Ethical Investment August 24 Report
Dear Investor,
I am pleased to announce the release of our August 2024 Monthly Report for our Funds. The ELMRI ANZ Conviction Fund increased by 3.1% and the ELM Responsible Investments Global Fund decreased by -1.3%.
Upcoming Webinar with Award-Winning Author and TED Presenter: Professor Alex Edmans
I am excited to announce that we will be hosting a webinar with Professor Alex Edmans on The Scientific Scrutiny of Sustainability at 6pm AEDT on Tuesday 22nd October.
Alex Edmans is Professor of Finance at London Business School. Alex has a PhD from MIT as a Fulbright Scholar, and was previously a tenured professor at Wharton and an investment banker at Morgan Stanley.
Alex has spoken at the World Economic Forum in Davos, testified in the UK Parliament, and given the TED talk “What to Trust in a Post-Truth World” and the TEDx talks “The Pie-Growing Mindset” and “The Social Responsibility of Business” with a combined 2.8 million views.
He serves as non-executive director of the Investor Forum, on the World Economic Forum’s Global Future Council on Responsible Investing, on Royal London Asset Management’s Responsible Investment Advisory Committee, and on Novo Nordisk’s Sustainability Advisory Council.
Alex’s book, “Grow the Pie: How Great Companies Deliver Both Purpose and Profit”, was a Financial Times Book of the Year for 2020 and has been translated into nine languages, and he is a co-author of “Principles of Corporate Finance” (with Brealey, Myers, and Allen). He has won 26 teaching awards at Wharton and LBS and was named Professor of the Year by Poets & Quants in 2021. His latest book, May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases – And What We Can Do About It was published by Penguin Random House in April 2024.
You can register for the webinar by clicking the link HERE.
Market Outlook
Despite recent market volatility, our funds have delivered strong performance over the long term, and we believe our portfolios are well-positioned for continued growth. Current macroeconomic conditions are increasingly favourable, with the U.S. now in an interest rate cutting cycle. This environment, characterised by decreasing inflation and interest rates, aligns well with our investment approach and should provide a positive long-term impact on our portfolios.
The increased volatility in equity markets during August has been driven by heightened geopolitical risks and a weakening macroeconomic environment. As a result, market strategists have raised the likelihood of a recession, causing concern among investors. Furthermore, we are currently in the seasonally weaker and more volatile period of the year, especially in the lead up to the U.S. election.
Nevertheless, this short-term volatility provides an opportunity for long-term investors as the outlook for the months and years ahead are favourable as interest rates decline. In addition, our investments are focused on secular growth areas such as renewable energy, healthcare, and digitisation, which are resilient even in a softer economic climate.
ELMRI ANZ Conviction Fund Outperforms Traditional and Ethical Benchmarks
Our ELMRI ANZ Conviction Fund is approaching the 5 year mark (inception date is 11th October 2019), which is our minimum investment time horizon, and we are proud to report that it is outperforming both our traditional and ethical benchmarks, showing that we can achieve both our investment and sustainability goals. We are confident that our Global Fund, which only launched in 2021 will also enjoy the same level of success as it approaches the minimum investment time horizon.
Key Positions
Key positions in the ELMRI ANZ Conviction Fund are ProMedicus, Xero, WiseTech Global, Fisher & Paykel Healthcareand ResMed. Key positions in the ELM Responsible Investments Global Fund are Tesla, ServiceNow, Microsoft, NVIDIA and Block.
Our Views on AI Investment
We are actively invested in the AI theme, with a focus on leading companies like NVIDIA and ASML. AI has the potential to significantly boost productivity, especially as we face increasing labour shortages. Beyond that, AI offers impactful solutions in key sectors such as healthcare and education.
As AI technology advances from data centres to devices like PCs, smartphones, cars and tablets, the chips powering these innovations will evolve as well. Companies such as Qualcomm and Taiwan Semiconductor Company are positioned to benefit from this shift. However, continued investment in data centres, where NVIDIA leads, remains essential.
We are mindful of the risks associated with AI and manage them by actively engaging with the companies we invest in. One example is our involvement with the World Benchmarking Alliance, where we lead efforts to ensure safety and ethical standards in technology companies.
Despite recent volatility in semiconductor stocks, we maintain significant positions in industry leaders like NVIDIA and ASML. However, we recently reduced our holdings in NVIDIA to increase exposure to other semiconductor companies, particularly those driving AI in devices. These companies offer attractive opportunities, trading at lower valuations with potential for cyclical recovery in their end markets.
Electricity Usage
Currently, AI-driven data centres contribute to electricity consumption accounting for ~2.5%. According to an analysis by the Electric Power Research Institute (EPRI), data centres could consume between 4.6% and 9.1% of U.S. electricity by 2030, depending on the pace of AI adoption and improvements in efficiency (Carbon Credits). This projected increase highlights the need to manage electricity usage as AI continues to expand.
To address the growing energy demands of AI, we are investing in renewable energy companies that are expanding clean energy capacity. Additionally, we are backing companies focused on improving the energy efficiency of data centres. While this is an important area, our broader focus is on sectors that are far more energy and greenhouse gas (GHG) intensive.
