Ethical Investment November 24 Report
Dear Investor,
I am pleased to announce the release of our November 2024 Monthly Report for our Funds. The ELMRI ANZ Conviction Fund increased by 10.3% and the ELM Responsible Investments Global Fund increased by 12.7%.
Economic and Market Overview
As we enter 2025, the investment landscape is becoming increasingly favourable. With inflation and interest rates now on an easing cycle, the macroeconomic headwinds of recent years are giving way to more supportive conditions for innovative and impactful investments. This shift bolsters the case for forward-looking opportunities that address global challenges while delivering strong financial returns. As economic pressures subside, we believe companies driving positive change and embracing innovation are positioned to thrive in this new environment.
In 2024, artificial intelligence (AI) emerged as a defining investment theme, with hardware companies like NVIDIA taking centre stage. The surge in demand for AI hardware has laid a solid foundation for the technology’s deployment and monetisation across industries in the coming years. However, as this infrastructure matures, we see significant potential for software companies to lead the next phase of AI-driven growth. Businesses leveraging AI to revolutionise sectors such as healthcare, education, logistics, and finance are likely to capture substantial value in the years ahead.
Our portfolio reflects this forward-looking perspective. Companies like Tesla, Pro Medicus, Block, Seek, ServiceNow, and Xero are well-positioned to benefit from the expanding adoption of AI and other transformative technologies. By focusing on these innovative leaders, we aim to ensure our portfolios are aligned with the next wave of opportunities, delivering both impact and industry-leading performance for our investors.
US Election
In our commentary featured in the Australian Financial Review prior to the election, we emphasised that while the U.S. election has introduced some uncertainty around renewable energy policies, the broader sustainability trends remain intact. Concerns about potential changes to green energy incentives and ESG-focused investments reflect the shifting political landscape, but they do not undermine the long-term drivers of decarbonisation and resilience. For example, renewable energy is already the lowest-cost energy provider in some markets. We firmly believe sustainability is not tied to political cycles but is instead driven by the economic and environmental imperatives of transitioning to cleaner energy and building resilience.
Under a Trump administration, we expect more deregulation across various sectors. This could potentially accelerate advances in AI, autonomous technologies, and benefit the cryptocurrency market as regulatory barriers are lowered. However, deregulation also extends to environmental protection, which raises concerns given Trump's past "drill baby drill" rhetoric regarding oil production. It's worth noting that under the Biden administration, the U.S. has already become the world's largest oil producer. This fact suggests that dramatic shifts in energy production may be limited, regardless of the election outcome.
The Inflation Reduction Act (IRA), a cornerstone of Biden's climate policy, has allocated nearly $75 billion to clean energy projects and provides significant benefits to many Republican-leaning states. This economic reality makes it unclear whether Trump would fully roll back these benefits if elected. Clean energy investments in the U.S. more than tripled from 2018 to 2023, reaching nearly $248 billion. This trend is likely to persist, driven by economic factors and global market demands rather than solely by domestic policy.
In conclusion, while the election outcome may introduce short-term policy uncertainties, the underlying drivers of the sustainability transition such as technological innovation, market forces, and global cooperation, continue to propel us forward.
ELMRI Global Fund Update
The Global Fund continues to deliver strong returns, with strength across many of our holdings including Tesla, Joby Aviation, and Block.
Global Fund Holding Spotlight: Tesla
Our investment in Tesla is one example of our rational investment process. Our decisions are driven by thorough analysis of economic fundamentals, market potential, and measurable impact outcomes, free from political or ideological bias. By remaining impartial, we focus on generating strong, data-driven returns and fostering positive change. Tesla's innovations, market leadership, and alignment with sustainable solutions align with our commitment to value creation through diligent and unbiased investment strategies.
Tesla's recent advancements in autonomous technology have positioned the company for significant growth in the coming years, with the capacity to revolutionise transportation safety and efficiency. The October "We Robot" event showcased Tesla's progress in Full Self-Driving (FSD) technology, with 50 vehicles operating autonomously throughout the night. This included 20 Cybercabs and 30 Model Ys, all functioning without incidents and highlighted the reliability of Tesla's FSD software. This aligns with the company's goal to achieve fully unsupervised FSD capabilities in California and Texas next year, pending regulatory approvals. If successful, fully autonomous could significantly reduce traffic accidents, improve mobility for those unable to drive, and optimise traffic flow in urban areas.
Financially, Tesla has demonstrated resilience in a challenging automotive market by delivering record Q3 results and marking the production of its 7-millionth vehicle. Tesla's third quarter results were the company's best in more than a year. The company's Cybertruck generated profit for the first time, and lower material costs also contributed to the strong results. Its energy division also gained momentum, with record demand for Megapack and Powerwall product, directly contributing to the global transition towards renewable energy. The company's innovative 4680 battery cell, approaching cost leadership in North America, could accelerate the adoption of electric vehicles by making them more affordable and accessible to a broader market.
These initiatives collectively demonstrate Tesla's commitment to sustainable innovation and its potential to drive positive change in transportation, energy, and automation sectors, aligning with our focus on impactful, data-driven investments.
ELM ANZ Conviction Fund Update
The ANZ Conviction Fund surpassed the five-year mark and continues to outperform the traditional benchmark by focusing on investments in the most innovative and impactful companies. Key contributors to the fund’s performance include Pro Medicus, Xero, and Block.
ANZ Fund Holding Spotlight: Xero
In the first half of FY2025, Xero delivered strong financial performance with revenue growth of 25% year-over-year to $996 million, driven by balanced contributions from subscriber growth (up 10%) and Average Revenue Per User (ARPU) expansion (up 11%). The adjusted EBITDA rose 52% to $312 million, reflecting Xero’s disciplined capital allocation and strategic execution. Regional highlights included Australia and New Zealand leading with a 27% revenue growth in Australia and 13% in New Zealand, while international markets like the U.K. and U.S. contributed double-digit subscriber additions. The company's focus on simplifying subscription plans and leveraging pricing changes further supported ARPU growth.
Xero's growth signifies a broader digital transformation in the small and medium-sized enterprise (SME) sector. By providing accessible and efficient financial management tools, Xero is empowering small businesses to operate more effectively, potentially leading to increased productivity and economic growth. The company's expansion in international markets, particularly in the UK and US, indicates a global shift towards digital financial solutions, which could contribute to improved financial literacy and management practices across diverse business communities.
Conclusion
Both the ELMRI Global Fund and the ANZ Conviction Fund are well-positioned to deliver long-term returns while capitalising on the transformative opportunities presented by innovation in technology and sustainability. By adhering to a disciplined investment strategy and focusing on companies driving innovation and positive change, ELM Responsible Investments continues to create value for investors while supporting a sustainable future.
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
Founder, CIO and Portfolio Manager
ELM Responsible Investments
ELM Responsible Investments Global Fund
ELMRI ANZ Conviction Fund
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.