Emerging Companies Fund
The Australian sharemarket ended the financial year at record highs, buoyed by easing concerns of a global slowdown from Trump’s tariffs. The year was characterised by significant volatility as tariff announcements sparked a sharp sell-off in global equities before staging a rebound in the last quarter. Share prices were driven by rising valuations, rather than earnings growth as the broader economic environment remained subdued.
The Emerging Companies Wholesale Fund performed broadly in line with its ASX Small Industrials benchmark (8.7% vs 9.2%) for the 12 months to 30 June 2025 period, while the retail fund underperformed (8.2% vs 9.2%).
The Information Technology sector was the strongest contributor to the Fund’s relative investment performance, with investigative analytics and intelligence software company Nuix, wealth management software company Bravura Solutions and workplace compliance software company Kinatico all performing strongly over the 12 months.
The sectoral laggards included consumer staples, with health, wellness and beauty company McPhersons (-39%) underperforming as it repositions its business model away from direct distribution towards pharmacy wholesale distribution.
The Financials sector was also a laggard with strong performances from non-bank lenders Australian Finance Group (+74%) and Pepper Money (+44%) being offset by a disappointing update of foreign exchange payments OFX Group (-66%) as the company increases investment into transitioning their business clients to a new client platform.
At the end of June, the Emerging Companies Fund celebrated its 10-year anniversary, a significant milestone for the fund and its investors. The Fund’s track record is a proof point for ethical and investment outperformance over the long term. Since its inception on June 30 2015, the Wholesale Fund returned 12.2% net of fees, outperforming the S&P/ASX Small Industrial index which returned 6.8% over the same period. The Australian Ethical Emerging Companies fund’s 10-year anniversary follows the Australian Shares Fund 30-year milestone at the end of September last year.
Outlook for the Fund
Financial market sentiment has been dominated by US politics with Trump’s tariff and tax policy in-particularly occupying investor mindset. The global interest rate cutting outlook remains very supportive for equities in the foreseeable future.
We see heightened volatility and valuation disparity is creating opportunity for active fundamental investors like ourselves. Given the increasing disparity in stock valuations, we see strong potential for our fundamental active management approach to exploit opportunities going forward. We also continue to see Australian small caps being a merger and acquisition hunting ground for strategic corporate and private equity investors.
Emerging Companies (Wholesale) Fund Performance
As at 30 June 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 5.9% | 8.4% |
| 6 months | 1.6% | 1.9% |
| 1 year | 8.7% | 9.2% |
| 3 years p.a. | 10.5% | 10.3% |
| 5 years p.a. | 9.5% | 6.3% |
| since inception p.a. | 12.2% | 6.8% |
^Benchmark: S&P ASX Small Industrials Index. Past performance is not a reliable indicator of future performance. Fund returns are net of fees.
Source: FE fundinfo.
Inception date: 30/06/2015.
Emerging Companies (Retail) Fund Performance
As at 30 June 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 5.5% | 8.4% |
| 6 MONTHS | 1.4% | 1.9% |
| 1 year | 8.2% | 9.2% |
| 3 years p.a. | 10.0% | 10.3% |
| 5 years p.a. | 9.0% | 6.3% |
| since inception p.a. | 11.5% | 6.8% |
^Benchmark: S&P ASX Small Industrials Index. Past performance is not a reliable indicator of future performance. Fund returns are net of fees.
Source: FE Fundinfo
Inception date: 30/06/2015.
Contributors and detractors
Top 3 contributors to Fund return
+131.9%
Bravura Solutions Limited (BVS)
-28.9%
Nuix Ltd. (NXL)
+74.2%
Australian Finance Group Ltd. (AFG)
Top 3 detractors from Fund return
-66.1%
OFX Group Ltd. (OFX)
-48.4%
Mach7 Technologies Ltd (M7T)
-81.2%
MedAdvisor Limited (MDR)Contributors
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Bravura Solutions (BVS) was a strong performer in FY25 due to better-than-expected earnings, mostly driven by cost cuts. 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.
