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SMA – Q3 update

commentary highlights


Climate was one of the biggest stories of the quarter with the release of the IPCC report and extreme weather events continuing to occur around the world.


Greater urgency around the transition to a more sustainable future in support of net-zero goals will increase opportunities and risks for investors.


Returns from share markets across the world were quite flat over the September quarter, with many of the gains achieved earlier in the quarter reversed in the final month of September.

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Portfolio commentary

The portfolio outperformed its benchmark over the quarter, delivering a return of 2.3% (net) compared to the ASX 200 Accumulation Index’s return of 1.7%.

The portfolio’s underweight position in the Materials sector contributed to positive relative performance, with the declining iron ore price weighing on shares of the major iron ore producers, which are not held in the portfolio.

The Utilities and Consumer Staples sectors also contributed positively. This was partially offset by some weakness in two of our key sector weightings, Healthcare and Information Technology, which experienced some stock specific weakness following the release of financial results in August that didn’t meet market expectations.


SMA Performance as at 30 september 2021*


3 Months

6 Months
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1 Year
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Since inception
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Source: Praemium portal. Benchmark is the S&P/ASX 200 Accumulation Index and portfolio inception is 16 April 2020. Past performance is not a reliable indicator of future performance.

Portfolio holdings

The number of stocks held in portfolio remains around 25, with a small number of holdings added or removed over the September quarter.

New additions to the portfolio in the September quarter included Graincorp (GNC) and Blackmores (BKL). We like the high quality infrastructure assets that GNC owns and operates in the bulk grain supply chain, while recent favourable crop conditions provide GNC with a near-term tailwind. We believe there is further share price upside to come as the market gains confidence in the increasing mid-cycle earnings stream that management has guided to.

Blackmores (BKL) was also added to the portfolio in the September quarter and is a leading Australian developer and marketer of vitamins and mineral nutritional supplements for humans and animals. We are attracted to BKL for its strong market position, good cash generation and healthy balance sheet. We are supportive of management’s 2023 transformation strategy and believe there is opportunity for margins to recover over time.

Stocks exited during the quarter included Sims Metal (SGM), BigTinCan Holdings (BTH), Australian Finance Group (AFG), and Vocus (VOC), with VOC the subject of a successful takeover from a consortium including MIRA and Aware Super.


Spark Infrastructure (SKI) was the portfolio’s top contributor to performance, returning 29% over the quarter. SKI engages in the investment in regulated utilities infrastructure, holding equity positions in electricity and gas distribution and transmission assets in Australia. It is also growing direct investment exposure to renewables assets, including solar farms. SKI entered the portfolio in March 2021 as we are attracted to SKI for its quality asset base that facilitates the growth of renewable energy generation in Australia, while offering valuation upside and an attractive dividend yield. During the September quarter, SKI was the subject of a takeover proposal by a consortium including Ontario Teachers, KKR, and PSP Investments, which the Board subsequently recommended at a value of $2.95/share. Scheme meetings to finalise the takeover are expected to occur in the December quarter.

Nitro Software (NTO) was another strong contributor to the portfolio’s performance, returning 12% over the quarter. NTO is a global SaaS company providing document productivity tools and e-signing solutions to business customers. We are attracted to the business for the large, global total addressable market (TAM) it operates in, the high margins and fast growing recurring revenues the company generates, as well as its debt free balance sheet that will enable the business to support growth going forward. We also see valuation attraction in the stock, with global peers like Adobe and DocuSign trading on much higher EV/Sales multiples than NTO.



Cochlear (COH) was the largest detractor from the portfolio’s performance, declining 12% over the quarter. COH is one of the larger holdings in the portfolio as we are attracted to the large, global TAM and market share the company has in implantable hearing solutions, the strong revenue growth and high margins the business generates, as well as its strong balance sheet. The stock sold off following the release of its financial result in August as earnings guidance for FY22 failed to meet market expectations as the company reinvests for further growth. While earnings growth is therefore more limited this year, we think it is a sensible long-term decision to make and doesn’t impact our positive view on the stock.

Link Administration (LNK) was another detractor from the portfolio’s performance, declining 12% over the quarter. LNK provides outsourced administration services to super funds, listed companies and others in Australia and the UK, while also holding an equity stake in Pexa (PXA), an online portal for property settlements in Australia. The stock sold off following the release of its financial result in August as earnings guidance for FY22 failed to meet market expectations, with an earnings recovery now expected in FY23. However, cashflow generation was strong, resulting in a healthy balance sheet and enabling the company to initiate a $150m share buy-back. We think the stock is undervalued and expect the stock to re-rate as earnings recover over time.


The portfolio continues to have significant exposure to key growth thematics in information technology, healthcare, and renewables, which we expect to be positive drivers for portfolio performance over the long term.

In the short-term, inflation concerns may temper equity market returns, however we expect loosening COVID19 restrictions in NSW and Victoria as vaccination rates increase, as well as supportive monetary policy settings, to provide some support for the economy and equity markets.

Portfolio strategy

The SMA strategy is an actively managed, concentrated portfolio of between 15 to 30 holdings, with a mix of quality growth companies and traditional yielding stocks. The portfolio consists of companies we hold in the Australian Shares Fund that have more of a large cap bias in sectors such as healthcare, technology and finance.


Past performance is not a reliable indicator of future performance.

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 and Hub24.

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.

Q3 Updates >

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