ELMRI February 26 Monthly Report

Dear Investor,

The ELMRI ANZ Conviction Fund returned ‑9.7% and the ELM Responsible Investments Global Fund ‑7.0%, with a weaker US dollar alone detracting around two percentage points from the Global Fund’s return by reducing the translated value of offshore holdings. February was another challenging month for high‑growth technology and software, and this was reflected in fund performance.

Crucially, this drawdown has been driven by narrative and positioning rather than any broad‑based deterioration in the fundamentals of the businesses we own. We remain focused on owning some of the most innovative and impactful growth companies globally, and we continue to avoid more cyclical, lower‑quality parts of the market that have benefitted from the recent rotation.

Market Backdrop

Global equity markets were mixed in February, with a clear rotation beneath the surface. In the US, the S&P 500 posted a modest decline as investors weighed AI disruption risks, elevated capital expenditure and rising geopolitical tensions, while utilities, materials and energy outperformed and information technology lagged on continued software weakness. In Australia, the S&P/ASX 300 Accumulation Index rose, led by banks and resources, while our core hunting ground of technology and healthcare remained under pressure as capital rotated towards nearer‑term cash flow and yield.

Late in the month, a deterioration in risk sentiment linked to geopolitical developments added another layer of volatility, particularly for higher‑multiple growth names. Our portfolios are not immune to these broad rotations; however, the underlying businesses we own remain fundamentally sound, with strong balance sheets, recurring revenues and attractive long‑term growth runways. We deliberately do not chase shorter‑term, more cyclical rallies in lower‑quality sectors where earnings are less durable and where we see limited structural impact.

Reporting Season – Robust Fundamentals, Weak Reactions

Across the ANZ Conviction Fund, portfolio companies generally delivered solid results. Pro Medicus reported strong first‑half revenue and NPAT growth underpinned by additional large contract wins and a robust pipeline. WiseTech Global delivered strong revenue growth, reaffirmed guidance and announced a major AI‑driven efficiency program. HUB24 posted double‑digit revenue growth, strong operating leverage and record platform inflows, while Block reported healthy gross profit growth and upgraded its medium‑term profitability targets as it transitions further to an AI‑native operating structure.

In the Global Fund, Nvidia reported another exceptional quarter with powerful data‑centre momentum and guidance that continues to underscore the strength of the AI infrastructure cycle. Intuit delivered double‑digit revenue growth and earnings ahead of expectations as its AI‑driven platform gained further traction with small businesses and consumers. ServiceNow again beat expectations on subscription growth and reiterated guidance that reinforces its positioning as a leading AI beneficiary in enterprise software.

Despite these fundamentally strong outcomes, many of our holdings were not rewarded during reporting season. Share‑price reactions were often sharply negative to any result perceived as less than perfect, particularly in higher‑multiple names, with automated and systematic selling exacerbating moves irrespective of underlying quality. We do not see these price reactions as indicative of a structural change in business prospects; rather, they reflect a sentiment‑driven reset that, in our view, is creating opportunity in some of the highest‑quality growth businesses in the market.

Why We Remain Constructive on SaaS and Platforms

Our constructive stance on leading SaaS and platform businesses is grounded in a clear and repeatable framework. These platforms generate high‑quality, domain‑specific proprietary data through daily customer usage, which is essential for making AI models truly useful and is not easily replicated. They embed AI directly within mission‑critical systems of record where work is executed, allowing workflows to move from recommendation to autonomous action and deepening customer reliance over time.

In regulated or high‑stakes domains such as healthcare, logistics, financial services and enterprise workflows, trust, security and compliance requirements create meaningful structural barriers and high switching costs. This protects incumbents who can demonstrate governance, auditability and reliability at scale.

Established platforms like WiseTech Global, Pro Medicus, ServiceNow, Xero, Intuit and Intuitive Surgical also benefit from deeply embedded distribution, enabling them to roll out new AI capabilities quickly across large, sticky customer bases without relying solely on new client acquisition.

