Ethical Investment Aug 23 Report
Dear Investor,
In August, most equity markets were lower due to mixed macroeconomic news and higher interest rates in the US. Inflation trended slightly higher in the US, with CPI reaching 3.2% in July, up from 3.0% the prior month. Many Australian companies reported their FY23 full-year results during the month, and the S&P/ASX 300 Accumulation Index declined -0.8%. In the US, the S&P500 Index also declined -1.8%; in Europe, the Euro Stoxx 50, German DAX and FTSE 100 all declined -3.8%, -3.0% and -2.5% respectively.
Investment Performance
During August, the ELMRI ANZ Conviction Fund decreased by -2.0%, and the Global Fund increased by 0.2%. Both funds underperformed their respective Benchmarks.
Healthcare and Medical Device Sector Update
Novo Nordisk, a key holding in our Global Fund, announced the results of their SELECT trial in early August. The results were very positive, suggesting that using their obesity drug Wegovy could reduce the risk of major adverse cardiovascular events by 20% in overweight or obese adults. This led to a strong performance for the company throughout the month, which has already been performing well over the last year on the strength of Wegovy and their other GLP-1 drug, Ozempic.
The promise of GLP-1 drugs has had other flow-on effects: current market sentiment is that GLP-1s (including Ozempic, Wegovy, and future-generation drugs currently in development) will reduce obesity other related diseases including cardiovascular disease in the population to such a degree that there will be a lesser need for related medical products such as CPAP machines (to treat sleep apnoea) and Continuous Glucose Monitoring systems (to aid in managing Type 1 Diabetes). This has led to the recent poor market performance of other healthcare and medical device companies, such as ResMed, Fisher & Paykel Healthcare, CSL, and Dexcom, to focus only on our holdings.
However, looking closely at the evidence, the future for these other companies does not seem as dire as recent performance suggests. Dexcom’s research showed that patients increased their use of Continuous Glucose Monitoring while taking GLP-1 drugs. Analysis by Andrew Goodsall (MST Marquee) also showed that the massive growth in GLP-1 usage has not led to reduced rates of obesity and related sleep apnoea in the US. For these reasons and others, we remain confident in the long-term positioning of our holdings; indeed, the stock price decline in these companies may provide a valuable opportunity.
Cochlear Results
In August, Cochlear released its results for FY23, which were strong across the board. Revenues increased 19%, and underlying net profit increased 10%. They are forecasting a 16-23% increase again for the coming financial year. This was driven by a range of factors, including the last of the COVID catch-up surgeries, the successful launch of their new Nucleus 8 Sound Processor, and an improving trend in adult referrals, suggesting that awareness and access initiatives are providing success. This led to a strong performance for the company, bucking the trend of many healthcare companies underperforming. We are excited about Cochlear’s long-term opportunities, given the company’s market leadership and the low penetration rate of cochlear implants.
Intuit Results
Intuit Inc. was another company that announced its FY23 results in August. Overall, they had a strong performance, with total revenue up 13% year-on-year, but a closer look reveals mixed results across their different business segments. By far, their best performer was the “Small Business and Self-Employed Group”, up 24%. This includes products such as Quickbooks Online and Mailchimp. Their “Consumer and ProTax Group” produced weaker results: TurboTax produced mixed results across the range of Online or Live offerings, and revenue from their Credit Karma product was down 9% for the year.
We are pleased to be invested in Intuit as they help small businesses improve their efficiency through technology and help entrepreneurs focus on whatever their business may be. This can lead to many positive outcomes, such as increased local offerings, innovation and employment opportunities.
Biodiversity Lunch
In early September we held a lunch event at La Madonna restaurant. I presented on the challenges and complexity of sustainable investing, together with our speaker Professor Sarah Bekessy from RMIT University. Professor Bekessy is a noted expert in Biodiversity, Urban Planning, and Public Policy, and her presentation was hugely informative in helping us to understand more about the issue of Biodiversity, and what we can do as individuals and as investors. Some key takeaways from the event include:
The key role that Australia plays in biodiversity as an island continent. We are home to a huge number of unique plants and animals, and unfortunately, a large number are already extinct or under threat. When it comes to biodiversity, there can be no argument that Australia’s contribution is vital.
The urgency of the problem. While Biodiversity has not yet entered public consciousness in the way that climate change has, it is ranked as the fourth most severe global risk in the World Economic Forum’s 2023 Global Risks Report.
The need for creative mixed-use solutions. Much of the damage to biodiversity comes through the development of land for human use, be it for cities, suburbs, or farming. As these are all essential needs for human survival, we can’t take an either/or approach. Whether it is developing new farming practices that are less damaging to indigenous plants and wildlife, or ensuring new urban renewal projects include plans for integrated green spaces, creative solutions can and must be implemented.
If you would like a copy of the presentation, please email me (jai@elmri.com) or James Mclean (james@elmri.com).
Conclusion
Our strategy of investing in the most innovative and impactful growth companies remains consistent. If you would like to arrange a time to discuss any of the topics discussed in this report, please contact us to schedule a meeting. Alternatively, if you are interested in investing with us, you can access our investment portal and review our fund documentation by clicking on the "Invest" buttons below.
Thank you for your support and interest.
Kind regards
Jai
ELMRI Global Fund
Performance to 31 August 2023
| 3 months | 6 months | 12 months | Inception** | |
|---|---|---|---|---|
| ELM Responsible Investments Global Fund | 10.3% | 20.8% | 24.3% | -3.8% |
| Benchmark* | 7.0% | 15.0% | 23.0% | 12.6% |
*Benchmark for ELM Responsible Investments Global Fund is MSCI World Accumulation Index in AUD
**Inception is 15th October 2021 for ELM Responsible Investments Global Fund
Top Holdings
16% Tesla
11% ServiceNow
10% Microsoft
5% NVIDIA
5% ASML
Key Areas of Investment
Electric Vehicles, Healthcare Equipment, Property & Infrastructure, Software & Services, Biotechnology & Future Health, Environment & Renewable Energy, Fintech & Marketplace, Data & Research, Medical Devices, Future Technology
ELMRI ANZ
Conviction Fund
Performance to 31 August 2023
| 3 months | 6 months | 12 months | Inception*** | |
|---|---|---|---|---|
| ELMRI ANZ Conviction Fund | 3.6% | 7.5% | 10.9% | 23.5% |
| Benchmark* | 3.9% | 2.8% | 9.0% | 28.6% |
| Ethical Benchmark** | 2.6% | 5.8% | 6.8% | 18.0% |
*Benchmark for ELMRI ANZ Conviction Fund is S&P / ASX 300 Accumulation Index
**Ethical Benchmark is the NASDAQ Future Australian Sustainability Leaders tracked by BetaShares Australian Sustainability Leaders ETF
***Inception is 10th October 2019 for ELMRI ANZ Conviction Fund
Top Holdings
11% Xero
10% Pro Medicus
8% Infratil
7% CSL
6% ResMed
Key Areas of Investment
Renewable Energy, Employment & Education, Software & Services, Biotechnology, Medical Devices, Digital Wallets, Health Technology, Property & Social Infrastructure, Housing & Sustainable Building Products
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.