Ethical Investment Feb 24 Report
Dear Investor,
I am pleased to announce the release of our February 2024 Monthly Report for our Funds. The ELMRI ANZ Conviction Fund increased by 5.6%, and the ELM Responsible Investments Global Fund increased by 6.0% during the month, both outperforming their respective benchmarks.
Following an impressive performance in 2023, our portfolios have continued to excel into 2024, and we are optimistic about the future of our investments. Our companies are well-positioned to capture a significant portion of the market share from their competitors in the coming years, thanks to their focus on innovation, solid business fundamentals, and competitive advantages. Moreover, our products and services offer more sustainable and impactful solutions than what is currently available.
The shift from a period marked by high inflation and interest rates to a low-growth environment is expected to benefit our investment strategy. We concentrate on companies that are not only capturing market share but are also capable of growing through innovation, irrespective of the macroeconomic backdrop.
This shift presents an excellent opportunity for long-term investors who value innovation, impact, and high-quality growth. Over time, we believe these companies will provide the highest returns, along with substantial social and environmental benefits. Despite the exceptional returns seen in 2023, the internal rates of return continue to be compelling, fuelling our enthusiasm for the future prospects of both the Global and ANZ Funds.
Improving Macroeconomic Conditions
In February, major equity indices demonstrated predominantly positive performance, buoyed by resilient economic data and relatively robust earnings reports capturing investors' attention. The market remains vigilant regarding inflation levels, eagerly seeking indications of potential shifts in central bankers' stance on interest rates. Notably, the annual CPI inflation rate in the U.S. retreated to 3.1% in January after reaching 3.4% in December. Additionally, the U.S. Core PCE Price Index, the Federal Reserve’s preferred inflation gauge, rose by 2.85% in January, edging closer to the Fed's 2% inflation target.
For several years, we have maintained that the elevated inflation rates experienced were influenced by pandemic and war-related factors and would gradually normalize over the medium term. We persist in our belief that long-term trends such as technology-driven productivity enhancements, an aging population, declining birth rates, high debt levels, and inequality are conducive to slower growth, disinflation, and modest interest rates. The transition back to these long-term trends from a period of exceptional circumstances appears to be underway. While there may be month-to-month fluctuations, the overarching trend is unmistakable, and we anticipate inflation and interest rates returning to more typical levels by year-end. This transition is expected to benefit our investment approach.
Valorify Webinar
On March 15th we were pleased to present a special webinar with one Australia’s leading bioenergy experts, Dr Scott Grierson of Valorify. He addressed the opportunity to utilise biomethane, otherwise known as Renewable Natural Gas (RNG), as a key pillar in our national clean energy transformation.
Dr Grierson presented an introduction to the fundamentals of the technology, which utilises crop stubble from cereal farming (which would otherwise be burnt off or left to rot) as the raw material that is used to produce biomethane. The biomethane can then utilise existing gas pipelines and infrastructure for distribution and end use. Given the looming falloff in gas production due to affect Victoria and the other Eastern States from 2027, there is an urgent need to develop sources of clean energy, such as biomethane, to address to this gap.
This webinar is of great interest for anyone interested in innovative clean energy technologies. More specifically, there is also great relevance for our Global Fund investors, as Novonesis (formerly Novozymes) produces an enzyme product which can be utilised to increase the speed and efficiency of the biomethane production. As such, an increase in biomethane production is a possible growth market for the company.
To watch the full webinar, and learn more about Valorify’s plans to develop biomethane production plants in Victoria and Australia, please visit this link.
Key Positions
Key positions in the ELMRI ANZ Conviction Fund are ProMedicus, Xero, CSL, Fisher & Paykel Healthcare and Block.
Key positions in the ELM Responsible Investments Global Fund are Microsoft, ServiceNow, Tesla, ASML and NVIDIA.
Company News: Block
Fintech company Block, released its fiscal year 2023 results for the twelve-month period ending on December 31, 2023. The company reported revenue growth of 25% to $21.9 billion and gross profit growth of also 25% to $7.5 billion. Adjusted EBITDA increased 81% to $1.79 billion.
The company’s Cash App division increased gross profit by 33% to $4.3 billion. Square's gross profit increased by 16%, reaching $3.1 billion.
Block reaffirmed its commitment to achieving the Rule of 40 by 2026. This financial metric, widely used in the tech industry, emphasizes a balance between revenue growth and profit margin, with the aim of both metrics totaling at least 40%. Notably, according to Meritech, only 26% of software as a service companies managed to achieve this benchmark. In 2023, Block achieved a Rule of 29, and the company is expected to build upon this in 2024, striving to join the minority of impressive companies that achieve the Rule of 40 by 2026.
Looking ahead to full-year 2024, Block anticipates gross profit to reach a minimum of $8.65 billion, representing a solid 15% year-over-year growth. Cash App is poised to outpace Square in growth rate, with an operating margin projected to be in the mid-teens. Noteworthy is Block's aim to surpass guidance by at least 1% through superior performance in gross profit growth, adjusted operating income margin, or both, throughout the year.
Conclusion
We are committed to investing in the most innovative and impactful growth companies. The robust performance of our funds throughout 2023 and into 2024 signals improving macroeconomic conditions and forthcoming growth opportunities. Consequently, 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.
Lastly, thank you for your ongoing interest and support. We are looking forward to what 2024 has in store, and I look forward to engaging with all of you throughout the year.
Kind regards
Jai Mirchandani
ELM Responsible Investments Global Fund
Performance to 29 February 2024
| 3 months | 6 months | 12 months | Inception** | |
|---|---|---|---|---|
| ELM Responsible Investments Global Fund | 13.6% | 14.2% | 37.9% | 10.7% |
| Benchmark* | 12.8% | 12.1% | 30.1% | 27.0% |
*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 29February January 2024
| 3 months | 6 months | 12 months | Inception*** | |
|---|---|---|---|---|
| ELMRI ANZ Conviction Fund | 15.2% | 7.4% | 22.7% | 40.2% |
| Benchmark* | 9.5% | 7.4% | 10.5% | 38.3% |
| Ethical Benchmark** | 13.9% | 7.1% | 13.3% | 26.3% |
*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.