30 September 2020

Australian Ethical is one of Australia's leading ethical fund managers. By investing responsibly in well-managed ethical companies, we deliver competitive financial performance to our clients and positive change to society and the environment. Since our inception in 1986, our Ethical Charter has guided all investment decisions and underpinned our business practices. Every year 10 per cent of our profits* are distributed to charitable organisations and social impact initiatives through The Australian Ethical Foundation.

Investment objective

To provide long-term growth by investing in small capitalisation companies that meet the Australian Ethical Charter.

Investment strategy

The opportunity to invest in a diversified portfolio of shares in small capitalisation companies on the basis of their social, environmental and financial credentials. The Fund utilises an active stock-picking management style with stocks selected for growth rather than income. All stocks are chosen on the basis of relative value where we deem the risks are being adequately priced.

Performance

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Annualised performance

1m3m6m1y3y5y10ySince inception
Fund3.2%18.2%54.2%21.2%19.5%16.8%-17.0%
Benchmark-2.3%6.9%29.2%-4.7%6.7%8.6%-8.2%

Calendar performance

CY 2019CY 2018CY 2017CY 2016CY 2015
Fund44.7%-2.4%11.4%10.1%-
Benchmark24.5%-6.5%15.7%6.2%-

Why invest ethically?

Portfolio diversification: Diversify your portfolio by investing in companies and sectors not well covered by other fund managers and brokers.

Help build a better world: Invest in the new, low‐carbon economy, fund medical and technology breakthroughs, efficient transport and more.

Promote human rights: We strive to avoid any investment in companies involved in the poor treatment of asylum seekers or the exploitation of workers through poor working conditions.

Current top 10

Description
%
MACH7 TECHNOLOGIES LTD
5.6%
BIGTINCAN HOLDINGS LTD
4.1%
MACQUARIE TELECOM GROUP LTD ORD F/PD DS
3.9%
NITRO SOFTWARE LTD
3.5%
HEALIUS LTD
3.5%
COGSTATE LIMITED
3.1%
3P LEARNING LTD
3.0%
CYCLOPHARM LIMITED
2.8%
RHIPE LIMITED
2.6%
URBANISECOM LTD
2.6%

Commentary

For the quarter, the Fund pleasingly achieved an absolute return of 18.2% (18.4% Wholesale Fund) against the fund’s benchmark, the S&P/ASX Small Industrials Index, which appreciated 6.9%. The Emerging Companies Fund’s 12-month performance was 21.2% (21.9% wholesale) against minus 4.7% for the benchmark.

The Australian market started the quarter strongly, with August particularly strong (ASX 200 up 2.2%) boosted by some better-than-expected earnings in the reporting season, solid economic data and renewed hopes for a vaccine. However, September saw the five-month rally end with the ASX 200 falling 4% as investors became nervous about fears of a second global COVID-19 wave, poor sentiment regarding the US Presidential election and growth concerns.
Locally, the effects of the lockdown in Victoria became more apparent, with a higher level of unemployment and Federal Treasurer Josh Frydenberg warning the Australian economy was set to contract by 6% more than forecast by the end of 2021.

The quarterly outperformance is attributed to very strong stock selection in our small-cap names. The key sector contributors were information technology and healthcare with PDF and e-signature software company Nitro Software appreciating +88% while sales enablement software-as-a-service company Bigtincan was up 82%. The Fund’s investment in Cogstate, which undertakes clinical trials using its core cognitive intellectual property, appreciated 97% over the quarter.