterised by high volatility, but ultimately both the S&P/ASX 300 Index and the MSCI World Ex Australia Index posted another year of strong double-digit returns. Markets initially surged following President Trump’s election victory in November on optimistic expectations of deregulation, business growth stimulation, and tax cuts. However, these gains were reversed in April as President Trump’s aggressive “Liberation Day” tariff policies caused a steep correction in global markets. A sharp rebound was then triggered by news of a 90-day pause in tariff increases and substantially lowered reciprocal tariffs for all non-retaliating countries. In the final month of the year, markets were impacted by geopolitical volatility in the Middle East and energy price spikes. However, this was short-lived too, with a ceasefire negotiated after 12 days. Ultimately, the global economy remained resilient with equities closing the year close to all-time highs.
From a style perspective, both Australian and global equity markets were once again driven by momentum factors, including price momentum and earnings revisions. When momentum factors do well, it means that outperforming stocks continue to outperform. In the first half of the financial year, strength in momentum was driven by the AI mega trend and high interest rates which resulted in narrow market leadership and extreme crowding. This in turn drove the outperformance of Size and Growth factors. The DeepSeek shock was a challenge to US AI leadership, and triggered an extreme momentum unwind in February and March. However, as the Trump administration paused tariff hikes, momentum rebounded as markets sustained their V-shaped recovery.
The Diversified Shares Fund (Wholesale) (the “Fund”) returned 18.1% for the 12 months to June 30 net of fees, outperforming its benchmark by 3%. The Diversified Shares Fund (Retail) returned 17.6% net of fees for the 12-month period.
In the domestic component of the portfolio, outperformance was driven by our underweight exposure to the Materials sector. Our zero exposure to BHP Group assisted performance, as the company suffered from sustained pressure in iron ore prices. Our zero exposure to the Energy sector also contributed positively to performance, despite a short-lived rally in oil prices amid conflict in the Middle East. Our overweight exposures to Information Technology, Healthcare and REITs also assisted outperformance. Industrials was the worst performing sector for our Fund as our holdings in Reece and IPH declined over the year. Reece was impacted by a slowdown in the US residential construction market, while IPH reported a strong financial performance but concerns about declining patent filings in key markets weighed on its share price.
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.
In the international component of the portfolio, our overweight exposure to Financials and Communication Services contributed positively to performance. Within Communication Services, Netflix’s share price rose more than 100% due to stronger than expected subscriber growth. Our underweight exposure to the Consumer Discretionary and Consumer Staples sectors also assisted performance as they were impacted by tariff gyrations. Conversely, stock selection in Industrials and Information Technology detracted from performance. The performance of the “Magnificent 7” was mixed with Amazon (not held), Alphabet, Apple and Microsoft posting below-benchmark returns, while Tesla (recently divested), Meta, NVIDIA and outperformed. The AI theme and associated capital spending boom remained robust with NVIDIA reporting solid results despite trade restrictions.
Outlook for the Fund
Equity markets have shown resilience despite extreme policy uncertainty. Looking ahead, we expect ongoing tariff concerns to continue to induce market volatility, and events in the Middle East will remain a focus. The Trump administration has pivoted to tax cuts after the House narrowly passed the “Big, Beautiful Bill” in early July. Equity market valuations remain elevated, but could be supported by central bank rate cuts, successful tariff negotiations and reductions, and strong Tech fundamentals, particularly if the AI theme remains intact.
Diversified Shares (Wholesale) Fund Performance
As at 30 June 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 10.4% | 8.6% |
| 6 months | 7.0% | 5.7% |
| 1 year | 18.1% | 15.1% |
| 3 years p.a. | 14.8% | 15.3% |
| 5 years p.a. | 12.1% | 12.9% |
| since inception p.a. | 12.3% | 12.5% |
^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 30 June 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 10.3% | 8.6% |
| 6 months | 6.7% | 5.7% |
| 1 year | 17.6% | 15.1% |
| 3 years p.a. | 14.3% | 15.3% |
| 5 years p.a. | 11.5% | 12.9% |
| since inception p.a. | 8.5% | 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
+49.8%
Commonwealth Bank of Australia (CBA)
+40.0%
Telstra Group Limited (TLS)
+122.1%
Technology One Limited (TNE)
Top 3 detractors from Fund return
-56.5%
Pilbara Minerals Limited (PLS)
-17.6%
CSL Limited (CSL)
-45.1%
Web Travel Group Limited (WEB)Contributors
-
Commonwealth Bank of Australia (CBA) shares delivered a total return of 49.8% over the 12 months, making it the top-performing major bank on the ASX. The rally was underpinned by strong financial results, including record-high profits and robust lending growth across both home and business segments. Investor confidence was further buoyed by a stable net interest margin and the bank’s dominant position in the mortgage market. Despite broader economic headwinds, CBA’s consistent performance and market leadership helped drive its stock to all-time highs during the period.
