ELMRI November 25 Report
Dear Investor,
During the month, the ELMRI ANZ Conviction Fund declined by 6.1% and the ELM Responsible Investments Global Fund declined by 6.9%. Global equity markets experienced heightened volatility as investors grappled with concerns around artificial intelligence spending sustainability and evolving monetary policy expectations. The S&P/ASX 300 Accumulation Index declined 2.6% for the month, while the MSCI World Index in Australian dollars was flat at 0.1%.
Market Update:
Global equity markets delivered mixed results in November. US markets were essentially flat, with significant volatility characterizing the month, particularly within technology. Third-quarter corporate earnings remained impressive, with 83% of S&P 500 companies beating consensus estimates and operating earnings reaching a record $618 billion.
In Australia, the financials sector declined 6.5% and IT fell 10.5% as the market adjusted to shifting interest rate expectations. The Reserve Bank of Australia maintained the official cash rate at 3.6%. In contrast, the US Federal Reserve delivered its third consecutive rate cut in November, lowering the federal funds rate to 3.75%–4.00%, though Fed Chair Powell signaled caution about the pace of future cuts.
Fund Performance
Both funds underperformed their respective benchmarks, weighed down by a broad-based rotation away from high-quality growth companies and into cyclical, value-oriented names.
For the ANZ Conviction Fund, the Australian market continued its pronounced rotation out of technology, healthcare, and infrastructure holdings and into banks, miners, and more cyclical names. This marks a continuation of the challenging period we highlighted in October, as financial stocks with stretched valuations—Commonwealth Bank trading at nearly 30 times forward earnings despite net interest margins facing sustained pressure—and mining companies benefiting from commodity price momentum outperformed our portfolio.
The Global Fund faced similar pressures as AI-related technology stocks experienced significant volatility during November. Concerns about the sustainability of AI infrastructure spending, questions about return on capital, and the emergence of competitive dynamics created selling pressure across our holdings in semiconductors, cloud infrastructure, and AI-enabling software companies. Technology growth stocks broadly underperformed value and cyclical names as markets rotated toward more defensive positioning.
The Importance of Staying Invested Through Market Rotations
We have observed similar periods of market rotation throughout our investment history. In 2016, investors rotated out of technology into mining and energy. In 2018, growth stocks sharply underperformed during a broader market correction. In 2022, rising interest rates drove a severe rotation out of growth into value. These rotations, while uncomfortable in the short term, have consistently been followed by strong recoveries in quality growth assets. History demonstrates that investors who maintained conviction and stayed invested through these rotations were positioned to benefit from the full recovery.
The most damaging strategy during these periods is to sell after a rotation has already occurred. By the time the decision is made to exit, much of the damage has been done, and missing the subsequent recovery can be far more costly than enduring the short-term drawdown. The investors who benefited most were those who maintained their positions, or even added during weakness, and remained invested through the recovery phase.
We view this rotation was driven by macro factors and sentiment shifts rather than company-specific fundamentals as many of our companies continued to exhibit strong fundamental and operational performance. Our portfolios remain focused on companies with strong competitive advantages, pricing power, and long-term structural growth tailwinds driven by technology adoption, demographic trends, and operational excellence. These businesses may face near-term pressure during rotations into lower-quality cyclicals, but we believe their superior earnings growth and returns on invested capital will drive outperformance over the medium to long term.
We remain highly convicted in our holdings and are using periods of weakness to add to positions where we have high confidence in multi-year earnings growth driven by structural themes including AI adoption, climate, healthcare innovation, and digital transformation. We encourage our investors to maintain their conviction as well. Time in the market, not timing the market, has consistently delivered superior long-term returns.
2025 in Review: A Year of AI Ascendance and Market Resilience
2025 proved a year of significant market volatility, with competing narratives reshaping investor sentiment throughout the period. Early months were dominated by concerns around tariffs and trade restrictions, which sparked recession fears and weighed on markets. Simultaneously, the AI infrastructure investment theme captured market attention, with technology stocks leading performance as investors chased exponential growth narratives. However, as the year progressed, market focus shifted dramatically, from trade concerns to questions about AI return on capital and competitive dynamics, highlighting how quickly investment narratives can change.
