Ethical Investment Nov 23 Report
Dear Investor,
During the month of November, the ELMRI ANZ Conviction Fund increased by 11.7%, and the ELM Responsible Investments Global Fund increased by 13.5%.
Both Funds outperformed their respective benchmarks as annual CPI inflation continued to slow worldwide. As I have written about in the past (see HERE for an article from August), the high inflation and interest rates over the last two years, which impacted the stock prices of our companies, were due to short-term, pandemic-related factors. These factors are starting to ease, and we are returning to a lower-growth environment, which is expected to favour our companies.
This transition presents an excellent opportunity for long-term investors focused on innovative, impactful and high-quality growth companies. In time, these companies will deliver the highest returns and social and environmental benefits. The internal rates of returns remain incredibly attractive, and we are starting to see the financial gains accrue as the macroeconomic conditions become more favourable.
Key Positions
Key positions in the ELMRI ANZ Conviction Fund are ProMedicus, Xero, Infratil, CSL and Fisher & Paykel Healthcare. Given the strong performance of ProMedicus, it remains our largest position. Given the stock price weaknesses, we added to our existing positions in ResMed, Fisher & Paykel Healthcare and Block. We decreased our weighting in Infratil given the strong stock price performance over the last 2 years.
Key positions in the ELM Responsible Investments Global Fund are Tesla, Microsoft, ServiceNow, Workday and ASML. We increased our position in healthcare company ResMed, renewable energy developer Orsted and HR software company Workday while decreasing our weight in NVIDIA.
Company News - Fisher & Paykel Healthcare
Fisher and Paykel Healthcare reported strong results, with operating revenue increasing 16% year-on-year and profit growing 22%. The growth was driven by strong demand in both Hospital and Homecare product groups, underscoring the company's resilience and innovation. Gross profit margins improved to 60.5% as freight costs eased.
Fisher and Paykel's reaffirmed FY24 revenue and profit expectations, along with their confidence in achieving long-term gross margin targets, reflect a promising outlook for sustained growth and profitability.
Investment Themes - Renewable Energy
One of our major investment themes is Environment & Climate, an important theme given the significant amounts of capital needed for the transition of the global economy away from fossil fuels to renewable sources. However, many companies operating in this space have experienced significant drawdowns since 2021 due to the unfavourable macroeconomic environment.
One such company is Danish renewable energy developer Orsted. They faced numerous operational challenges due to the aforementioned macroeconomic forces. They include:
Impairment of US Projects: Orsted bid on US projects before the pandemic. However, subsequent inflation and supply chain issues increased development costs without changes to expected tariffs, impairing their US operations.
Weak Wind Production in 2022: Wind production was lower than expected in 2022, causing a downgrade in financial performance.
Impact of Inflation and Interest Rates: Higher inflation and interest rates have affected Orsted’s asset valuation, especially as a capital-intensive business investing in growth.
However, all these operational challenges are starting to improve. They are now renegotiating the tariffs on their projects to account for the higher development costs. Wind production has also improved and inflation and interest rates are moderating, easing financial conditions for future growth and supporting asset valuations.
The company has also made efforts to focus on value creation and efficiency, setting itself up for future success. Furthermore, the company remains committed to sustainability, aiming for net-zero wind farms by 2040 and engaging in partnerships to promote low-carbon solutions and biodiversity.
Conclusion
Our strategy of investing in the most innovative and impactful growth companies remains consistent and given the improving macroeconomic conditions and growth opportunities ahead, I am excited about the potential of our strategies.
If you would like to arrange a time to discuss anything in this report in more detail, please reach out, and I would more than happy to organise a time to meet. If you are interested in investing with us, you can access our investment portal and review our fund documentation by clicking the "Invest" buttons below.
Finally, thank you all for your continued interest and support throughout this year. I wish you and your families a safe and restful holiday season and look forward to the opportunity to reconnect in 2024. Happy holidays!
Kind regards
Jai
ELMRI Global Fund
Performance to 30 November 2023
| 3 months | 6 months | 12 months | Inception** | |
|---|---|---|---|---|
| ELM Responsible Investments Global Fund | 0.6% | 11.0% | 26.4% | -2.5% |
| Benchmark* | -0.6% | 5.4% | 14.7% | 12.7% |
*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 30 November 2023
| 3 months | 6 months | 12 months | Inception*** | |
|---|---|---|---|---|
| ELMRI ANZ Conviction Fund | -1.0% | 2.6% | 8.0% | 22.3% |
| Benchmark* | -1.8% | 1.9% | 1.1% | 26.1% |
| Ethical Benchmark** | -6.0% | -3.5% | 0.8% | 9.5% |
*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.