SGH High Conviction Fund update – March Quarter 2026

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Transcript:

SGH High Conviction Fund performance for the quarter

Welcome to the SGH High Conviction Quarterly Review for March, 2026.

My name’s Hamish Tadgell, lead portfolio manager. It’s fair to say that I think the last quarter has been one of the most challenging periods of relative performance in the fund’s 20 year history. We’ve had and lived through some interesting quarters over the last decade or so, but I think nothing quite compares to what we’ve experienced in the last quarter with three large exogenous shocks in Iran War, AI and private credit, and President Trump taking geopolitical events to a whole new level in capturing President of Venezuela, declaring Cuba a national security threat, wanting to claim Greenland as a US territory.

And serving a subpoena on the Fed Chair. It’s really been quite extraordinary. Not surprisingly against this backdrop we’ve seen market volatility rise to very high levels the highest in fact, since, president Trump’s Liberation Day back in April last year. From a sector and market cap performance perspective, there’s been extreme diversion within the ASX top 20. The market was up 3.7% for the quarter, whilst in the small cap end of the market that was down 11% for the quarter. So we’ve had extreme bifurcation in sector and market cap performance. Against this backdrop, the ASX accumulation index closed down 2% for the quarter after being down nearly 9% at its lows. So we did see some recovery in March, and the fund closed down 9.8 5% as I said, i t was a tough quarter.

Key drivers of performance

So what were the key drivers of the performance for the for the quarter? We would normally expect in, periods of uncertainty like this, that our quality strategy and our portfolio stocks given their, higher profit profitability, superior business positioning lower gearing to perform better than the market. And over the last 20 years that has certainly been the case, but in this quarter it hasn’t.

And I think the AI disruption risk and the impact of higher rates certainly had an impact on some of the longer duration, higher quality names that we hold. For the moment the market has taken the view of really shooting first, a nd discounting anything that’s got perceived AI risk. With the launch of Anthropics new code through the quarter and a number of other releases from the likes of Open AI.

AI disruption has been front and center and that saw stocks like seek, Light and Wonder, Aristocrat Generation Developments, and even insurance brokers like Aus Brokers, which we hold sold off very materially on concerns around as right AI disruption and really questions around the long term terminal value that we should be putting on these stocks.

In a risk offer environment, we also expect gold to perform well and, provide some hedge and safe haven status. It closed down or the gold sector closed down 11% for the quarter. So what we saw was the combination of rising yields strength in the US dollar. And I think some profit taking from the really strong performance of gold over the last quarter weigh on the portfolio performance as well.

It wasn’t helped also by the fact that Northern Star one of our key gold holdings did have a production downgrade during the quarter. We do see that more as a timing issue though, rather than lost profits in the long term. Given that, the gold’s still in the ground, if you like.

The other thing I’d just say around performance is that, it was in part about what we didn’t own as much as what we did own. And we saw some really strong performance from the major banks during the quarter. In fact, Commonwealth Bank was up close to 18% through the quarter, and that was on the back of, a strong February reporting season.

But I think also banks being seen as a bit of a safe haven in an uncertain world.

Current fund positioning

Moving along, I guess the question is how is the portfolio now positioned? I talked a bit about how we reformed the last quarter, but looking forward, I think the first thing to say is that, agAInst the Tech D rate and AI concerns the market is increasingly focused on companies that are invested in, hard to replicate physical assets.

That and you generally find these in more capital intensive industries. businesses, sectors such as utilities, basic resources, energy, telecoms and we have a number of these stocks in the portfolio. So holdings like BHP, which is our single largest holding at the moment, 10% South, 32 Capstone Copper we think are still incredibly well positioned.

To benefit from supply chAIn disruption, higher commodity prices and many of the themes that we’ve talked about before in these podcasts around decarbonization, electrification and the like. We also own a number of infrastructure and industrial businesses, Cube, Cleanaway which you know, essential services, and we continue to think that they will prosper regardless of, really global geopolitical events. Positioning, Chorus is done well through the quarter, but it’s, a stock that we continue to hold and and we also have a number of positions in the energy space, which clearly has benefited through the last quarter. The energy sector has been, was the single strongest performing sector during the quarter, up 36% and positions in Santos, Beach Energy, did very well last quarter, and we think they will continue to be well positioned for environment where we think, oil prices will be higher for some time.