Despite this shifting landscape, our approach remains steadfast: we continue to focus on sustainable growth and innovation-driven businesses rather than chasing momentum.
Looking Ahead to 2026
We see a market environment characterised by both significant opportunities and meaningful risks. Corporate earnings growth remains on solid footing, with consensus expectations for double-digit growth, while AI transitions from infrastructure build-out to deployment and monetisation, unlocking real-world applications such as autonomous vehicles, ultimately benefiting our Global Fund.
In our domestic fund, our healthcare exposure represent tremendous value, benefiting from demographic tailwinds and innovation pipelines whilst trading at reasonable multiples.
In Australia, the risk landscape has shifted from rate cuts to potential rate hikes, which would pressure domestically-leveraged businesses and highly-valued defensive sectors. Yet despite near-term consensus expectations for elevated inflation and interest rates, long-term deflationary pressures are evident, a structural tailwind that will ultimately support our investment style.
Private Investments: AI Infrastructure, Healthcare, and Search
Beyond our public equity funds, we facilitated three compelling private investment opportunities for our existing investors in 2025. These investments extend our AI infrastructure and healthcare innovation themes while providing access to high-growth, venture-backed companies poised to reshape their respective markets.
Crusoe Energy and the Neocloud Opportunity
A significant development in the AI infrastructure landscape has been the emergence of "neoclouds"—specialised cloud providers purpose-built for AI and high-performance computing workloads. Unlike traditional hyperscalers such as AWS, Azure, and Google Cloud, neoclouds are architected to handle the extreme power, cooling, and networking demands of modern AI. These companies can often deliver GPU compute at 30-50% lower costs than traditional cloud providers by eliminating layers of abstraction and optimizing for specific workloads.
We facilitated an investment in Crusoe Energy, founded in 2018 to capture wasted energy from oil-field flaring and repurpose it to power compute infrastructure. After initially serving bitcoin mining customers, Crusoe pivoted toward AI and high-performance computing, evolving into a vertically integrated neocloud operator. The company controls both energy capture—converting flare gas into electricity—and compute delivery, providing GPU clusters at competitive prices while reducing methane emissions from flaring.
In 2025, Crusoe has scaled dramatically, securing $11.6 billion in additional funding to expand its data centre in Abilene, Texas, from two buildings to eight. This facility is being built for OpenAI through Oracle's Stargate initiative and is expected to become the largest data centre used by ChatGPT. The company has also diversified its hardware partnerships, announcing a $400 million purchase of AMD MI355X chips, with a development pipeline including 45 gigawatts of capacity across Texas, Wyoming, Virginia, and Iceland.
Heidi Health: AI-Powered Medical Documentation
We facilitated a private investment opportunity in Heidi Health, an Australian health tech company that has developed an AI-powered medical scribe to automate clinical documentation. The platform uses large language models to transcribe patient consultations in real-time and convert them into comprehensive clinical notes, referral letters, and case histories.
Heidi solves a pervasive healthcare challenge: administrative burden is one of the leading causes of physician burnout, with doctors spending 1-2 hours on documentation for every hour of direct patient care. Heidi's technology allows clinicians to focus entirely on patient care while the AI scribe handles documentation in the background, transcribing conversations in over 110 languages and adapting to individual physician documentation styles.
The market reception has been exceptional. Heidi is now used by healthcare providers across more than 200 medical specialties, supporting over 500,000 patient consultations weekly. In a 2025 KLAS Research assessment, 100% of surveyed customers said they would purchase Heidi again. The global medical transcription market is projected to reach $138 billion by 2030, driven by aging populations and regulatory requirements. Beyond the financial opportunity, Heidi aligns with our sustainability framework by improving physician well-being and supporting UN Sustainable Development Goals around health and decent work.
