Ethical Investment Mar 24 Report
Dear Investor,
I am pleased to announce the release of our March 2024 Quarterly Report for our Funds. The ELMRI ANZ Conviction Fund increased by 10.8%, outperforming its benchmark, and the ELM Responsible Investments Global Fund increased by 11.6%, underperforming its benchmark.
Major equity indices were higher in March, with interest rate cuts and disinflation dominating news headlines. In recent weeks, after some higher-than-expected inflation data in the U.S., investor focus has returned again to higher inflation and interest rates. This narrative has impacted the short-term market price of many of our companies, providing an opportunity for long-term investors who prioritise innovative, impactful, and high-quality growth companies.
Research has shown that the few exceptional companies yield most of the wealth creation over the long term, and this is where we continue to focus. Despite the exceptional returns in 2023, the recent market pullback has further improved our portfolio's internal rates of return. So, we are excited about the prospects of both the Global and ANZ Funds.
ELM on the Radio
On April 11, ABC Radio National’s Life Matters presented a feature on trends in the ethical investment industry. The segment featured host Hilary Harper, RIAA Co-CEO Estelle Parker, and me. You can listen to the whole segment via the ABC website at this link, or listen to my interview here.
ELM at the RIAA Conference
We are attending the Responsible Investments Association Australasia Conference this week (May 1-2). Our sustainability Adviser, Professor Sarah Bekessy, will present how investors and financial advisers can incorporate biodiversity into portfolios. See below for more information on her discussion.
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.
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.
Regulators crack down on Greenwashing
A federal Senate inquiry has found that the ACCC has refused to certify the government’s Climate Active Carbon Neutral scheme, run by the Department of Climate Change, Energy, the Environment and Water. The opt-in paid scheme, which allowed companies to use the label to advertise their efforts to measure, reduce, offset, and publicly report on emissions, was intended to be a trusted, government-backed signal to consumers that companies are taking credible climate action. However, the ACCC found that the rules of the scheme were lacking in clarity, and the certification process was paused while the department undertakes an internal review of the scheme (currently ongoing), with critics labelling the programme ‘state-sponsored greenwashing’.
Regardless of the outcome of the pending review and future certification efforts, this is further evidence that regulators are taking greenwashing seriously, across all types of industry. Notably, within the investment industry, ASIC has recently won court cases against both Mercer Superannuation and Vanguard for misleading investors on sustainability or ESG characteristics of investments. Authenticity concerns are front of mind for investors, as evidenced by the recent RIAA research that found 78% of Australian investors are concerned about greenwashing in investments.
Woodside shareholders vote against climate plan
Woodside Energy has been dealt an embarrassing blow at their annual shareholder meeting, with 58% of shareholders voting against their current decarbonisation plans. Woodside is Australia’s largest fossil fuel producer, with critics saying that their current plans rely too heavily on offsets, and do not meaningfully consider the emissions of those using their gas and oil (otherwise known as Scope 3 emissions). Those voting against included major institutional shareholders such as AustralianSuper, who are seeking to reduce their exposure to climate-related risks. This is the largest negative result for a company in a “Say On Climate” vote, which has brought significant attention to the result; however, the result is non-binding, so it is yet to be seen as to whether this will bring about any meaningful action from the company.
Company News: Intuitive Surgical
Intuitive Surgical designs, manufactures, and markets robotic surgical systems, most notably the da Vinci Surgical System. This system is used in minimally invasive surgical procedures across various medical specialties such as urology, gynaecology, general surgery, and cardiothoracic surgery. The da Vinci Surgical System enables surgeons to perform complex surgeries with enhanced precision, dexterity, and control through small incisions, offering potential benefits such as reduced pain, shorter hospital stays, and faster recovery times for patients.
The new da Vinci 5 surgical system improves on previous robots, with improved precision and smoothness due to its advanced surgeon controllers and vibration controls. The next-gen 3D display and imaging technology aims to provide surgeons with a high-quality visual experience and support future surgical innovations. The introduction of Force Feedback technology allows surgeons to perceive subtle forces during surgery, potentially reducing tissue trauma by up to 43%. This innovation enhances surgical precision and offers valuable data for surgical science. The da Vinci 5 system integrates key operating room technologies, such as insufflation and electrosurgery, to streamline workflow and increase efficiency. With over 10,000 times the computing power of its predecessor, da Vinci Xi, the system supports advanced digital features and integrates with various surgical tools and applications. Furthermore, the redesigned console offers customisable positioning for surgeon comfort and ergonomics, including options for different body types. Initially, only a small number of customers in the U.S. who collaborated with the company during development will first receive the system, followed by a broader launch.
Company News: Fisher & Paykel Healthcare
During the month, Fisher & Paykel Healthcare, a respiratory care company, revised its fiscal year 2024 revenue and earnings forecasts upward. It anticipates revenues to reach $1.73 billion, up from the previously projected $1.70 billion in November 2023. Similarly, it expects net profit after tax to range between $260-265 million, a boost from the earlier estimate of $250-260 million.
Throughout the pandemic, the company witnessed notable expansion in its Hospital segment due to the heightened demand for ventilators, masks, and other respiratory care products. However, over the past couple of years, the company experienced a decline in sales as global COVID-19 hospitalisations decreased from their peak levels. Nonetheless, the company's life-saving devices and consumables were utilised before the pandemic for various diseases and conditions.
We believe that the company's long-term growth potential remains compelling, given its track record and the continued need for its products beyond the pandemic era.
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.
Thank you for your ongoing interest and support.
Kind regards,
Jai Mirchandani
ELM Responsible Investments Global Fund
Performance to 31 March 2024
| 3 months | 6 months | 12 months | Inception** | |
|---|---|---|---|---|
| ELM Responsible Investments Global Fund | 11.6% | 22.7% | 33.3% | 10.8% |
| Benchmark* | 13.9% | 20.0% | 28.4% | 30.8% |
*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 31 March 2024
| 3 months | 6 months | 12 months | Inception*** | |
|---|---|---|---|---|
| ELMRI ANZ Conviction Fund | 10.8% | 23.1% | 24.5% | 44.0% |
| Benchmark* | 5.4% | 14.2% | 14.4% | 42.8% |
| Ethical Benchmark** | 9.3% | 15.6% | 17.2% | 28.6% |
*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.