To make a significant impact, we must prioritise key sectors like agriculture, cement, and energy, which are responsible for a large share of global emissions. Agriculture contributes 18% of global GHG emissions, cement accounts for 3%, and the energy sector is responsible for a staggering 73% of emissions (Our World in Data) (IEA).
By investing in technologies that reduce GHG intensity in these sectors, even a 10% decrease in emissions intensity could more than offset the energy demand increases from AI. Our portfolios, which includes companies like Novonesis, Orsted, Vestas, Infratil and Calixare actively contributing to these efforts. We believe that this approach allows investors to support both sustainability and the growth of transformative technologies, aligning financial returns with a positive environmental impact.
The Greatest Opportunity of Our Lifetime
We believe AI represents one of the greatest investment opportunities of our lifetime. While stock prices have risen, so have the earnings of many companies, driven by real value creation. For example, NVIDIA’s quarterly revenue grew from US$7.2 billion in Q1 2023 to over US$30 billion in Q2 2024 (see chart below). It’s estimated that more than US$1 trillion will be needed to upgrade global data infrastructure, with NVIDIA positioned to capture a significant portion of this opportunity.
We are still in the early stages of the AI revolution. Use cases for AI continue to expand across industries, and the monetisation of this technology is just beginning for investors. As AI applications grow and become more integral to daily life, we see immense potential for long-term returns.
Company News: WiseTech Global
WiseTech Global is a leading provider of software solutions for the logistics industry. Their flagship platform CargoWise streamlines freight operations, customs compliance, and supply chain management.
WiseTech reported impressive FY 2024 results, with total revenue up 28% from FY 2023 to $1.04 billion. EBITDA also increased by 28% to $496 million. Looking ahead, the company is forecasting FY 2025 revenue growth of 25% to 30% in the range of $1.30 billion to $1.35 billion, with expected EBITDA to increase 33% to 41% in the range of $660 million to $700 million.
WiseTech's strong performance is driven by its leading position in the global logistics software market, serving over 17,000 logistics companies across 183 countries. The company's focus on technological advancements, including AI integration, has resulted in over 5,500 product enhancements to the CargoWise platform in the last five years. This continuous improvement strategy not only enhances WiseTech's product offering but also increases usage and revenue from existing clients. The company's expansion into new areas, such as North American landside logistics through strategic acquisitions like Envase Technologies and Blume Global, further solidifies its growth trajectory.
Company News: ResMed
ResMed is a global leader in the development, manufacturing, and marketing of medical devices and cloud-based software solutions to treat sleep apnoea, chronic obstructive pulmonary disease (COPD), and other respiratory conditions.
ResMed's full-year results for FY 2024 demonstrated strong growth, with revenue increasing by 11% to $4.7 billion and net income rising by 17%. The company's fourth quarter results were particularly impressive, with revenue up 9% to $1.2 billion and operating profit increasing by 38%.
ResMed's impressive performance is driven by its market leadership in sleep and breathing disorders treatment. The company serves millions of patients across more than 140 countries, with its cloud-connected medical devices transforming care for people with chronic diseases. ResMed's focus on innovation is evident in its substantial R&D investment, which has led to the development of advanced technologies like its cloud-based patient monitoring system, AirView, resulting in patient adherence rates of up to 87%.
Contrary to initial concerns, ResMed's CEO Mick Farrell presented data suggesting that GLP-1 weight loss drugs may also benefit the sleep apnoea market. Analysis of over 529,000 patients with GLP-1 prescriptions showed a 10% increase in the absolute percentage of patients starting positive airway pressure therapy. This unexpected synergy between GLP-1 drugs and ResMed's devices could potentially open up new growth opportunities for the company.
Conclusion
We are committed to investing in the most innovative and impactful growth companies and I am optimistic about the future potential of our investment strategies.
If you wish to discuss any aspect of this report in greater detail, please do not hesitate to reach out. I would be more than happy to arrange a meeting at your convenience. Those interested in investing with us can explore our investment portal and review our fund documentation by clicking the "Invest Now" buttons provided below.
Thank you for your ongoing interest and support.
Kind regards,
Jai Mirchandani
ELM Responsible Investments Global Fund
ELMRI ANZ Conviction Fund
This note has been prepared by ELM Responsible Investments (‘ELMRI’) ABN 70 607 177 711 AFSL 520428, for Australian wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth).
The information is not intended for general distribution or publication and must be retained in a confidential manner. Information contained herein consists of confidential proprietary information constituting the sole property of ELMRI and its investment activities; its use is restricted accordingly.
This note is for general informational purposes only and does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of preparation and presenting and all forecasts, assumptions, opinions, data and other information are not warranted as to accuracy or completeness and are subject to change without notice. This is not an offer document and does not constitute an offer or invitation of investment recommendation to distribute or purchase securities, shares, units or other interests to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this note. Any potential investor should consider their own circumstances and seek professional advice.
ELMRI funds, its directors, employees, representatives and associates may have an interest in the named securities.
Past performance is for illustrative purposes only and is not indicative of future performance.