Commentary

The Australian Shares Fund (Fund) delivered a strong September quarter, returning 2.7% and outperforming the benchmark return of 0.8%. Performance was driven predominantly by stock selection, with strong contributions from the Health Care, Financials and Industrials sectors. Encouragingly, excess returns were generated across a broad range of holdings, highlighting the effectiveness of the Fund's disciplined investment process and focus on identifying quality businesses with sustainable competitive advantages, strong management teams and attractive long-term growth prospects.
Market performance during the quarter continued to be shaped by global macroeconomic and geopolitical developments. Rising oil prices and ongoing geopolitical uncertainty contributed to inflationary pressures, leading several central banks to keep rates elevated. Higher interest rates continued to weigh on consumer confidence and economic activity, while the Australian reporting season highlighted a generally cautious corporate outlook. Although most FY26 results were broadly in line with expectations, management commentary reflected a subdued outlook for growth, with concerns around consumer spending, credit growth and the broader economic backdrop remaining prevalent.
The Health Care sector was the strongest performing sector in the benchmark and the Fund’s overweight position in this sector was a key contributor to relative outperformance. CSL performed strongly following a series of operational initiatives implemented by the interim CEO to address areas of underperformance and improve execution. The market was too pessimistic on the company's earnings outlook, underestimating its plasma franchise and ability to grow earnings sustainably. A permanent CEO appointment could be the catalyst for further investor interest.
Cogstate was also among the Fund's largest contributors following continued momentum in demand for its cognitive assessment technologies, which support pharmaceutical companies developing therapies aimed at improving neurological health and healthy ageing outcomes. Meanwhile, payments and banking infrastructure provider Cuscal also contributed positively. The Fund was a cornerstone investor in its IPO, reflecting our confidence in management, the company's strategic position within Australia's payments ecosystem and its attractive growth prospects.
Corporate activity emerged as a defining theme within the Industrials sector during the quarter and was another meaningful contributor to performance. Reliance Worldwide and Cleanaway both received takeover approaches, while other holdings in the Financials sector, including Steadfast, OFX and EQT Holdings were also linked to corporate activity. The level of strategic interest reinforces our view that quality industrials continue to trade below their intrinsic value after a difficult year. Many of these businesses exemplify the characteristics we seek in our investment process, including strong market positions, resilient earnings and attractive long-term growth prospects.






While the Fund delivered strong relative performance overall, our underweight allocations to the Materials and Energy sectors remained a partial offsetting headwind, detracting approximately 2% relative to the benchmark. Both sectors remained among the strongest areas of the market. Together, these sectors account for more than 30% of the benchmark Commodity markets were generally supportive during the quarter, with strength in gold, copper and energy commodities reflecting ongoing geopolitical tensions and structural demand linked to electrification and AI infrastructure investment. In contrast, steelmaking commodities were softer, while lithium prices remained under pressure.
Our underweight to these sectors is shaped by our Ethical Charter, which directs capital towards companies contributing to a more sustainable economy and structural growth opportunities associated with the transition to a lower-carbon future.[MS1.1][SB1.2]
Returns within Information Technology were also a headwind for the Fund, as a number of software companies faced ongoing market concerns around AI-related disruption, and long-duration assets continued to sell off with the rising interest rate environment. Among the detractors, PEXA underperformed following uncertainty associated with the Independent Pricing and Regulatory Tribunal (IPART) review process. While regulatory reviews can create periods of uncertainty, we continue to view PEXA as a high-quality digital infrastructure asset with a strong market position, significant network advantages and valuable long-term optionality through its UK operations.
While market leadership continues to be influenced by macroeconomic events and commodity-related sectors, the September quarter highlighted the benefits of maintaining a disciplined focus on business quality, management capability and long-term fundamentals. We remain confident that the portfolio is well positioned to deliver attractive long-term returns through active stock selection while remaining aligned with our Ethical Charter and investment philosophy.