Ethical Investment Apr 23 Global 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.
eVTOL Industry
As Tesla investors, we've always recognised the importance of decarbonising the transportation industry, including automobiles and aircraft.
Since 2021, we've been closely monitoring the eVTOL (electric vertical take-off and landing) industry. These electric planes produce zero emissions, generate less noise compared to traditional aircraft, and have vertical take-off and landing capabilities similar to helicopters. We strongly believe that this industry has significant potential for positive environmental impact as it revolutionises the airline sector.
You can read a recent article about our investments in Joby Aviation and Lilium in this space. Within the article, you can also watch a video showcasing the technology.
Investing to decarbonise air-travel
As investors in Tesla, we have always understood the importance of decarbonising the transportation industry, including automobiles and aircraft.
Portfolio Snapshot
During the month, the Fund returned -1.5% by investing in high-quality Global 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
ASML
ASML is a renowned technology company recognised for its constant innovation and significant contributions to the semiconductor industry. The company holds a crucial position in providing the necessary machinery for the production of vital semiconductors, supporting important sustainability initiatives and industries like decarbonisation, healthcare, autonomous vehicles, and electric vehicles, among others. Moreover, as Generative AI and Large Language Models, such as ChatGPT, continue to become more integrated into our daily lives, we anticipate a growing demand for ASML's machinery.
The company reported strong financial results for 1Q FY23. Net sales exceeded expectations at €6.7 billion, with a gross margin of 50.6%. Higher-than-expected revenue from EUV and DUV systems drove this performance. Demand signals in various market segments remain mixed, with some customers adjusting their demand timing. However, overall demand exceeds capacity, resulting in a backlog of over €38.9 billion.
ASML is projecting 2Q net sales in the range of €6.5 billion to €7.0 billion, along with a gross margin between 50% and 51%. The company also expects to maintain strong growth throughout 2023.
Intuitive Surgical
Intuitive Surgical manufactures and markets the da Vinci Surgical System, a robotic surgical system used for minimally invasive surgical procedures.
During the month, the company released their 1Q FY23 results showing revenue growth of 14% to US$1.7 billion. The company’s global procedural growth was 26%, as patients returned to hospital for surgery. We think that the company is at an inflexion point where procedure growth will continue to be strong after a period of subdued growth during the pandemic. We think that over the long term, many medical procedures that are currently performed using open surgery will eventually be performed using the company’s da Vinci System due to their superior patient outcomes. Furthermore, the company’s recurring revenue stream from recurring procedures provides investors with a predictable stream of future cash-flows.
We are enthusiastic about the long-term growth prospects of both companies and the positive impacts they have on society. Our continued investment reflects our confidence in their potential.
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.