SGH High Conviction Fund update – September Quarter 2025

SGH High Conviction Fund update: A volatile quarter highlights the importance of valuation discipline and long-term fundamentals.

A good result for the SGH High Conviction Fund with a return of 5.6%, outperforming the ASX 300 accumulation index by 60 basis points. The fund remains focused on high-quality companies and structural growth opportunities. In this update Portfolio Manager Hamish Tadgell discusses key contributors and themes. He also covers recent positioning shifts and the impact of the resource sector.

Watch/Listen to the September Quarter 2025 SGH High Conviction Fund update ⏬:

 

Transcript:

SGH High Conviction Fund performance for the quarter

Welcome back to the SGH High Conviction Fund quarterly update. My name’s Hamish Tadgell and it’s great to be with you. As a reminder, the High Conviction Fund is an actively managed portfolio of 15 to 25 stocks, and the strategy seeks to exploit marketing efficiencies and mispricing through fundamental research.

Now for the last quarter, for the September or quarter ending 30 September the fund returned 5.6% outperforming the ASX 300 accumulation index by 60 basis points. The Australian equity market was underperformed, the US and broader asian markets, for the quarter it’s still managed to grind out 5%, which is a pretty healthy return in the current environment and supported really by ongoing liquidity, and I think growing confidence around prospective rate cuts and we saw a strong rotation into cyclicals and some of the resource type stocks.

In fact the standout theme probably for the last quarter was materials and resources, which are up over 20%. And that was really supported by very strong performance in precious metals and particularly gold, which was up 25% for the quarter, as investors, I think, sought safe haven exposure amid falling real yields, a weaker US dollar, and ongoing geopolitical tensions. We also saw renewed monetary easing both here and in the US, and the other key theme was really the persistent enthusiasm for artificial intelligence and the AI theme which really also supported markets in particularly the technology sector.

As I mentioned the RBA did cut rates in August and inflation continues to be pretty well constrained here in Australia. And I think that’s providing a robust environment which is supportive for markets and particularly we’ve seen an ongoing rotation into sort of smaller and mid-cap companies along with the renewed strength in the commodities that I’ve talked about.

Key drivers of performance

So just moving on to the drivers of performance in September. Probably categorize it around three key things; as I mentioned the continued strength in the gold market , and the portfolio certainly benefited from that through our gold holdings selective exposure to technology innovation and themes and particularly data centers. I think the demand for data centers in Australia continues to remain very strong, and that’s being driven by the positive growth in AI but also just increased demand from the hyperscalers who are looking for more space as generated AI demand searches.

And lastly we saw some ongoing strength in banks, and clearly the banks have been tremendously strong over the last 12 months. But we saw a bit of a pullback in CBA and, the stock really traded sideways for the quarter. But we saw the other three banks really continue to perform very strongly.

Current fund positioning

And I think the moves in the banks is as much a function of a rotation from disappointment and some of the negative revisions we saw in the large cap stocks and safe haven as large cap stocks through reporting season. And a perceived safe haven status for the banks in this environment where bad debts remain still very benign, and the domestic economy is supportive and I think actually improving. So if we drill a bit further down into that and look at the portfolio and what were the main contributors? As I mentioned, gold was very strong and Northern Star. It was up 28% during the month and Genesis Minerals 31% during the month.

And there are two key holdings in the portfolio. We hold about 10% in gold at the moment. And gold price is up about 17% for the quarter, and that clearly helped power that. But as I mentioned earlier, I think it’s also a reflection of really probably the macro conditions environment at the moment.

Key contributors

BHP and Capstone Copper, which are two key holdings within the resources sector. And copper in particular, about 45% of BHPs group earnings are in base metals and principally copper. Whilst Capstone Copper is a pure plate copper exposure with assets in Chile, America, and Canada and they contributed very strongly to the portfolio during the quarter.

We remain very constructive on copper still. It remains in under supply and is a critical metal in terms of electrification, and the transition to renewables and the lower carbon economy. And I think it’s important to note that in the last 12 months, it’s the first time in over 20 years that no new copper project has started.

