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Australian Shares SMA Portfolio

Australian Shares SMA Portfolio commentary for the quarter ended 30 September 2023.
Published 26 Oct 2023   |   13 min read

The portfolio recorded a gross return of -2.6% for the September quarter, underperforming the benchmark ASX 200 Accumulation Index’s return of -0.8%.

It was the second consecutive quarter of declines for the Australian share market, as investors digested reporting season updates, which led to aggregate consensus earnings downgrades for FY24. Cost inflation was a common theme across corporate Australia, with bottom line earnings also impacted by growing interest costs. Macro factors continued to be a driver of equity market volatility in the September quarter, as shifting sentiment around the outlook for rates continued. With inflation data remaining sticky, market expectations firmed that interest rates will need to stay higher for longer to combat it.

Portfolio underperformance during the quarter was driven by two main factors: 1) an underweight position in the market’s two best performing sectors for the quarter, Energy and Consumer Discretionary; and 2) a disappointing reporting season on balance for the portfolio with some companies reporting earnings results or FY24 outlook statements that missed market expectations. We remain focused on long-term fundamental valuations and we therefore increased our weighting in stocks that we believe were oversold (e.g. Pexa), while trimming our weighting in stocks that we believe were overbought (e.g. Cochlear).

At a sector level, the market’s two best performing sectors for the quarter, Energy and Consumer Discretionary, were negative detractors from performance given the portfolio’s zero weighting in both. Energy stocks generally fail to pass our ethical screening process1, however benefited from a 30% rise in oil prices during the quarter due to supply cuts from key producers. Consumer Discretionary stocks performed well despite concerns over the outlook for the consumer, as FY23 results held up better than expected while balance sheets remain relatively strong. This is an increasing sector of interest for us, however we remain more defensively positioned currently given the risks to consumer spending ahead.

Healthcare was the weakest sector in the market during the quarter (-8.6%) and, given it’s one of our key overweight positions in the portfolio, was the biggest detractor from performance. Healius and Australian Clinical Labs continue to struggle in the short-term with lower GP volumes post Covid, but we expect this to improve over the next 12-24 months. Positively, Cochlear reported a very strong result and was the portfolio’s best performing stock for the quarter. Not owning CSL on valuation grounds also continues to benefit the portfolio. Despite the short-term impact on performance this quarter, we continue to believe the Healthcare sector is an attractive sector to invest in and will continue to spend a lot of time focusing on opportunities in this sector. During the quarter, we added Resmed, to the portfolio, which we believe has been oversold on market concerns regarding the potential impact of obesity drugs on its customer base.

Communication Services was the best contributing sector to performance during the quarter, driven by positive performance in Domain and the portfolio’s underweight position in Telstra. While Domain was initially sold-off following its earnings result, market sentiment subsequently improved as the property market continues to show signs of improvement. The Utilities sector also provided some defensive support for the portfolio with Contact Energy delivering a good result and positive outlook for the year ahead.

Australian Shares SMA Portfolio Performance

As at 30 September 2023

fund benchmark$
3 months -2.6% -0.8%
6 months 2.5% 0.2%
1 year p.a. 13.7% 13.5%
3 years p.a. 8.3% 11.0%
since inception p.a. 11.9% 11.9%

$ Benchmark: S&P/ASX 200 Accumulation Index. Past performance is not a reliable indicator of future performance.

Inception date: 16/04/2020. Source: Praemium portal.

Contributors and detractors

Top 3 contributors to fund return


Cochlear (COH)


Domain Group (DHG)


National Australia Bank (NAB)

Top 3 detractors to fund return


Healius (HLS)




Australian Clinical Labs (ACL)
  • Cochlear (COH) returned 12% this quarter as the defensive nature of its earnings became evident in its FY23 result. Implants, upgrades, and services revenue growth rewarded investors with an NPAT result at the top end of the guidance range. Cochlear’s strong balance sheet and outlook are helpful in supporting its valuation and we believe it remains an attractive asset given it is a truly global medical device company with limited competitors.

  • Domain (DHG) returned 7% for the quarter, recovering after a sell-off following its earnings result in August due to a cautious outlook provided by management for FY24. However, property market conditions have continued to strengthen and property listings in the key Sydney and Melbourne markets have experienced double digit growth in the first few months of FY24, seemingly ahead of the cautious outlook commentary provided by management. Combined with double digit yield increases likely for FY24, revenue growth could be significant this year.

