Ethical Investment Apr 23 Australia & NZ Report

Market Update

In April, despite the ongoing banking crisis, most equity indices performed positively. The S&P 500 in the US returned 1.6%, while in Europe, the FTSE100, Germany DAX, and Euro STOXX50 total return indices rose by 3.4%, 1.9%, and 1.8% respectively. In Australia, the S&P/ASX 300 index returned 1.8%. Macro-economic data, particularly CPI inflation in the US, continued to make headlines, showing a slowdown to 5.0% in March from 6.0% in February. We anticipate that upcoming data will continue to support the notion that inflation is slowing down, dispelling concerns of persistent inflationary pressures.

Additionally, the robust cyclical economic recovery witnessed in 2022, which favoured low-quality, cyclical companies, is unlikely to persist. Consequently, we believe that investors would be well-positioned to adopt a strategy like ours, focusing on high-quality sustainable growth companies that prioritize innovation and market share expansion. For instance, despite the recent collapses of Silicon Valley Bank, Signature Bank, and Credit Suisse causing market volatility, our selected companies experienced minimal impact due to their high quality, strong cash-flows, healthy balance sheets, and long-term growth prospects.

Portfolio Snapshot

During the month, the Fund returned 2.5% by investing in high-quality Australian and New Zealand growth companies that are making a positive impact on the United Nations Sustainable Development Goals. Our portfolio companies, typically have global operations and are making an impact around the world.

Our portfolio companies also have industry leading business practices and are facilitating the transition to a more sustainable future through their investments and internal policies. They have taken initiatives to address important issues such as inequality and climate change within their respective organisations.

Portfolio News

ResMed

During the month, ResMed, the leading medical equipment company focused on treating sleep apnoea, chronic obstructive pulmonary disease, and other respiratory conditions, reported its 3Q23 results. Revenue increased by 31% on a constant currency basis, but gross margins decreased by 150 basis points to 55.3%. The decrease in gross margin was primarily caused by higher sales of lower-margin medical devices compared to lower sales of higher-margin masks and accessories.

The company is actively expanding its manufacturing capacity for its latest generation cloud-connected device to meet strong customer demand. This expansion comes at a time when ResMed's biggest competitor, Philips Respironics, is experiencing an ongoing product recall.

We are optimistic about ResMed's prospects as they operate at the intersection of technology and healthcare, aiming to serve 250 million patients by 2025.

Seek

In April, Seek, the global employment marketplace, held an Investor Day led by CEO Ian Narev. During the event, the company presented a long-term revenue opportunity of $2 billion by FY28, driven by yield growth in ANZ and double-digit growth in Asia. Seek expressed confidence in maintaining operating margins above 50%.

Despite Seek's current success, we believe the company still possesses a compelling and exciting growth opportunity. In their domestic business, Seek introduced an outcome-based pricing model that reduces risk for hirers and utilizes their advanced matching engine to recommend experienced and suitable candidates. This model aims to capture additional value while improving the overall hiring process, driving revenue and earnings growth for Seek.

In Asia, Seek is implementing a freemium model to increase volume and improve the network effect of the platform. This strategy will enhance the ecosystem of lower-wage workers on the company's platform and contribute to revenue and earnings as a proportion of users upgrade to a paid tier.

We believe that both ResMed and Seek are well-managed companies with promising growth prospects. They are driving positive change in their respective industries and generating strong returns for shareholders. We remain invested in both companies and are enthusiastic about their future prospects.

This note has been prepared by ELM Responsible Investments (‘ELMRI’) ABN 70 607 177 711 AFSL 520428, for Australian wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth).

The information is not intended for general distribution or publication and must be retained in a confidential manner. Information contained herein consists of confidential proprietary information constituting the sole property of ELMRI and its investment activities; its use is restricted accordingly.

This note is for general informational purposes only and does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of preparation and presenting and all forecasts, assumptions, opinions, data and other information are not warranted as to accuracy or completeness and are subject to change without notice. This is not an offer document and does not constitute an offer or invitation of investment recommendation to distribute or purchase securities, shares, units or other interests to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this note. Any potential investor should consider their own circumstances and seek professional advice.

ELMRI funds, its directors, employees, representatives and associates may have an interest in the named securities.

Past performance is for illustrative purposes only and is not indicative of future performance.