The gap between our funds’ PE and the market (ex-Resources and Financials) PE has opened up over the past few months to the widest since we began. This is a result of a general upward re-rating of the industrials and us being underweight four of the bubbles that have emerged since COVID-19 hit: Gold,Tech, Iron Ore and Consumer Discretionary. These four sectors make up around 28% of the market cap of the S&P/ASX 300 index and have outperformed over the last quarter. Growth expectations are high going forward for these sectors.Much of the portfolio resides in stocks with low profit growth expectations but the market environment of the last few years has not been favourable for these stocks. There are however some early signs that profit growth expectations for more expensive stocks are not being met and they are seeing subsequent falls in their share prices. Should this continue the prospect for stocks with low expectations going forward could be changing and our portfolio’s prospects improved.
See attached full report.
Emma McCarthy recently joined Ethical Partners. Emma is a passionate final year law student and joins us as Sustainability and Advocacy Assistant. We are honoured to share with you her reflections on the recent UN Global Compact conference, and how it inspired her, as a new recruit to the global sustainability and human rights community, on her journey to fight for change.
During August 2020 the Fund returned 4.10% versus the S&P/ASX 300 Accumulation Index of 3.05%, outperforming by 1.05% (after fees). Overweight positions in Consumer Staples and Industrials added to performance while stocks in General Insurance and Building Products detracted from performance.
It appears that the Australian economy will be asked to grow itself out of debt post COVID rather than experience an increase in taxes once the economy is more stable. So what are the long term projects that would change Australia for the better? It was quite timely indeed then that the Australian Energy Market Operator (AEMO) recently released its 2020 Integrated System Plan (ISP). It appears to us that AEMO has put down the framework for how Australia will operate with less coal fired electricity generation given we have an aging fleet which will be gradually de-commissioned over the next 20 years.The AEMO Plan is a whole of system blueprint for the evolution and change the electricity market will experience in the 20 years to 2040. It expects 63% of the current coal fired power stations to close by then based on company disclosures and end of life assumptions. Herein lies Australia's great stimulus opportunity.
The 2020 Ethical Partners Engagement Report provides a useful summary of all areas of company engagement the team has undertaken over 2019/20. It provides details of the successes, the key issues as we see them moving forward, our voting record, provides company ESG engagement examples and lists the 20+ major collaborations in which we have been involved. As always we welcome questions and feedback.