Ethical Investment Apr 24 Report
Dear Investor,
I am pleased to announce the release of our April 2024 Monthly Report for our Funds. The ELMRI ANZ Conviction Fund decreased by 2.9%, underperforming its benchmark, and the ELM Responsible Investments Global Fund decreased by 5.6%, underperforming its benchmark.
Major equity indices were lower in April, with U.S inflation accelerating and expectations for interest rate increases gaining traction. However, inflation continued to decline in Europe, prompting Christine Lagarde, President of European Central Bank to signal that if inflation continues on its current trajectory, then it would be appropriate to decrease interest rates.
Despite the softer month in April, we continue to believe that our portfolios are well positioned to deliver strong returns and also drive positive change. Our companies continue to invest in innovation, employ sustainable business practices and take market share away from incumbent operators.
ELM at the RIAA 2024 Conference
On May 1-2 the Responsible Investments Association Australasia (RIAA) held their annual conference in Sydney. As ELMRI has taken up membership with RIAA in the past year and had our Global Fund certified, we were proud to attend, meeting many of our peers and discussing the most important issues in the Responsible Investments industry. Our sustainability and biodiversity adviser, Professor Sarah Bekessy, was invited to present and lead a panel discussion on Understanding Nature For Financial Advisers. For those who could not attend, a written summary of Professor Bekessy’s presentation can be found here.
Key Positions
Key positions in the ELMRI ANZ Conviction Fund are ProMedicus, Xero, CSL, Fisher & Paykel Healthcare and ResMed. Key positions in the ELM Responsible Investments Global Fund are Tesla, Microsoft, ServiceNow, ASML and NVIDIA.
UNDERSTANDING NATURE FOR FINANCIAL ADVISERS
Addressing nature and biodiversity loss is fast becoming the issue which all investors need to embrace. What is investing for nature and how are the product providers addressing it in their portfolios? With practical examples from fund manager portfolios and resource takeaways, this session will ensure advisers develop a deeper understanding of risks and opportunities to start exploring with clients.
If you are interested in attending the conference, please let me know and I will be happy to organise virtual tickets for you.
Federal Budget Response
Last week the federal budget was announced. While the headlines were dominated by the immediate cost-of-living relief measures announced by Treasurer Jim Chalmers, we were keenly watching to see what measures and funding was announced for climate change initiatives and nature repair.
On these areas the budget was a mixed-bag: while it is that it is great to see material funding for clean energy initiatives (as part of the Future Made In Australia plan), it is bitterly disappointing to see no new investment in biodiversity conservation and repair.
You can read our full analysis and response here.
Company News: Tesla
Tesla released their 2024 Q1 results in April, and it was an interesting mix of negative financial results with optimistic business plans. The top-line YoY figures were generally very negative, highlighted by a 9% decrease in total revenues, a 13% decrease in total automotive revenues, and gross profit down 18%. Tesla highlighted numerous reasons for these figures, including a decline in their vehicle deliveries due to production disruptions at multiple factories, and the industry-wide slowdown in EV adoption (outside of China). Other parts of the business were positive, with +25% for Services and Other Revenue, and +7% for Energy Generation and Storage Revenue; indeed, Tesla’s own outlook is that revenue growth for Energy Generation and Storage will outpace their core automotive business for the remainder of 2024.
Despite these figures, Tesla also announced the fast-tracking of several other business plans and initiatives, which paint a more positive outlook. The company has long forecast their development of a lower-cost, more affordable car called the Model 2, which they believe will help drive a new wave of EV adoption. This had previously been forecast for launch no earlier than late 2025, in part due to requiring new factories to be specifically built for it. However, Tesla have pivoted somewhat, and decided that the Model 2 will now have more in-common with the production method of their existing cars, and as such can be built on the same production lines as their existing cars (with some re-tooling). This will mean a short-term reduction in vehicles produced as their Fremont factory is changed, but a significantly sooner delivery date for the new model of early 2025 or even late 2024.
The other significant announcement was of their continued investment in their AI software, which underpins the Full-Self Driver (FSD) technology available to car owners. Tesla rolled out a 30-day free trial to eligible car owners in US and Canada to increase take-up of FSD, which as a SaaS offering has significantly greater potential revenue than other parts of their business. AI and FSD capacity also underpins Tesla’s most innovative announcement, which is their plans to develop a fleet of self-driving ‘Robotaxis’, which will offer a driverless ride-hailing service akin to Uber. These Robotaxis are due to be launched in China in August, and offer a potentially lucrative new stream of income for the business.
Company News: ResMed
On April 25 Resmed reported their results for FY24 Q3, and the overall results were of strong YoY growth across various metrics. Revenue rose by 7% to $1.2 billion, with a similar increase on a constant currency basis. Gross margin expanded by 260 basis points to 57.9%, and income from operations surged by 25%. The company attributed these strong results to robust demand for their products and software solutions, along with operational efficiencies (such as reduced freight and manufacturing costs) driving margin improvement and increased profitability.
The company continues to innovate in their core business of medical devices, launching their new AirCurve11 series of devices in the quarter, and launching the AirFit F40 mask system in the US market. This core business revenue grew by 9% across the U.S., Canada, and Latin America; and by 3% in Europe, Asia, and other markets. Their SaaS business (excluded from previous figures) grew by 8%.
Conclusion
We are committed to investing in the most innovative and impactful growth companies and I am optimistic about the future potential of our investment strategies.
If you wish to discuss any aspect of this report in greater detail, please do not hesitate to reach out. I would be more than happy to arrange a meeting at your convenience. Those interested in investing with us can explore our investment portal and review our fund documentation by clicking the "Invest Now" buttons provided below.
Thank you for your ongoing interest and support.
Kind regards,
Jai Mirchandani
ELM Responsible Investments Global Fund
Performance to 30 April 2024
| 3 months | 6 months | 12 months | Inception** | |
|---|---|---|---|---|
| ELM Responsible Investments Global Fund | 0.1% | 21.7% | 28.0% | 4.6% |
| Benchmark* | 5.6% | 18.1% | 21.1% | 27.1% |
*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:
Key Areas of Investment
Electric Vehicles, Healthcare Equipment, Software & Services, Biotechnology & Future Health, Environment & Renewable Energy, Fintech & Marketplace, Data & Research, Medical Devices, Future Technology
ELMRI ANZ Conviction Fund
Performance to 30 April 2024
| 3 months | 6 months | 12 months | Inception*** | |
|---|---|---|---|---|
| ELMRI ANZ Conviction Fund | 5.2% | 28.2% | 17.8% | 39.7% |
| Benchmark* | 1.2% | 15.3% | 9.0% | 38.6% |
| Ethical Benchmark** | 3.3% | 19.6% | 8.5% | 23.9% |
*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:
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.