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High Conviction Fund

High Conviction Fund commentary for the quarter ended 31 March 2024.
Published 17 Apr 2024   |   10 min read

Outlook for the fund

The High Conviction Fund is a concentrated portfolio of mostly larger cap stocks, selected via our fundamental research process from within our ethical investment universe, as defined by our Ethical Charter. The portfolio continues to have significant exposure to key areas of growth across Information Technology, Healthcare, and Renewables. These sectors account for ~30% weighting in the portfolio, compared to ~15% in the ASX 300 index, which we believe will deliver strong returns for investors over the long-term.

With equity markets marching to all-time highs, we are finding it more challenging to find attractively priced stocks with fundamental valuation upside. The S&P ASX300 index is now trading one standard deviation above its historical mean, which indicates that valuations are reasonably full across the market. However, with elevated volatility in the market, we also see opportunities for individual stock pickers in segments of the market that are out of favour. During the March quarter we added one new name to the portfolio – Aussie Broadband – where we see fundamental valuation appeal over the long-term. As an active investor, we will continue to look for similar opportunities to deliver returns for us and our investors.

Commentary for the quarter ended March 2024

The High Conviction Fund (Wholesale) (the ‘Fund’) increased 8.0% net of fees in the quarter ended 31 March 2024, outperforming its benchmark, the ASX 300 Accumulation Index, which rose 5.4%.

Equity markets hit record levels as investors digested reporting season updates, which were not as bad as feared. Investor sentiment improved with interest rate expectations plateauing following a synchronized move by Central Banks to tame inflation, prompting a shift from a defensive stance in portfolios to add growth.

Positive stock selection and an underweight position to the carbon-intensive Materials sector were the two main themes driving portfolio outperformance versus the benchmark in the March quarter.

The Healthcare sector was a strong performer for the Fund during the quarter due to stock selection, with the portfolio’s largest holding in Resmed performing well following a positive earnings result. Negative sentiment also began to ease around the potential impact of obesity drugs on Resmed’s business, although we expect further share price volatility as new data points are released. The portfolio also benefited from its underweight position in CSL as the stock underperformed the market.

Positive contribution to performance also came from the Information Technology sector, with both Pexa and Nuix performing well over the quarter. While PEXA’s Australian business remains strong, investor sentiment improved towards its UK division as PEXA made some progress with two top tier banks committing to going live on the platform by mid-year. We continue to see material valuation upside in PEXA if they can successfully execute on their UK strategy.

The Fund also benefited during the quarter from its underweight position in the carbon intensive Materials sector. Concerns around the outlook for the Chinese economy weighed on commodity prices and negatively impacted the share prices of the major iron ore producers, which are not held in the portfolio on the basis of our ethical screening process.

Detractors from performance in the March quarter came from the Communication Services and Real Estate sectors. Communication Services was weighed down by underperformance in Domain Group. Despite recording reasonable earnings growth in its 1H result, investors were disappointed that it underperformed close peer REA Group. Aussie Broadband, a new investment for the Fund in the quarter, also underperformed after unexpectedly losing a white label customer to its takeover target, Superloop. Despite this short-term hiccup, we think the long-term outlook for Aussie Broadband remains positive as the fastest growing telecommunications company in the sector. Underperformance in the Real Estate sector was largely driven by not owning Goodman Group, which has been the beneficiary of positive investor sentiment following its decision to invest in data centres.

The Fund’s cash holding, which averaged 10% during the March quarter, detracted from performance. The Fund’s cash holdings are slightly elevated due to a selective approach to investment opportunities against a backdrop of elevated valuations.

High Conviction (Wholesale) Fund Performance

As at 31 March 2024*

fund benchmark^
3 months 8.0 5.4
Full YTD 7.4 13.3
1 year p.a. 10.5 14.4
since inception p.a. 2.5 7.1

^Benchmark is the S&P/ASX 300 Accumulation Index. Past performance is not a reliable indicator of future performance.

Inception date: 01/10/2021.

Contributors and detractors

Top 3 contributors to Fund return


Resmed Inc (RMD)


PEXA Group Ltd. (PXA)


Reliance Worldwide Corp. Ltd.

Top 3 detractors to Fund return


Fletcher Building Limited (FBU)


Sims Ltd. (SGM)


Domain Holdings Australia Ltd. (DHG)


  • Resmed (RMD) shares rose 19% in the March quarter as the medical device business delivered a strong 2QFY24 financial result during the period. Strong sales growth combining with gross margins above market expectations saw the stock outperform during the period. We remain positive over Resmed’s near-term opportunities amongst the backdrop of ever-present GLP-1 related news flow.

  • PEXA (PXA) shares rose 22% in the March quarter as the property technology company delivered a solid financial result for its Australian business and progressed its strategy in the UK. Two top tier UK banks have now verbally committed to go live with PEXA in the UK by mid-year, which was an important catalyst for investor sentiment. We believe the core Australian business is an attractive business model with a strong industry position and believe the UK offers material growth optionality outside of the domestic franchise.

  • Reliance Worldwide (RWC) shares rose 30% over the March quarter following a strong interim result despite subdued operating conditions, which highlighted the earnings resilience of the business. In particular, the America’s division achieved better than expected results driven by new product launches and operating efficiency improvements. During the quarter RWC also announced the acquisition of Holman Industries which is a strong strategic fit for the business and supports future earnings growth.


  • Fletcher Building (FBU) detracted from performance during the March quarter following a disappointing interim earnings update, legacy issues, and balance sheet concerns. In addition, management changes were announced. We continue to see long term value in FBU, which has a strong market position in the NZ Building products industry, as earnings recover, and legacy issues are largely resolved by the end of the calendar year.

  • Sims (SGM) shares fell over the quarter following a weaker than expected interim result in a tough operating environment. Looking forward we see valuation upside as the company implements its restructuring plans and cost out initiatives, in addition to recovering operating conditions which will drive improved operating margins and earnings in the forecast period.

  • Domain (DHG) detracted from performance during the quarter despite a reasonably good 1H result that delivered 49% NPAT growth. Despite this, investors were disappointed with the relative underperformance compared to its peer, REA Group, which delivered better revenue growth in the half. With property markets strengthening, particularly in the key markets of Sydney and Melbourne, we expect DHG to deliver robust earnings growth over the next 12 months and, with valuation looking attractive compared to REA, we remain positive on the stock.

Australian suburban streets houses from above

PEXA shares rose 22% in the March quarter as the property technology company delivered a solid financial result for its Australian business and progressed its strategy in the UK.

Portfolio changes

Additions to the Fund

  • Aussie Broadband (ABB) – ABB is a fast growing telecommunications provider in Australia, originally focusing on nbn reselling but now offering a diverse range of data, voice, and connectivity services to residential, business, and enterprise customers. The 1H result reflected this growth, with a 21% increase in NBN subscribers, 27% increase in NPAT and strong FCF performance. An unexpected contract loss towards the end of the quarter was disappointing but we believe the investment thesis remains intact and fundamental valuation attractive.

Reductions from the Fund

  • Bendigo & Adelaide Bank Ltd. (BEN) – The fund sold its small position in BEN to reweight into the major banks NAB and WBC that have scale advantages over the regional banks. The holding was sold above our valuation, based on a sustainable ROE of 8.25%.

Computer running tests in a science lab

We added fast-growing telecommunications provider Aussie Broadband to the fund in the last quarter.


Sector allocation

Sector overweights
Utilities, Health Care, Information Technology

Sector underweights
Materials, Financials, Energy

The Fund’s cash holdings are slightly elevated due to a selective approach to investment opportunities against a backdrop of elevated valuations.
See Fund info

*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.


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