Earlier in the year, during the June quarter, we added to Capstone. And we’ve seen the benefit of that play out in the portfolio over the quarter.

The other stocks that contributed strongly to the portfolio is Seek which is holding withheld for some years , and I guess it’s been a little bit disappointing, but it’s starting to come into its own now. And, Seek was up 18% in the quarter. And I think we’ve seen it as a compelling valuation opportunity, but also we’ve got increased confidence in the underlying business. And during the quarter, the company reported its full year result and that really provided good evidence that the company continues to see improvement in its yield, through managing costs and the operating leverage that we’ve been looking for from some of the replatforming and unification, is really starting to come through. We continue to see good upside for Seek and expectation of further operating leverage in future periods.

ANZ bank, I talked about the banks earlier we added to ANZ bank back in July. Really on the back of the appointment of the new CEO in Nuno Matzos and some of the strategic shifts he’s looking to make in terms of better cost and returns, focus on cost and returns. And we think that, that started to drive a rerating, it’s still very early days and in fact, just at the start of October we had the strategy day from from Nuno and the executive team, but it confirmed that they’re gonna be really focused on getting the cost to income ratio down. And then looking to drive revenue over the next three to five years.

And we think that ANZ trades at a material discount to the other banks and we think that discount can close if they’re able to execute on costs and improve returns.

Next DC continued to be a strong contributor. It was up another 17% in the quarter. And it really just speaks to the strength in the data center demand that I spoke to earlier.

The company has made a number of announcements through reporting season and its results around new contract wins. And particularly I think the market gained some comfort from its first JV in Japan, which is a change in the way that it’s seeking to raise capital to fund through bringing in third party partners, and the market seem to like that and take it well.

Key detractors for the fund

Finally, I just wanted to highlight CSL, which was probably the biggest detractor from the portfolio during the quarter. The stock has been particularly weak, post its full year result in August. The company at that result really pushed out its recovery plans for the plasma business and the margin improvement in the Bhering business.

So previously it was hoping to get back to pre COVID margins by 2028. But it has pushed that out. And they also came out and made some reasonably big strategic announcements around cost out and restructuring of its R&D activities. And a surprise I think to the market that it’s looking to de merge its Seqirus business, so the flu business, and spin that off as an in species distribution.

That was a lot to digest. And as I say, some surprises I think for the market in that. And as consequent, the stock has underperformed. We do continue to hold it. We fundamentally believe that the core plasma franchise is still a very high quality business with a strong competitive advantage, and we do think also that some of the tariff news, particularly around the pharmaceuticals, has been also weighing on the share price. Trading on below 17 times for double digit earnings growth, it represents in our view, the cheapest price to earnings growth of any large cap in the market at the moment, and hence we continue to hold it.

Reasons to invest in the SGH High Conviction Fund

So just looking to towards the outlook for how we’re seeing things going forward. Look, I think it’s fair to say that, whilst markets have had a very strong run we remain constructive in the sort of the medium term. The current environment is certainly favoring stocks with structurally competitive advantage and sort of superior earnings growth, and the market has clearly shown a propensity to play a premium for those high quality companies, with secular tailwinds is o overriding the macro uncertainty at the moment. Our focus as always remains on companies aligned with enduring structural themes and quality businesses and essential infrastructure and services.

Decarbonization and technology innovation are three themes in particular that are strongly running through the portfolio and where we continue to see good fundamentals and potential for sustainable alpha generation. As always, we’ll continue to manage risk prudently.

What we’re really trying to do at the end of the day is focus on the fundamentals. Try and pick stocks that we think are well positioned to navigate the the uncertainty and really in doing that, trying to find quality businesses that have got a strong competitive advantage, that are in attractive end markets and growing and buying those at sensible valuations.

That brings us to the conclusion of this quarterly update. We’ve been pleased with the performance through the September quarter. Thanks for tuning in and I hope you found it useful and enjoyed the conversation and we look forward to joining you next quarter.

Thank you very much.

*The text has been edited for clarity.

For more information about the SGH High Conviction Fund, click HERE. Follow us on LinkedIn.

---

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/.