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INVESTMENTS  |  FUND COMMENTARY 

Australian Shares Fund

During the 3-month period, the Australian Shares Fund has underperformed its benchmark (the ASX 300) falling 4.3% against the benchmark’s 2.1% advance. This underperformance is attributed to booming commodity prices, especially resources, which the Fund does not hold for ethical reasons. The Fund continues to outperform its benchmark over the medium and long term.


26 April 2022



The underperformance is attributed to the Fund’s significant underweight position in the materials and energy sectors which have performed very strongly on the back of rising global interest rates and commodity prices which are in turn driven by the economic dislocation caused by Covid-19 and Ukraine War. The Fund’s overweighting in information technology and healthcare was also a significant detractor with earlier stage, small, growth-orientated industrial companies underperforming in the rising interest rate environment.

Looking ahead, we see decent opportunities in a select group of mispriced Australian growth companies.


Australian Shares (Wholesale) Fund Performance

As at 31 March 2022*

3 months
Fund: -4.1%
Benchmark: 4.8%

1 year p.a.
Fund: 10.4%
Benchmark: 15.2%

3 years p.a.
Fund: 16.8%
Benchmark: 9.9%

5 years p.a.
Fund: 12.5%
Benchmark: 9.7%

Since inception p.a.
Fund: 15.0%
Benchmark: 10.7%

*Benchmark is composite S&P/ASX Small Industrials Accumulations Index till 12 August 2019 and S&P/ASX 300 Accumulation Index thereafter. Past performance is not a reliable indicator of future performance.

Inception date: 23/01/2012.



Australian Shares (Retail) Fund Performance

As at 31 March 2022*

3 months
Fund: -4.3%
Benchmark: 4.8%

1 year p.a.
Fund: 9.7%
Benchmark: 15.2%

3 years p.a.
Fund: 15.9%
Benchmark: 9.9%

5 years p.a.
Fund: 11.4%
Benchmark: 9.7%

Since inception p.a.
Fund: 10.3%
Benchmark: 7.5%

*Benchmark is composite S&P/ASX Small Industrials Accumulations Index till 12 August 2019 and S&P/ASX 300 Accumulation Index thereafter. Past performance is not a reliable indicator of future performance.

Inception date: 19/09/1994.


Contributors over the past quarter

We were pleased with the performance of residential mortgage insurer Genworth Mortgage Insurance Australia which appreciated 29%. The share price rerate is primarily attributed to the company re-signing CBA as well as a favourable half yearly result, a healthy fully franked dividend, and a share buy-back.

The next four strongest contributors were all banks with Westpac +13.5%, Bendigo & Adelaide Bank +13%, National Australia Bank +12.2% and Bank of Queensland +7.2% all performing strongly relative to market. The banking sector is relatively well-positioned to manage profitability in a rising interest rate environment as banks can reprice mortgages and financially benefit from excess cash sitting in cheque accounts and low interest savings accounts.

Implantable hearing medical device company Cochlear appreciated 4.3% as the return to elective surgery gathered pace globally.

We were also pleased with the performance of metals recycler Sims Metal Management which appreciated 34.3% as the company benefits from booming commodity prices.


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Detractors over the past quarter

The leading detractor over the quarter was pathology and radiology provider Healius, which fell 16.7% as the market progressively reduces PCR Covid-19 testing volumes in the company’s forward-looking estimates. Similarly, respiratory-focused humidification and mask company Fisher & Paykel Healthcare fell 27% as Covid-19 hospitalisations look to be past their global peak.

The second largest quarterly detractor was real estate company Mirvac which fell 14.4%. The outlook of rising interest rates has dampened the performance of listed real estate investment trusts with the market factoring in reduced gains on property development and higher interest rates on company borrowings. Our investment in real estate internet property portal Domain fell 29% on a less favourable outlook for residential property in Australia.

Our information technology names including: Hipages -45.4%, Nitro Software -38%, Bravura Solutions -28%, Symbio -19% and Bigtincan -14.8% were all significant detractors from investment performance this quarter. Earlier stage, small-capitalised company valuations particularly in the technology and healthcare sectors have been under considerable pressure because of rising interest rates.

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Portfolio changes during the past quarter

During the quarter we added a holding in fund manager and corporate trustee Perpetual on valuation grounds. We added to our holdings in payments company EML and PDF and e-signature business Nitro Software due to share price weakness.

We divested our holding in pharmacy wholesaler and Priceline pharmacy chain into the Wesfarmers takeover bid.


The Fund has underperformed in an environment of rising commodity prices, higher interest rates and global economic dislocation because of war and Covid-19. We continue to favour small companies believing they offer the most attractive risk/return equations over the medium to long term.

- Andy Gracey, Portfolio Manager



Fund strategy

The Australian Shares Fund is an actively managed all-cap strategy investing in large, small and microcap companies listed on the ASX and NZX that meet our values-based Charter. We are a bottom-up investor using fundamental analysis with no change in fund strategy expected over the next 12 months.

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*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.

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