  • National Australia Bank (NAB) announced a 3Q update in August that was broadly in line with market expectations. NAB’s net interest income margin was down 5bp as competitive pressures continue in the banking sector, although the intensity has declined with the removal of cashback offers from most banks. SME lending grew 4% over the quarter. Mortgage growth was below system as NAB chose not to compete aggressively. An on-market share buyback of $1.5 billion was announced. We continue to hold NAB for its strong business banking franchise.

  • Healius (HLS) detracted from performance in the September quarter due to a weaker FY23 result and outlook. Unfortunately, FY24 likely remains a transition year as Healius’ turnaround continues. The overall quantum of debt and lack of full-year dividend also weighed on investor sentiment during the quarter. We continue to see a pathway forward for HLS as base-pathology earnings revert to pre-COVID-19 levels as GP volumes return.

  • PEXA (PXA) detracted from performance as question marks were raised on their progress in the United Kingdom. The market has pushed out the timing of revenue generation and expectations for the UK until milestones are achieved with key lenders. The core Australian operations performed resiliently in their FY23 financial results, despite the softer residential property market backdrop. Volumes appear to have bottomed in Australia, which bodes well for FY24. At these share price levels, we believe that nil value is being ascribed to the UK business, which provides growth optionality outside of the domestic exchange franchise. We added to the position during the quarter.

  • Australian Clinical Labs (ACL) detracted from performance in the September quarter due to a weaker FY23 result and guidance. Unfortunately, similarly to HLS, FY24 remains a transition year as general practitioner (GP) volumes continue to lag historic levels. However, we acknowledge ACL’s strong fundamentals with a robust balance sheet, low relative PE multiple and 5% yield. We continue to be optimistic of an ACL rerate as pathology volumes return to pre-COVID-19 levels.


Domain (DHG) returned 7% for the quarter, recovering after a sell-off following its earnings result in August due to a cautious outlook provided by management for FY24.

Portfolio changes

Additions to the portfolio
  • ResMed (RMD) – RMD is a leading global MedTech player in the sleep and respiratory care markets, providing Continuous Positive Airway Pressure (CPAP) machines for treating obstructive sleep apnea (OSA). We added the stock to the portfolio as we believe a valuation gap has opened up following a sharp sell-off in the share price during the quarter. Concerns around the margin outlook from the result in early August were compounded by fears that weight loss drugs under development will reduce demand for RMD’s products going forward. While uncertainty as to the eventual impact on RMD will likely remain for some time, we think a lot of this downside risk is already factored into the share price given that RMD’s P/E multiple is at its lowest point since 2016.

Sell-downs from the portfolio
  • Blackmores (BKL) – BKL was acquired by Japanese conglomerate Kirin for $95/share, with shareholders voting to approve the takeover and receiving the final proceeds on August 10th. As a result, BKL was delisted from the ASX and removed from the portfolio.


Our shareholding in Healius (HLS) detracted from performance in the September quarter due to a weaker FY23 result and outlook.

In this environment, we are attracted to companies with pricing power and strong balance sheets.
Sector allocation

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

Sector underweights
Consumer Discretionary, Consumer Staples, Energy, Materials

Outlook for the portfolio

While we were disappointed about the portfolio’s underperformance in the September quarter, we continue to believe the portfolio has the right mix of exposures to deliver strong returns for investors over the long-term. The portfolio maintains significant exposure to key growth sectors in Information Technology, Healthcare, and Renewables that we expect will outperform the rest of the market over the long-term. These sectors account for a ~35% weighting in the portfolio, compared to less than 15% in the ASX 200 index.

Macro will continue to play a role in the broader volatility of markets, with persistent inflation and interest rates perched higher. In this environment, we are attracted to companies with pricing power and strong balance sheets.

See portfolio info

1. Further information on our ethical investment criteria is available in our Ethical Guide available at

This is general information only and is not intended to provide you with financial advice or take into account your individual investment objectives, financial situation or needs. You should obtain and consider the relevant Financial Services Guide, Product Disclosure Statement and Target Market Determination relating to this product before making a decision. Our SMA portfolio is available for investment via Praemium, Netwealth and HUB24.

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 Fund may not have exposure to specific assets which over or underperform over the investment cycle, and so the returns and volatility of the Fund may be higher or lower than non-ethical, non-sustainable portfolios over all investment time frames.

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.

Australian Ethical acknowledges the Traditional Owners of the country on which we work, the Gadigal people of the Eora Nation, and recognise and celebrate their continuing connection to land, waters and culture. We pay our respects to Elders past and present and thank them for protecting Country since time immemorial.

See our Reconciliation Action Plan