Ethical Investment Jan 24 Report
Dear Investor,
I am pleased to announce the release of our January 2024 Monthly Report for our Funds. The ELMRI ANZ Conviction Fund increased by 2.2%, and the ELM Responsible Investments Global Fund increased by 5.1% 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, fueling our enthusiasm for the future prospects of both the Global and ANZ Funds.
ELM Responsible Investments Update
Professor Sarah Bekessy, who joined us last year, will be presenting at the Responsible Investments Association (RIAA) Conference in Sydney on May 1st. Her presentation will assist financial advisers in gaining a deeper understanding of nature and how it can be integrated into client portfolios. The program details are available HERE. Additionally, Professor Bekessy is slated to speak at WOMAD 2024's The Planet Talks, a three-day ecological and conversational forum. This event will feature leading thinkers, activists, scientists, and leaders from around the world, engaging in meaningful discussions on the challenges and solutions impacting our planet. You can find more information about this program HERE.
I am looking forward to learning more from these discussions and welcome any questions you might have. If you are interested in attending the RIAA Conference with us, please don't hesitate to get in touch.
Research
Sustainable Signals
In January, Morgan Stanley's Institute for Sustainable Investing released some compelling research that underscores the significant and growing interest in sustainable investing. Their survey, which spanned investors in the USA, Europe, and Japan, revealed some notable insights:
77% of respondents expressed interest in sustainable investing,
57% reported an increase in their interest over the past two years,
73% believe that strong ESG (Environmental, Social, and Governance) practices can result in higher returns, and
58% indicated they are likely to choose financial advisers or investment platforms based on their sustainability offerings.
As managers of two high-conviction ethical funds, we are already convinced of the value of sustainable investing. However, it's encouraging to see data that aligns with our observation: both interest in and investments toward sustainability are on the rise.
Additionally, we have referenced this research in our new report titled "The Benefits of Responsible Investing." A link to the report can be found HERE.
This report aims to guide investors and advisers who are newcomers to the field, providing an overview of various investment strategies and products available in sustainable investing. If you know someone looking to explore ethical investing but unsure where to start, please feel free to share this report with them.
Key Positions
Key positions in the ELMRI ANZ Conviction Fund are ProMedicus, Xero, CSL, ResMed and Infratil.
Key positions in the ELM Responsible Investments Global Fund are Tesla, Microsoft, ServiceNow, Workday and ASML.
Company News: ResMed
In January, ResMed announced its Q2 results for the fiscal year 2024, showcasing strong performance. The company reported a year-over-year revenue increase of 12% and a 20% rise in non-GAAP operating profit. This positive news was particularly reassuring after a dip in investor confidence during the latter half of 2023. Concerns had been growing about the potential impact of GLP-1 drugs, such as Ozempic and Wegovy, on the demand for ResMed's primary product, CPAP machines, used by patients with Obstructive Sleep Apnea (OSA). The reasoning behind these concerns was that if GLP-1 drugs effectively lead to significant weight loss, individuals with obesity-related OSA might no longer need CPAP machines. This scenario could potentially shrink ResMed’s market and negatively affect its growth and profitability. Despite these concerns, we previously argued that GLP-1 drugs were unlikely to have a negative impact on ResMed's sales, considering the market's reaction and the subsequent decline in ResMed’s stock price to be an overreaction. The recent announcement of strong growth and profit figures appears to validate our stance, indicating that the feared negative impacts have not come to fruition.
Moreover, ResMed reported a 24% increase in revenue from its software-as-a-service offerings, highlighting the strong performance of its non-core residential care software business.
Company News: ASML
ASML, a leader in the semiconductor industry, specialises in the development and manufacturing of advanced lithography machines. These machines are crucial for producing integrated circuits or chips, laying the foundation for the modern digital world. ASML's cutting-edge Extreme Ultraviolet (EUV) lithography systems, in particular, play a pivotal role in pushing the boundaries of miniaturization and performance in semiconductor manufacturing, enabling the production of smaller, more efficient, and powerful chips that are vital for a wide range of applications.
In the fourth quarter and full fiscal year of 2023, ASML reported strong results. The company's net sales in Q4 increased to €7.2 billion, marking a 13% increase year-on-year (YoY), with a gross margin of 51.4%, both figures surpassing the quarterly guidance. The period saw net bookings for ASML’s systems jump 45% YoY to €9.2 billion, with €5.6 billion attributed to its flagship EUV lithography systems. This surge was driven by AI-related demand from memory and logic semiconductor clients, among other end markets, as semiconductor inventory levels began to improve. For the entire year, ASML achieved net sales of €27.6 billion, a remarkable 30% YoY increase, with a gross margin of 51.3%.
Company News: Tesla
In January, Tesla unveiled its results for the fourth quarter and the full fiscal year of 2023, recording modest revenue growth: a 3% year-over-year increase in total revenue and a 1% increase in automotive revenue. These figures missed market expectations, resulting in an immediate decline in Tesla's stock price.
This reaction was likely amplified by Tesla's warning that the growth in vehicle sales for 2024 could be "significantly lower" than the 38% achieved in 2023, attributing this slowdown to a deceleration in electric vehicle (EV) adoption and the company's efforts to start production of their next-generation Model 2 car in late 2025. Tesla described its position as "between two growth waves," with the Model 2 anticipated to be a much more affordable vehicle than its current lineup, potentially sparking a new wave of EV adoption.
Despite the controversies surrounding Tesla, its pivotal role in driving the automotive industry towards decarbonization is undeniable. The anticipated launch of the Model 2 is expected to play a crucial role in propelling electric vehicles (EVs) into the mainstream. The widespread adoption of EVs hinges on the availability of more affordable options. Given Tesla's advanced economics and technology, it is poised to lead this shift with the Model 2, much like it has done in the past. Currently, only Tesla and China's BYD have demonstrated the ability to manufacture electric vehicles profitably, positioning them as likely leaders in the industry for the foreseeable future. In contrast to incumbent automakers such as GM and Ford, which are delaying investments and extending their EV development timelines due to current market conditions, Tesla continues to invest in its future. Despite a short-term industry-wide downturn, Tesla's commitment to investment is seen as the right strategy for securing its position as the long-term leader in the electric vehicle industry.
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 31 January 2024
| 3 months | 6 months | 12 months | Inception** | |
|---|---|---|---|---|
| ELM Responsible Investments Global Fund | 21.5% | 7.9% | 37.2% | 4.4% |
| Benchmark* | 11.2% | 6.6% | 24.7% | 19.9% |
*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, 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 January 2024
| 3 months | 6 months | 12 months | Inception*** | |
|---|---|---|---|---|
| ELMRI ANZ Conviction Fund | 21.3% | 5.4% | 14.3% | 32.8% |
| Benchmark* | 13.9% | 5.6% | 6.7% | 37.0% |
| Ethical Benchmark** | 15.8% | 1.7% | 8.7% | 21.1% |
*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.