Australian Shares Fund
Volatility in August on the back of earnings season was followed by sharemarket gains as rate cuts improved investor confidence during the September quarter. Equity market valuations are now at elevated levels, with further PE expansion seen in the September quarter, as there were minimal upgrades to earnings guidance.
The Australian Shares Fund (Wholesale) delivered a +4.4% return (net of fees) for the September quarter, compared to its benchmark (65% ASX 100/35% Small Ordinaries) of 7.7%. The Materials sector detracted from performance, as the sector performed well and we are underweight the sector due to our Ethical screen. The Fund performed ahead of the S&P ASX Industrials benchmark (which excludes the Materials sector and more closely aligns with our investment universe) which was up 3.9%.
A feature of the September quarter was the investor interest return to resource and mining companies, with the Materials sector significantly outperforming the rest. The big miners benefited, while a strong rally in the gold price driving gold miners higher. Gold miners collectively account for ~15% of the Small Ordinaries and gold doesn’t meet criteria for investment under our Ethical Charter. This was a material headwind for the portfolio (260bps) given our natural underweight position to these companies.
There was also renewed interest in small cap companies in the quarter, with the cohort outperforming their large cap peers, as investors began to refocus on areas of the market where valuations remain attractive. Reflecting this, the Fund’s stock selection in small to mid-cap technology companies like Pexa, Siteminder, Nuix, Cuscal and ERoad contributed to strong performance over the quarter.
Outlook for the Fund
Equity valuations are at elevated levels, so we believe it is important to remain disciplined in our approach on investing here, given that share price increases have been driven by rising PE multiples, rather than earnings growth. We are finding more relative valuation appeal in the smaller capitalised companies and expecting the interest rate cutting cycle to be stimulatory to the broader economy. 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.
Australian Shares (Wholesale) Fund Performance
As at 30 September 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 4.4% | 7.7% |
| 6 months | 12.1% | 17.7% |
| 1 year | 6.6% | 13.7% |
| 3 years p.a. | 13.3% | 15.8% |
| 5 years p.a. | 9.9% | 13.3% |
| 10 years p.a. | 10.5% | 10.2% |
| since inception p.a. | 12.5% | 10.4% |
^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 September 2025*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 7.2% | 9.3% |
| 6 months | 2.6% | 6.5% |
| 1 year | 11.6% | 13.4% |
| 3 years p.a. | 11.8% | 13.1% |
| 5 years p.a. | 10.2% | 11.6% |
| 10 years p.a. | 9.4% | 9.4% |
| since inception p.a. | 9.7% | 7.5% |
^Benchmark changed from S&P/ASX300 to 65% ASX 100 Total Return Index/35% ASX Small Ordinaries Total Return Index from 30 Sep 2023. Previously, benchmark changed from S&P/ASX Small Industrials Infex to S&P/ASX 300 Accum Index from 13 Aug 2019. The historical benchmark returns are calculated by linking these indices.
*Past performance is not a reliable indicator of future performance. Fund returns are net of fees.
Inception date: 19/09/1994.
Contributors and detractors
Top 3 contributors to Fund return
+131.9%
Bravura Solutions Limited (BVS)
+31.4%
Insurance Australia Group Ltd (IAG)
+30.5%
Westpac Banking Corporation (WBC)
Top 3 detractors from Fund return
-66.1%
OFX Group Ltd. (OFX)
-56.5%
Pilbara Minerals Limited (PLS)
-45.1%
Web Travel Group Limited (WEB)Contributors
- Siteminder (SDR) reported a strong FY25 result with higher than expected underlying ARR growth of 27% which was high quality based on the solid 6.2x LTV/CAC ratio with minimal churn. The FY26 outlook implies a continuation of this strong growth trend, underpinned by the ongoing rollout of the new Smart Platform products which have been gaining traction since their launch. We remain positive on the long-term investment thesis of SDR expanding its share and take rate of the large addressable market.
- Pilbara Minerals (PLS) returned 88% over the quarter as spodumene prices performed strongly over the period, primarily driven by the suspension of a major Lithium project in China, which raised prospects of temporarily tighter supply outlook. While near term price movements are difficult to predict, PLS is strongly positioned with a Tier 1 asset, strong balance sheet with approximately $1B 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.
