Accumulation Index of 0.33%, underperforming the market by -0.89% (after fees). An overweight position in Consumer Staples and underweight positions in Materials and Healthcare contributed to relative performance while a position in REITS and an underweight position in Banks and Consumer Discretionary detracted from relative performance. Consumer Discretionary, Information Technology and Banks outperformed into reporting season based on high expectations for earnings growth.
Every market cycle sees new and innovative company valuation methodologies emerge. This market cycle is no different, along with a record number of day traders and large amounts of speculative money chasing unprofitable companies. Loss-making companies are being valued on sales multiples or metrics based on Total Addressable Market (the size of the potential opportunity). As new methodologies are adopted, traditional measures have had less focus. One of those is Beta, a measure of risk. In the current market environment greed has taken precedence over risk.
Ethical Partners investment process focuses on both expected return and risk. It focusses the team on companies that are profitable, have strong cash flows, low debt and good sustainability credentials. This leads us to hold, all else equal, companies where the range of future cash flow outcomes is lower than for concept companies. While not explicitly targeted, the portfolio has a Beta of0.9, primarily as a result of our process, indicating that the portfolio of companies we hold is less volatile than the market. Companies with a Beta of less than one currently make up around 64% of the total portfolio. Seven out of our top ten active positions also have a Beta of less than one.
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The tragic human rights situation currently unfolding in Myanmar holds particular significance to our Sustainability Analyst Georgina. Please read Georgie’s poignant thoughts on her visit to the camp, our expectations on our portfolio companies in regard to Myanmar, and why Ethical Partners has recently signed on to the Investor Statement on Human Rights and Business Activities in Myanmar.
As members of the Investor Group on Climate Change, Ethical Partners Funds Management strongly endorses its new roadmap released today in conjunction with the CDP and the Principles for Responsible Investment. It is entitled: "Confusion to clarity: A plan for mandatory TCFD-aligned disclosure in Australia".
During May 2021 the Fund returned 1.56% versus the S&P/ASX 300 Accumulation Index of 2.31%, underperforming the market by -0.75%. An underweight position in IT and an overweight position in Westpac contributed to relative performance while an overweight position in Consumer Staples and an underweight position in CBA detracted from relative performance.