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Nuix (NXL) experienced significant share price volatility during the year. The stock initially rallied following upgrades to earnings guidance, prompting the Fund to trim its position. However, uncertainty regarding the timing of enterprise deals landing saw management withdraw guidance in February which saw a subsequent de-rating of the tech shares. There are some larger sized deals in the pipeline, of which the timing of their closure may see slippage, given that the political backdrop has paused decision making in its key market, the US. We have taken the opportunity to gradually re-add to our holdings on valuation grounds recently and feel confident in the company ability to scale its new product offering.
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Cogstate (CGS) saw earnings recovery in FY25. The firm exited the financial year with strong loan book growth, as settlement volumes of $32b hit record levels. We believe that earnings trajectory in FY26/27 remains positive, buoyed by strong settlement volumes and improving net interest margins. AFG continues to target services revenue from broker groups and has signalled a strategic target to acquire stakes in brokers over the coming years. The balance sheet has strengthened and management have signalled a higher dividend payout ratio in FY26.
Detractors
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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.
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Mach7 Technologies (M7T) faced some challenges in FY25, with shares under pressure due to a slower than expected ramp up in new client acquisitions and the unexpected resignation of the CEO. Despite these setbacks, the company continues to make encouraging progress toward cash flow breakeven, supported by ongoing revenue growth driven by successful client renewals while several deals in the pipeline are well progressed. We retain a positive outlook on Mach7, as the business has a strong product offering, growing base of recurring revenue and a strong balance sheet.
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MedAdvisor (MDR) detracted from performance as persistent anti-vaccine sentiment in the U.S. weighed on revenue growth. Despite entering the year with momentum, the company struggled to adapt its cost structure to the lower demand environment, pressuring the risk on its balance sheet. The financial position became strained due to its leverage, ultimately culminating in a capital raise. Given our view that the anti-vaccine sentiment is unlikely to shift meaningfully in the near term, we exited the position during the period.
We retain a positive outlook on Mach7 despite the company facing some challenges in FY25 in light of the business’s strong product offering, growing base of recurring revenue and a strong balance sheet.
Portfolio changes
Additions to the Fund
- Comms Group Ltd (CCG) – We added Comms Group, a business-to-business telecommunications company over the quarter, as it raised capital to fund a small Tasmanian acquisition. Comms Group is an attractively valued telco run by experienced management who have meaningful company shareholdings.
- OncoSil Medical Ltd (OSL) – We added radiation based medical device company OncoSil over the quarter. The company has made significant progress in commercialising its pancreatic cancer treatment over the last 24 months. We are hopeful by the end of 2026 the market will be valuing OncoSil as a fast growing, profitable medical device company.
- Spark New Zealand (SPK) – We added New Zealand’s largest telecommunications company (Spark) to the portfolio on valuation grounds, after the company share price had been significantly sold down.
Reductions from the Fund
- MedAdvisor Limited (MDR) – We divested pharmacy software company MedAdvisor after the company disappointed with its US business declines over financial year 2025.
- Resimac Group Limited (RMC) – Resimac was exited after a series of disappointing news - 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.
- Straker Ltd (STG) – We divested translation company Straker on concerns around how Artificial Intelligence may affect its business, noting the company uses AI today in its own business model.
We added Comms Group, a business-to-business telecommunications company, as it raised capital to fund a small Tasmanian acquisition. Comms Group is an attractively valued telco run by experienced management who have meaningful company shareholdings.
Sector allocation
Sector overweights
Cash, Health Care, Information Technology, Utilities (renewables)
Sector underweights
Communication Services, Consumer Discretionary, Consumer Staples, Financials, Industrials, Materials, Real Estate
Information Technology was the strongest contributor to the Fund’s relative investment performance, with Nuix, Bravura Solutions, and Kinatico all performing strongly.
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.
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The information contained in this document is believed to be accurate at the time of compilation.