- EROAD (ERD) was a strong contributor to performance over the quarter driven largely by a positive regulatory development on electronic road user charging (eRUC) from the NZ government which expands EROAD’s market opportunity to an additional 3.5m light passenger vehicles as they transition onto the eRUC system. With EROAD currently the market leader for existing vehicles subject to eRUC, we view the company as best positioned to capture the leading share of this segment as it is implemented in 2027.
Detractors
- CSL (CSL) underperformed during the quarter, driven by a slightly softer FY26 outlook and ongoing uncertainty surrounding US pharmaceutical industry tariffs. 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 ~15% discount to the all industrials (excluding banks and REITs), while targeting ~10% EPS growth p.a. over the mid-term.
- Gentrack (GTK) announced in July that a key Australian customer had not renewed with the company and will be transitioning to a competitor due to lower pricing and the fact that Gentrack’s G2 product was not live yet. As these transitions take time, there is limited impact on earnings in the short term although it puts increased pressure on the company to win new deals to offset the loss. The company remains well positioned for further growth over the medium term and a beneficiary of the structural energy transition thematic.
- EQT Holdings (EQT) experienced a decline in its share price during the September 2025 quarter, primarily driven by legal and reputational risks associated with its subsidiary, Equity Trustees Superannuation Limited (ETSL). ETSL acted as the superannuation platform provider for both the Shield Master Fund and the First Guardian Master Fund, both of which have since collapsed. In late August, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings against ETSL, alleging due diligence failures in relation to the Shield Master Fund. EQT has stated its intention to defend the allegations. Nonetheless, the legal action and associated reputational concerns triggered a negative investor response, contributing to the share price decline over the quarter
The Fund’s stock selection in small to mid-cap technology companies like Pexa, Siteminder, Nuix, Cuscal and ERoad contributed to strong performance over the quarter.
Portfolio changes
Additions to the Fund
- Reece Limited (REH) was added to the portfolio as the share price materially rebased to reflect the current challenging environment. Reece is a high-quality business with a strong brand and market position in Australia, a growing presence in the US. The Company has a strong management team with a long-term track record and a majority share ownership position, a strong balance sheet and good cash generation. We expect upside to emerge over the medium to long term.
Reductions from the Fund
- We exited the position in 3P learning Ltd. (3PL) following the FY25 result which highlighted that the lack of sales growth remained a core issue despite an improvement in earnings. Without meaningful growth prospects and better defensibility against AI disruption, we viewed that it would be difficult for the stock to re-rate from current levels.
- Domain Holdings Australia Ltd. (DHG) was acquired by CoStar in August 2025 following approval of the transaction by shareholders.
- Fletcher Building Limited (FBU)'s position was exited, taking advantage of relative share price outperformance over the quarter to a level that better reflected the near-term earnings risks. While the FY25 result broadly met revised expectations, ongoing weak operating conditions in Australia and New Zealand are expected to result in another year of subdued results. Management is executing on a strategic review to simplify operations and divest non-core assets and further strengthen the balance sheet. Legacy issues also remain a risk factor.
- A small position in G8 Education Limited (GEM) was exited during the quarter following serious allegations involving a childcare worker in Victoria, which have raised significant concerns around operational oversight and reputational risk. While the company has responded with immediate measures, we believe the incident could have long-term implications for stakeholder trust, regulatory scrutiny, and enrolment trends. Given the potential for sustained volatility and uncertainty, we chose to reallocate capital to opportunities with more stable risk profiles.
- We elected to divest Immutep Ltd (IMM), despite compelling Phase 2 clinical data, due to timing and the overall scale of the currently recruiting Phase 3 trial. We also note that Immutep’s partner, Merck, has received approval for a subcutaneous formulation of its immunotherapy drug, Keytruda. This could lead to new patents or extensions which may reduce Merck’s need to make strategic acquisitions in the near-term.
Equity market valuations are now at elevated levels, with further PE expansion seen in the September quarter, as there were minimal upgrades to earnings guidance.
Sector allocation
Sector overweights
Cash, Consumer Staples, Financials, Health Care, Information Technology, Utilities (renewables)
Sector underweights
Communication Services, Consumer Discretionary, Energy, Industrials, Materials, Real Estate
Equity valuations are at elevated levels, so we believe it is important to remain disciplined in our approach on investing here, given that share price increases have been driven by rising PE multiples, rather than earnings growth
Note:
*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.
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. Past performance is not a reliable indicator of future performance.
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.
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.
The information contained in this document is believed to be accurate at the time of compilation.