-
Telstra Group Limited (TLS) shares delivered a total return of 40.0% over the 12 months, supported by strong momentum in its mobile business and disciplined capital management. The company benefited from growing customer numbers, improved pricing, and ongoing investment in its 5G and infrastructure rollout. Market confidence was further lifted by shareholder returns through dividends and buybacks, as well as a continued focus on cost efficiency and long-term strategy execution.
-
Technology One Limited (TNE) delivered a total return of 122.1% over the 12 months, driven by exceptional financial performance, strong recurring revenue growth, and continued investor confidence in its cloud-first strategy. The company reported record annual recurring revenue and profit, reflecting the success of its enterprise SaaS model and expansion across key sectors such as government and education. Positive sentiment was further supported by robust margins, a healthy balance sheet, and consistent execution of its long-term growth strategy.
Detractors
-
Pilbara Minerals Limited (PLS) shares declined 56.5% over the 12 months, reflecting the impact of sustained weakness in lithium prices and broader market challenges facing the battery materials sector. Despite achieving record production and advancing its Pilgangoora expansion, the company faced margin pressure and posted a net loss in its interim results. Investor sentiment was further dampened by analyst downgrades and cautious outlooks on lithium demand, although management emphasized cost discipline and long-term growth potential. The stock’s performance highlights the volatility in the lithium market and the importance of strategic resilience during cyclical downturns.
-
CSL Limited (CSL) shares posted a total loss of 17.6% over the 12 months, reflecting mixed performance across its key business segments and cautious investor sentiment. While the company achieved regulatory milestones for several innovative therapies, including approvals for ANDEMBRY and FILSPARI, its plasma and vaccine divisions faced margin pressures and slower-than-expected recovery. The market responded to a divergent outlook between CSL Behring and Seqirus, with concerns emerging around execution risks and the company’s ability to maintain growth momentum. Despite these headwinds, CSL remains focused on long-term innovation and global expansion, positioning itself for future growth in the biotech space.
-
Web Travel Group Limited (WEB) shares fell 45.1% over the 12 months, reflecting a challenging operating environment and investor caution around travel sector profitability. While the company continued to grow its WebBeds platform and reported solid revenue performance, earnings lagged expectations due to cost pressures and competitive dynamics. The rebranding from Webjet to Web Travel Group marked a strategic shift, but market response remained muted amid broader concerns about margin sustainability. Despite the share price decline, the company remains focused on leveraging its global network and technology platform to drive long-term growth.
Technology One shares delivered a total return of 122.1% over the 12 months, driven by exceptional financial performance, strong recurring revenue growth, and continued investor confidence in its cloud-first strategy.
Portfolio changes
Additions to the Fund
-
Aviva PLC (AV-GB) is an international insurance company that provides a wide range of general and life insurance products, including fire, motor, marine, aviation, and transport insurance, along with various financial services. The holding was initiated as part of the optimization process which aims to reduce tracking error.
-
Schroders PLC (SDR-GB) is a global financial services company specializing in active asset management, advisory, and wealth management services. The holding was initiated as part of the optimization process which aims to reduce tracking error.
-
Telefonaktiebolaget LM Ericsson Class B (ERIC.B-SE) provides mobile connectivity solutions, including hardware, software, and services, to telecom operators, enterprises, and the public sector. The holding was initiated as part of the optimization process which aims to reduce tracking error.
Reductions from the Fund
-
Clarity Pharmaceuticals Ltd. (CU6-AU) is a clinical-stage radiopharmaceutical company developing next-generation theranostic (therapy and imaging) products for diagnosing, staging, and treating various cancers. The holding was reduced as part of the optimization process which aims to reduce tracking error.
-
Patterson Companies Incorporated (PDCO-US) distributes dental and animal health products, including consumables, equipment, and value-added services, to dental and veterinary professionals. The holding was reduced as part of the optimization process which aims to reduce tracking error.
-
Tesla, Inc. (TSLA-US) designs, manufactures, and sells electric vehicles, battery energy storage systems, solar products, and related services, positioning itself as a leader in automotive and clean energy. It was divested during the year following an updated Ethical assessment.
Commonwealth Bank of Australia shares delivered a total return of 49.8% over the 12 months. CBA’s consistent performance and market leadership helped drive its stock to all-time highs despite broader economic headwind
Our zero exposure to the Energy sector also contributed positively to performance, despite a short-lived rally in oil prices amid conflict in the Middle East
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
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.
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.
This commentary may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, Australian Ethical accepts no responsibility for the accuracy or completeness of, nor does it endorse any such third party material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material.
The information contained in this document is believed to be accurate at the time of compilation.