Elston Australian Emerging Leaders Fund – Class A
Features
Information
Investment minimums
Fees
Platform Availability
Investment Objective
The return objective is to outperform the S&P/ASX Small Ordinaries Accumulation Index by 3.0% p.a. after fees on a rolling 5-year basis.
Investment Strategy
This is an actively managed portfolio comprising ASX listed businesses. The strategy's investment universe is all businesses outside the S&P/ASX 100 with a minimum market capitalisation of $150 million. The portfolio holds between 15 and 25 holdings and can hold up to 10 per cent in cash; however, the portfolio is expected to be fully invested most of the time.
Research House Ratings
RatingPortfolio Managers
Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Elston Australian Emerging Leaders Fund ARSN 649 899 301. Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This publication has been prepared by Elston Asset Management Pty Ltd (“Elston”), a Corporate Authorised Representative of EP Financial Services Pty Ltd (ACN 130 772 495, AFSL 325 252), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Elston, Equity Trustees nor any of its related parties, their employees or directors, provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.
Lonsec
The rating issued 10/2024 is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Ratings are general advice only, and have been prepared without taking account of your objectives, financial situation or needs. Consider your personal circumstances, read the product disclosure statement and seek independent financial advice before investing. The rating is not a recommendation to purchase, sell or hold any product. Past performance information is not indicative of future performance. Ratings are subject to change without notice and Lonsec assumes no obligation to update. Lonsec uses objective criteria and receives a fee from the Fund Manager. Visit lonsec.com.au for ratings information and to access the full report. © 2024 Lonsec. All rights reserved.
Investments can go up and down. Past performance is not a reliable indicator of future performance.
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Sector Allocation as at 28/2/2026
| Consumer Discretionary | 32.85% | |
| Health Care | 23.84% | |
| Information Technology | 19.76% | |
| Industrials | 12.49% | |
| Materials | 5.85% | |
| Diversified Financials | 3.26% | |
| Cash | 1.96% |
Actual vs Target Asset Allocation as at 28/2/2026
Actual Sector Versus Benchmark as at 28/2/2026
Top 10 Holdings as at 28/02/2026
Highlights
In an ongoing theme that seems to have been in place since inception,
2025 proved to be another interesting year to manage money. After several
years of underperforming its larger peers, small-caps experienced a year of
outperformance. The Fund generated a 12-month return of +13%, in line with
longer term aspirations, but was unable to keep up with the strength of the
Small Ordinaries index, which was up 25% over the year. Interestingly, the Small
Industrials index only managed to return +9% for the year.
The bulk of the strategy’s underperformance was generated in the last 4
months, with the final quarter of the year having a large impact on the overall
calendar year return. During this period, we saw two themes: a change in
investor outlook for domestic interest rates and strength in the materials sector,
play out across the market and strategy.
The changing outlook for interest rates and proceeding lift in bond yields
reminds us of the first half of 2022, when higher multiple growth businesses
underwent a similar de-rating. The portfolio underperformed by 18% within the
first 4 months of 2022 before outperforming in the 2H of the year and throughout
2023.
Within a volatile landscape, we managed to find several opportunities, adding
CAT, SXE, and IDP to the portfolio over the quarter. CAT was a business we initially
approved for inclusion in the portfolio in May; however, it wasn’t until the share
price pulled back in November that the valuation passed our investment hurdle.
The team spent most of October on the road, concluding our client and
company meeting schedule post the August reporting season. November
provided an opportunity to bring a few new names into the portfolio. In
December, we commenced our annual review process.
Whilst short term sentiment may be impacting the valuation multiples of many of
the portfolio’s holdings, we remain confident in their ability to grow earnings over
time. Our businesses have large addressable markets, strong balance sheets
and market leading value propositions.
Commentary on Performance
With a 25% return, the Small Ordinaries index had a standout year. However, the
degree of divergence across sectors was extreme. The strong performance was
primarily driven by the Resources sector, with the Small Resources index up 73% over
the calendar year, largely due to a significant move in the gold price. On the flip side,
investor concerns about domestic interest rate increases and the corresponding rise
in bond yields negatively impacted sentiment towards technology and health care
(higher multiples) and consumer discretionary (consumer spending) businesses.
We don’t invest directly in commodity-based businesses and will generally
be underweight in this sector of the market. We expect to have periods of
underperformance when commodity prices go on a tear. As long-term investors,
we are looking for high-quality businesses that we are confident will be in a much
better position at the end of our investment horizon (5 years+). Small-cap commodity
businesses generally don’t fit this bill; they tend to be hyper-sensitive to the rise and fall
of commodity prices, which can be great in the short term when right, but can also
be very destructive on the flip side. While it’s painful to see the underperformance, we
are committed to our long-term, high-conviction, high-quality process, and remain
confident over the long term.
The top contributors to portfolio performance over the quarter included Monash IVF
(MVF) along with two of our new holdings – IDP Education (IEL) and Southern Cross
Electrical Engineering (SXE). MVF’s share price lifted after Genesis Capital announced
a non-bidding takeover offer. The offer was rejected by the Board and later
withdrawn. IEL and SXE performed well post addition to the portfolio. Valuation is a key
consideration, and both businesses had seen a pullback in share prices prior to being
included.
One of our main detractors of performance over the quarter was Corporate Travel
Management (CTD), as we made the decision to write down the value of the holding
by 50% following management’s announcement that the restatement issues are far
more serious than previously suggested. The new information is very disappointing. CTD
remains in a trading halt.
In addition to CTD, Temple & Webster (TPW), Siteminder (SDR), and Polynovo (PNV)
were the largest contributors to underperformance.
Portfolio Outlook
There has been little change in our short-term outlook,
we continue to anticipate ongoing volatility in equity
markets driven by see-sawing investor sentiment due to
changing macroeconomic developments, geo-political
policy, and global trade.
Despite this, we remain confident in the portfolio’s
longer-term prospects. The businesses within the
portfolio are characterised by strong value propositions,
sustainable competitive advantages and robust
balance sheets that position them well to withstand
deteriorating economic conditions. Moreover,
their ability to invest countercyclically provides the
opportunity to strengthen their competitive positions.
The longer-term prospects for the businesses within the
portfolio remain promising.
The macroeconomic uncertainties over the past three
years have weighed more heavily on small-caps
compared to the top 100 businesses, resulting in relative
underperformance since the start of 2022. We have seen
this starting to unwind over the 2H of 2025; however,
it has so far been driven by a re-rating in materials
businesses. Therefore, we continue to see value across
the broader market, especially within our key sectors of
consumer discretionary, information technology and
health care, and believe we are relatively early in a
small-caps recovery phase.
Over the coming five years, we continue to see an
ability for the portfolio to generate superior returns
underpinned by the quality of each business’s
fundamentals and robust levels of earnings growth.
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