The other thing I would say is that we do think that the market is under appreciating a number of the holdings in the portfolio where we see. Stronger moats and really high-quality companies like ResMed, Seek, Generation Developments, Aristocrat, these companies all possess very high-quality franchises. Their businesses are hard to create and replicate. In many cases, they’ve got network effects. And we think over the longer term will be protected from AI and more to the point not displaced by AI. One last thing I’d just say about, the current positioning is we are cautious around the consumer discretionary.

We do think that the spillover effects from the Iran war higher petrol prices inflationary impulse are creating tighter financial conditions and are seeing some pressure on household spending and consumer sentiment. In fact, if you look, consumer sentiment just in the most recent recording is the lowest since 1973.

And so we are concerned that household sentiment in particular and domestic consumption will weaken materially. And we have really no exposure directly to any of the consumer discretionary stocks in the portfolio at the moment.

So what changes have we made to the portfolio in the last quarter?

We have initiated a position in Ampol which is the fuel distribution company which also has a convenience stores attached to it. But we do believe that following the war or the commencement of the war oil prices will stay elevated for some time. At least the downstream part in particular, and, that we think will benefit Ampol materially. And we think that there’s strong potential for special dividends for the company to pay. And the longer this goes on what’s interesting to us that Ampol didn’t re-rate really quickly, I guess on the back of this in a material way, and that’s really, I think, has provided the opportunity, to initiate a position there. We also added to Light and Wonder, NetWealth really taking advantage of some of the sell off in those high quality businesses. And we really funded that through reducing our positions in Cube and Chorus, which had performed very well through.

The last quarter and the and the sell off in markets. The one other major change we made to the portfolio is we sold out of Goodman Group. So Goodman Group is a company we added for data centre exposure. And really it’s not that our view around data centres and the structural benefits from AI and just, we’re still pretty positive on data centres. It’s more a fact that we’ve decided to concentrate our exposures where we have higher conviction. And we continue to hold Next DC and we continue to hold Infratil which both have good data centre exposures. So it’s really just concentrating those that bet in, in stocks, as I say, where we’ve got higher conviction.

The other thing which I would say is that we continue to see gold as an important hedge against current events, but also. Weakness in the US dollar. We think that structurally medium, longer term, the US dollar will weaken really around the growing fiscal deficits. And think that the backdrop for commodities in the current environment where we see inflation is probably being more persistent and stubborn means that commodities will be fa will favor and our exposures to things like South 32. Capstone Copper, as I’ve said before will benefit materially there.

Reasons to invest in the SGH High Conviction Fund

So just in closing always good to ask the question, why invest in the SGH High Conviction Fund?

As I said, it has been a challenging quarter, but we feel there is a lot of value la latency in the portfolio at the moment, and it’s very. We think well positioned for the next, I guess phase in markets as we see them. As always, we continue to remain very disciplined in our approach.

We have made some changes to the portfolio, which I’ve highlighted, but it’s not a case of, tipping the portfolio out and starting again by any means. We’re sticking to our process. We’re focusing on the fundamentals. We’re looking to pick stocks that we think are very well positioned to navigate the uncertainty we’re currently in and have enduring tailwinds.

And ultimately, our strategy really is about remaining consistent. Trying to find quality companies that have strong competitive advantage that are attractive markets that are growing. Where we think they can capitalize on that growth that are well managed and buying those companies at sensible prices.

And that’s what we’re continuing to do. Over the long term. We have add added alpha for clients and we remain very confident in our process and the ability to be able to continue to do that over the medium and longer term. So thank you for listening. I hope you found it useful and we look forward to catching up again next quarter.

Thank you.

*The text has been edited for clarity.

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Disclaimer

This fund update has been prepared by SG Hiscock & Company (SGH) to provide general information only and is not intended to take the place of professional advice. It does not take into account the investment objectives, financial situation or particular needs of any particular person.

Equity Trustees is the responsible entity for the SGH High Conviction Fund. Neither SGH, Equity Trustees nor any of its related parties provide any warranty of accuracy. 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. Follow the link for the full disclaimer: https://sghiscock.com.au/podcast-disclosures-and-disclaimers/.