Perplexity: The AI Answer Engine
We facilitated a private investment opportunity in Perplexity, an AI-powered answer engine that has emerged as a compelling alternative to Google. Founded in 2022, Perplexity has grown to 10 million monthly active users and attracted investment from NVIDIA and Jeff Bezos.
Perplexity differentiates itself through its research-focused approach: it synthesises information from multiple verified sources into conversational answers with embedded citations, rather than returning ranked links. This transparency and verifiability appeal to users seeking reliable, sourced information. Critically, Perplexity's platform architecture offers users choice in their underlying large language model (LLM), enabling them to select from ChatGPT, Gemini, Grok, and other models. As the large language model layer becomes commoditised, this platform flexibility creates sustainable competitive advantage without requiring capital-intensive model training.
The company's technology stack is sophisticated. In February 2025, Perplexity launched Sonar, built on Meta's Llama 3.3 70B and optimised for real-time, web-grounded answers. Sonar powers all free-tier queries with a 128,000-token context window enabling deep document analysis. Deep Research mode, available on the free tier, enables extended multi-step analysis across complex topics. The July 2025 launch of Comet browser integrates Perplexity's AI capabilities directly into browsing.
With Google commanding 90%+ search market share, Perplexity's transparent, source-verified answers appeal to users seeking AI-native information experiences. Our investment positions us to participate in a potential transformative shift in search and information access.
Company Spotlight: Taiwan Semiconductor (TSMC)
Taiwan Semiconductor Manufacturing Company delivered strong November sales results, posting its third-highest monthly revenue on record at NT$343.61 billion ($11.01 billion), surging 24.5% year-over-year. For the first eleven months of 2025, TSMC's consolidated revenue totaled NT$3.47 trillion, up an impressive 32.8% from the prior year.
As the world's largest and most advanced contract chipmaker, TSMC manufactures cutting-edge semiconductors for companies including Apple, Nvidia, AMD, and numerous other technology leaders. Chairman C.C. Wei expressed confidence that TSMC will continue setting new records for both revenue and profit, with US dollar sales forecasted to grow nearly 35% for 2025.
Looking forward, TSMC highlighted accelerating demand for AI accelerators. The company now forecasts that revenue from AI accelerators will grow at a compound annual rate exceeding its previous estimate of 45% from 2024 to 2029. TSMC's role as the foundational enabler of AI innovation makes it a critical holding with strong secular growth tailwinds.
Company Spotlight: Fisher & Paykel Healthcare
Fisher & Paykel Healthcare delivered impressive first-half results in late November, with operating revenue increasing 14% to NZ$1.09 billion and net profit soaring 39% to NZ$213 million for the six months ending September 30.
Hospital product revenue climbed 17% to NZ$692.2 million, with hardware sales rising 21% in constant currency. Homecare revenue increased 10% to NZ$395.9 million, with the company's latest mask range performing exceptionally well. Gross margin improved by 110 basis points to 63%, reflecting continued progress on operational efficiency and manufacturing excellence.
Fisher & Paykel upgraded its full-year FY 2026 guidance, with operating revenue expected between NZ$2.17-2.27 billion and net profit between NZ$410-460 million. The company continues to invest heavily in research and development, with R&D spending totaling NZ$114.1 million (10% of revenue), positioning the company exceptionally well for sustainable long-term growth driven by aging demographics and increasing demand for respiratory and sleep disorder treatments.
Conclusion
Although we experienced short-term pressure on our holdings as markets rotated away from high-quality growth companies we view these periods as opportunities rather than threats. The companies in our portfolio possess sustainable competitive advantages and clear paths to long-term value creation. We remain confident in their ability to deliver superior long-term returns through innovation and positive change.
Finally, as the year concludes, we thank you for your continued support and trust in ELM Responsible Investments. We wish you a safe and restful holiday season and look forward to engaging with you in 2026.
Thank you for your ongoing interest and support.
Kind regards,
Jai Mirchandani
Founder, CIO and Portfolio Manager
ELM Responsible Investments
ELM Responsible Investments Global Fund
ELMRI ANZ Conviction Fund
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).
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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.