As these businesses transition from seat‑based pricing toward outcome and transaction‑based monetisation, we see meaningful upside to long‑term earnings power that is not yet fully reflected in current valuations. In combination, proprietary data, trusted workflows, embedded distribution and evolving monetisation models create structural barriers that support long‑duration compounding. This is precisely the profile we want to own through cycles, and it stands in deliberate contrast to more cyclical, lower‑quality sectors where earnings tend to be more volatile and less aligned with structural change.

Company Spotlight – WiseTech Global (ASX: WTC)

WiseTech Global’s first‑half result highlighted solid revenue growth, resilient margins and reaffirmed guidance, alongside a clear roadmap for its next phase as an AI‑led logistics platform. Management is executing a multi‑year efficiency program that embeds AI more deeply across customer‑facing products and internal operations, streamlining parts of the workforce and redesigning workflows to create a more scalable, higher‑margin business over time. We see these initiatives as consistent with WiseTech’s long‑standing focus on productivity and discipline, rather than a signal of weakening demand.

CargoWise remains a mission‑critical system of record for global freight forwarders and logistics providers, orchestrating complex, regulated workflows across borders and modes of transport. This role generates rich transactional data and creates a powerful data moat as AI is applied to routing, compliance and capacity optimisation. Its global footprint, high retention and transaction‑based commercial model allow WiseTech to roll out AI‑enabled features at scale and to monetise them in line with the value and productivity they unlock for customers. In our view, recent share‑price volatility reflects short‑term debate around restructuring and integration rather than any erosion of structural advantages, and we remain comfortable holding WiseTech as a core, top‑five position in the ANZ Conviction Fund.

Company Spotlight – Ecolab (NYSE: ECL) 

Ecolab reported record full‑year 2025 results, with strong EPS growth and meaningful operating‑margin expansion, and guided to a further step‑up in margins and earnings in 2026. Organic sales grew across most core businesses, supported by consistent value pricing and broad‑based volume growth.

Although Ecolab is not a software company, it is increasingly a structural beneficiary of the AI infrastructure cycle. Its high‑tech and water‑related businesses support semiconductor fabs and AI data centres with ultrapure water, cooling and recycling solutions, areas where demand is growing rapidly as AI‑related compute capacity expands. Management continues to invest behind this opportunity, including through targeted acquisitions, while the broader Ecolab franchise compounds steadily and increasingly leverages digital tools and AI to enhance internal efficiency. We see Ecolab as an example of the type of innovative, impact‑oriented compounder we want in the portfolio: exposed to powerful structural themes, disciplined in capital allocation and aligned with a more sustainable real‑economy footprint.

Conclusion

February’s drawdown was uncomfortable in headline performance terms, but we believe it was driven primarily by narrative, style rotation and technical factors, not by fundamental impairment in the businesses we own. The companies in our portfolios continue to play critical roles across the AI and cloud ecosystem – whether as enablers of the physical infrastructure build‑out, or as mission‑critical software platforms with trusted workflows, deep data moats and embedded distribution.

We are intentional about where we take risk: we want exposure to the most innovative and impactful growth businesses, not to cyclical, lower‑quality companies that are currently in favour but lack durable structural tailwinds. We have revisited and updated our valuation work across the portfolios and remain confident that intrinsic value is continuing to compound, even as multiples compress. In our view, this environment offers precisely the kind of price dislocation that long‑term, fundamentals‑driven investors seek.

We are using this period to concentrate capital in our highest‑conviction ideas at attractive long‑term entry points, positioning the portfolios to benefit as sentiment normalises and fundamentals reassert themselves in price. 

We thank you for your continued support and trust in ELM Responsible Investments, and we look forward to engaging with you throughout 2026.

Kind regards,

Jai Mirchandani
Founder, CIO and Portfolio Manager
ELM Responsible Investments

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.