Leading ethical manager backs Nuix, adds water exposure
Australia’s longest standing responsible investment manager, Australian Ethical, has continued to sustain the top quartile performance of their Australian equity strategies, with a surge in assets under management seemingly having little influence on their returns.
In their latest quarterly update, the group highlighted the events of COP26, but with a broader focus suggesting the conference had simply brought climate change back into the headlines. Whilst the outcomes of the event may not have been as extensive as expected, they remain positive, saying “greater urgency around the transition to a more sustainable future in support of net-zero goals will increase opportunities and risks for investors”.
Whilst returns from global and domestic equities were flat during the quarter, hit by a late, inflation-driven sell off, their core Australian equities strategy continues to outperform due primarily to the larger allocation to smaller and microcap companies, along with a preference for the more innovative communications and healthcare sectors.
Each portfolio is managed in line with the group’s long standing Ethical Charter, which ensures there is a reason behind each holding but also that the management teams don’t get caught up in popular themes and short-term trends. The result has been top quartile performance over every period for the last decade.
Central to this has been a willingness of management, from Chief Investment Officer David Macri and Head of Equities Mike Murray all the way to the growing analyst team, to really get to know and understand every business, even if they don’t intend to invest immediately. This focus on extensive fundamental research has seen the addition of three new holdings during the September quarter.
The first is Rubicon Water (ASX:RWL), which is a $300 million company that “designs, installs, and maintains irrigation systems, including software and hardware, for agricultural purposes” a spokesperson says. The company only joined the ASX in 2021 but has been in operation for close to 30 years, rallying by over 70 per cent in the first months of listing.
Water has long been appreciated as the world’s most scarce resource, with “sustainable use of water resources essential for health ecosystems” but particularly in the agricultural sector. The firm utilised gravity-fed irrigation systems and has invested significantly in automation software in an effort to assets companies to reduce the time, effort and water they use. With operations already spanning the US, China, India and Chile, the company clearly ticks both the ethical and ‘secular trend’ boxes.
Management is always backing the embattled Nuix Ltd (ASX:NXL), a software and cybersecurity company listed by Macquarie Group in 2020 before suffering a number of downgrades that ultimately sent the share price close to 70 per cent lower. Nuix’s focus on governance, risk and compliance for government and private entities, clearly stands out as a scaleable and underappreciated opportunity following the indiscriminate selloff.
The technology trend has been central to c39 per cent return delivered in the 12 months to September, with data centre owner Macquarie Telecom (ASX:MAQ) gaining over 50 per cent as the speed of digitalisation continues to ramp up in Australia. Cogstate (ASX:COG) which owns one of the leading digital cognition tests used to assist in treating Alzheimer’s, also gained 62 per cent after a key partner, Biogen, saw their treatment receive FDA approval.
Amid growing talk of overvaluations and lack of opportunity in the large cap sector of the domestic and global sharemarkets, there is seemingly no shortage of opportunities off the beaten path.