Elston Australian Emerging Leaders Fund – Class A
Features
Information
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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 30/4/2026
| Consumer Discretionary | 31.49% | |
| Health Care | 22.17% | |
| Information Technology | 20.47% | |
| Industrials | 14.59% | |
| Diversified Financials | 5.19% | |
| Materials | 4.34% | |
| Cash | 1.75% |
Actual vs Target Asset Allocation as at 30/4/2026
Actual Sector Versus Benchmark as at 30/4/2026
Top 10 Holdings as at 30/04/2026
Highlights
The first quarter of 2026 has been a wild ride. We witnessed three themes collide
with small-cap equity markets: interest rate rises, AI fear and more recently, Iran.
Interestingly, amongst these themes, we had the February reporting season,
which proved quite strong, fundamentally, for our portfolio companies; 90% of
results were either in line or ahead of our expectations. Usually, we would expect
solid results to translate into solid portfolio performance. That wasn’t the case this
time; solid results translated into underperformance as markets grappled with
the implications of the macroeconomic themes. We believe there is a strong
disconnect between the fundamentals and share prices.
Previously, we highlighted the parallels between the past six months and the first
half of 2022. Both periods experienced inflation shocks, triggering higher interest
rates and sharp, short-term sector rotations. The onset of the Iran war has only
reinforced these similarities; during 2022, the Ukraine conflict was the defining
geopolitical event, driving commodity prices upward. The Quality factor typically
performs well when growth is stable or slowing, but struggles during inflationary
shocks. Following the last inflation shock related drawdown, portfolio returns were
exceptionally strong. With current market dislocations between fundamentals
and share prices echoing that period, we believe another compelling investment
opportunity has emerged—one we did not anticipate encountering again so
soon.
Operationally, the quarter was busy and productive. In January, we completed
our annual review, resulting in several portfolio construction enhancements
that we have eagerly implemented. February saw the team immersed in the
reporting season, and March was spent engaging with companies and clients
on the road. Notably, we added Emeco Holdings to the portfolio this quarter—a
new holding that will be discussed in detail later in the report.
While short-term sentiment may be weighing on the valuation multiples of
many portfolio holdings, we remain confident in their long-term prospects.
Our companies are positioned in large addressable markets, maintain strong
balance sheets, and offer market-leading value propositions – a combination for
long term success.
As always, we appreciate your ongoing support.
Commentary on Performance
It was a highly eventful quarter for both markets and our portfolio. Entering the
period, Australia seemed out of sync with other developed economies, facing
persistent inflation while global price pressures appeared to be stabilising.
However, the onset of the Iran War shifted the landscape dramatically,
arriving at a particularly inconvenient time for both the RBA and the Federal
Government. This conflict has also reignited inflationary pressures globally,
complicating the outlook for policymakers worldwide.
To further complicate the outlook, recent developments in artificial intelligence
have raised concerns about its implications for software-based companies,
as evidenced by the steep sell-off in the ASX IT sector. We have been pleased
with how our portfolio businesses have been performing fundamentally, and
continue to work on building our understanding of the opportunities and
challenges over our investment horizon. For us, as fundamental investors, it’s
been very frustrating to see share prices move significantly (up and down) in
response to Tweets from the US president and futurist AI bloggers. There has
been tremendous volatility, which seems to be the norm of the 2020s.
Sector dynamics, rather than company-specific factors, were the main
drivers of performance over the March quarter. The Technology, Healthcare,
and Consumer Discretionary sectors underperformed, while Energy and
Materials led the market. Our limited exposure to Energy and Materials—given
fewer high-quality opportunities in these sectors—meant our portfolio faced
headwinds.
Technology (SDR, MP1, AD8) and Consumer (BBN, TPW, BLX) businesses
were the main performance detractors, pressured by higher interest
rate expectations and concerns around AI. In contrast, industrials and
materials businesses (IMD, PWH, SXE, RDX)—segments where we have been
actively increasing exposure over the past 12 months—delivered strong
outperformance.
Portfolio Outlook
Our short-term outlook remains largely unchanged. We
continue to expect ongoing volatility in equity markets,
driven by fluctuating investor sentiment in response
to evolving macroeconomic conditions, geopolitical
developments, and technological change.
We are surprised by the extent of recent share price
movements. Drawing parallels with the inflation shock of
2022, we remain confident in our portfolio companies’
ability to manage these headwinds and believe their
longer-term prospects are increasingly attractive.
Our portfolio companies are distinguished by strong
value propositions, sustainable competitive advantages,
and robust balance sheets—all of which position them
to weather deteriorating economic conditions. Their
capacity to invest countercyclically offers additional
opportunities to reinforce their competitive standing. We
remain optimistic about their long-term outlook.
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