Mr Gracey will transition portfolio responsibility to Head of Equities Nathan Parkin, who will assume full management of the Fund from the end of September, with Mr Gracey remaining in an advisory capacity until mid-December 2025.

Deputy CIO John Woods said, “Andy has made a valuable contribution to the firm over the past 20 years, and we’re thankful for his dedication and long-standing service. We’re grateful for his commitment to both the firm and our clients, and we wish him all the best in his next endeavour. We’re pleased to have a capable and experienced successor in Nathan, and we’re confident in the continued investment discipline and focus on values that have been hallmarks of our approach.”

Departing Portfolio Manager Andy Gracey said, “I’ve enjoyed the past 20 years at Australian Ethical immensely and am proud to have reached this milestone. I have complete confidence in Nathan’s leadership and was thrilled when he accepted the role. I’ll continue to support the business and the team through to my departure in December, and I look forward to working closely with everyone over the next five months.”

Head of Equities and incoming Portfolio Manager of the Fund Nathan Parkin said, “It’s an honour to carry on Andy’s exceptional management of the Fund.  We’re excited by the continuing opportunities for clients in small and micro-caps, utilising our excellent pedigree in researching this part of the market.”

Mr Parkin brings more than 30 years’ experience in Australian financial markets, including two decades in small and mid-cap management. Previously he managed up to $6.5bn in Australian equities portfolios as Deputy Head of Equities at Perpetual Investments and co-founded Ethical Partners Funds Management where he was the Investment Director.  

Since its inception 10 years ago, the Emerging Companies Fund has delivered 12.2% returns pa compared to its benchmark of 6.8% pa over the same period^[1].

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[1] Performance information is correct at 30 June 2025. Past performance is not a reliable indicator of future performance. The information provided does not constitute personal financial advice and has been prepared without considering your objectives, financial situation, or needs. Before making an investment decision, carefully review the FSG, PDS and TMD at australianethical.com.au to consider if the product is right for you.

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Australian Ethical outlines its latest investment strategy.

Australian Ethical’s Smaller Companies Trust has participated in the frenzy of recent IPO activity on the ASX.

While AE fund manager, Andy Gracey, sees some quality he is also wary of ‘opportunistic’ IPO’s as investment bankers and vendors look to take advantage of the healthy current investor appetite.

“Individual investors need to assess some of the assumptions included in any forward looking forecasts and carefully compare these against listed peers.

It is also worth considering the motives behind the IPO.

“We prefer companies that are listing for strategic and growth considerations and are wary of venders listing for pure financial considerations. We have ignored many IPOs because the future earnings projections appear overly ambitious.

“We are looking to cornerstone drug development company Innate Immunotherapeutics,” said Andy Gracey, portfolio manager, Australian Ethical.  The company (Innate) is mid-stage in clinical development of a multiple sclerosis therapy which has already shown promising early stage results in secondary progressive MS patients.

“We have also invested in Sealink Travel Group which is a tourism and ferry business, operating under the brands of Captain Cook Cruises and Sealink.

“The fund participated in the renewable energy IPO of Meridian Energy IPO, while buying hydro and geothermal generator and energy retailer Mighty River soon after it listed, said Mr Gracey”.

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“We have seen the share prices of larger defensive businesses like Telstra, CSL and Ramsay Healthcare rise strongly over the past twelve months.  We have also witnessed the slightly bizarre situation of the Big 4 Australian banks outperforming the wider Australian equity market,”  said Andy Gracey, Portfolio Manager, Australian Ethical.

“The primary reason large banks have outperformed is the singular focus of investors on the yield, with the major banks currently offering a fully franked 6.7% yield on a market cap weighted basis.  We see this share-price out-performance as paradoxical given banks are highly leveraged to the domestic economy, with changes to consumer and business behaviour capable of wreaking havoc on bank profitability. 

“The unprecedented decline in yields on Australian commonwealth government securities together with the cuts in base interest rates by the RBA means sustainable yield is becoming harder to find.  This is highlighted by a risk free investment in 10-year Australian government bonds today offering a paltry 2.8% yield per annum.

“The cash rate which is perhaps more relevant to local investors is predicted to be just 2.9% by December 2012 if the bank bill futures are to be believed.  This may translate to financial institutions offering investors around 4.1% for cash and short term money by the end of 2012 (today the average spread for deposits is 1.2% on top of the 90 bank bill rate).

“Our funds have sought exposure to investments which offer sustainable yield.   These include utilities such as APA, Envestra and Duet. The yields on offer are reasonably attractive with stable contracted or regulated cash flows. The key risks are changes to regulations governing their return on capital and the relatively high level of gearing (albeit the regulator views a 60% gearing metric as appropriate given the stability of the cash flows). The likes of Duet also have an out-of-vogue management contract which means investors pay AMP/Macquarie Bank potentially large performance fees.

“We have increased our holdings of real-estate investment trusts “REITS” such as Stockland, Mirvac, Investa Office Fund and the Commonwealth Property Office Fund. This sector carried too much debt coming into the GFC but post raising new equity capital they now have what appear to be conservative levels of debt at between 20 to 30% of total assets.  The sector still trades at a discount to net tangible assets. Like Duet, Commonwealth Property Office Fund also comes with a management contract that includes a performance fee.

“We also continue to hold the Transpacific hybrids securities which are preference shares trading at 85 cents in the dollar. The health of these hybrid securities rests with the health of the ordinary Transpacific Industries share which today is solely focused on reducing its debt and attaining investment grade status.  We take some comfort that while interest coverage and Debt/EBITDA is not yet investment grade it is heading in the right direction and the debt metrics are not inconsistent with global integrated waste companies,” said Gracey.

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