High Conviction SMA

The High Conviction Portfolio delivered a +3.9% return (gross) for the September quarter, compared to the benchmark – the ASX 300 Accumulation Index – which recorded a return of +5.0%, and the portfolio’s alternative benchmark – the ASX 300 Industrials Accumulation Index – which recorded a return of +1.2%.

With equity market valuations remaining elevated, particularly in some of the largest cap names, the September quarter saw small cap indices outperform their larger cap peers as investors began to refocus on areas of the market where valuations remain more attractive. While cognizant of liquidity considerations, the Portfolio has selected investments outside of the ASX 100 where we see attractive valuation opportunities. The Technology sector is one area of focus in this regard, with small to mid-cap technology companies like Pexa (+15%), Siteminder (+63%), and Nuix (+34%) delivering strong performance during the quarter, while their larger cap tech peers underperformed. Within Consumer Staples, the recent addition of Graincorp (+19%) to the portfolio during the quarter paid dividends as conditions appear favourable for upcoming harvests.

Within Financials, the Portfolio maintains an underweight position relative to the benchmark, and the decision not to own CBA (-8%) on valuation grounds contributed to relative performance as the stock underperformed following a strong year in FY25. Another positive contributor was the decision to own Coles (+13%) and not Woolworths (-13%) with Coles continuing to execute strongly.

Detracting from performance was the Materials sector (+21%), which significantly outperformed during the quarter as investor interest returned to the sector. The big miners benefited, while a strong rally in the gold price drove gold miners higher. This was a material headwind for the portfolio (-1.8%) given our natural underweight position to these companies. Excluding the impact of the resource sector, the Fund outperformed the ASX 300 Industrials index by +2.7%.

The Fund’s overweight position in the Healthcare sector was also a detractor during the quarter (-10%), with the sector the worst performing in the market. We attribute some of this to the uncertainty caused by possible tariffs and other costs imposed in the US market, however CSL (-16%) was a surprising disappointment during earnings result season that negatively impacted the Portfolio. Nevertheless, we believe earnings growth will accelerate and with the stock now trading at a discount to the market, CSL is fundamentally too cheap in our view and we have continued to build our position.

Outlook for the Fund

With equity market valuations elevated, stock selection remains key and our active investment approach continues to look for companies that are fundamentally mispriced with opportunities to grow over the longer term. The Portfolio maintains overweights to Healthcare, Technology, and Renewables which we believe will be positive long-term growth sectors, while the underweight position to the Financials sector reflects our view that the sector remains expensive.

High Conviction SMA Portfolio Performance

Previously the Australian Shares SMA Portfolio

As at 30 September 2025^*

Source: Praemium portal.

^Benchmark changed from S&P/ASX 200 Accum Index to S&P/ASX 300 Accum Index from 30 June 2025. The historical benchmark rturns are calculated by inkking these indices.

*Past performance is not a reliable indicator of future performance.

Inception date: 16/04/2020.

Contributors

• Siteminder (SDR) had 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, driven 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 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 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 a 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.
  
  
• Westpac (WBC)’s September quarter result exceeded expectations primarily due to a substantial increase in net interest income margins, which drove modest upgrades to earnings forecasts. The margin uplift was supported by several factors, some of which were one-off in nature—such as reducing the base interest rate on a key deposit product. In addition, Westpac continues to make progress on hiring additional bankers to support loan growth and advancing its UNITE technology simplification program. While we expect margins to revert to more normal levels in the near term, longer-term benefits from technology simplification remain a potential upside.

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.
  
  
• IPH Ltd (IPH) underperformed during the period as its FY25 result pointed to a mixed outlook. While Asia presents genuine growth opportunities, with strong filing momentum across several markets, this was offset by declining filing volumes in Australia. IPH offers compelling value, benefiting from positive exposure to increased investment from a declining global interest rate environment, while trading at an attractive 7.5x P/E and delivering a robust 10% yield.
  
  
• WEB Travel (WEB) shares fell after releasing a soft financial update at their annual general meeting (AGM), citing geopolitical issues which has impacted pockets of travel demand. While recent fluctuations in travel demand reflect short-term cyclical pressures, we expect these trends to normalise. Over the medium term, WEB has an attractive double digit earnings profile underpinned by market share gains, structural tailwinds and operating leverage. With WEB trading at a discount to the market multiple, we see material upside from the current share price.

Sims, a new addition to the portfolio, is one of the few companies with operations in North America that will likely benefit from the US tariff regime.  

Portfolio changes

Additions to the Portfolio

• Goodman Group (GMG) is an owner, manager and developer of industrial properties, with over $80 billion of assets under management globally. We initiated our position during the capital raise in February targeted at developing over $10 billion of data centres and have increased our position in recent months, taking advantage of some short-term negativity around the stock. GMG has a track record of double-digit earnings growth. The data centre opportunity should generate higher returns in the medium term, using in-fill land, close to metro populations, that Goodman has purchased and developed over decades.

• Graincorp (GNC) is vertically integrated bulk grain handling company with high quality infrastructure assets and a strong market position, servicing the domestic and international markets. It also has nutrition and energy business producing a range of oils, meals and food products. We added GNC to the portfolio as we believe the market is underestimating the earnings outlook for the stock in FY26 driven by favourable crop conditions on the East Coast of Australia. We see compelling valuation upside, while a strong balance sheet also provides management with flexibility to pursue growth opportunities, while also returning capital to shareholders.

• Sims Ltd. (SGM) collects, processes, and recycles scrap metals (ferrous and non-ferrous) and electronics with operations primarily in the US and Australia. After a challenging year in FY24, SGM has delivered better-than-expected earnings results in FY25, driven by improved North American margins and good cost control. In addition, the metals recycling company disclosed that is looking to optimise their property asset portfolio, which has a market value $1.5bn above book value. Sims is one of the few companies with operations in North America that will likely benefit from the US tariff regime. A competitor company, Radius Recycling, has been subject to a takeover at a large premium, which is supportive of steel sector valuations in the current environment.

Divestments from the Portfolio

• Insuance Australia Group (IAG) is the largest general insurance company in Australia and New Zealand. We continue to like the dynamics of the Australian home and motor insurance industry. However, our preferred pick in the general insurance space is QBE, whose FY25 Price to Earnings ratio of ~11x, offers relatively cheaper exposure.

• Meridian Energy (MEZ) is one of the largest ‘Gen-tailers’ in New Zealand, with 100% renewable electricity generation in the form of hydro and wind power. While we remain positive on the outlook for the NZ Gen-tailers, we have consolidated our exposure within the sector to Contact Energy and Mercury. The portfolio remains significantly overweight Renewables via our investments in these companies.

The Fund’s underweight position to the Financials sector reflects our view that the sector remains expensive. 

Sector allocation

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

Sector underweights
Consumer Discretionary, Energy, Financials, Materials

The Portfolio maintains overweights to Healthcare, Technology, and Renewables which we believe will be positive long-term growth sectors, while the underweight position to the Financials sector reflects our view that the sector remains expensive.