ELMRI October 25 Report
Dear Investor,
During the month of October 2025, the ELMRI ANZ Conviction Fund declined by 4.5% and the ELM Responsible Investments Global Fund increased by 5.7%. Over a 12-month period ending October, the ELMRI ANZ Conviction Fund decreased by 3.9% and the ELM Responsible Investments Global Fund increased by 40.1%.
Market Update:
Global equity markets delivered positive returns in October, with the S&P 500 gaining 2.3% to extend its year-to-date performance to 16.3%. The index posted multiple new closing highs throughout the month, breaking through the 6,700, 6,800 and 6,900 point levels as corporate earnings came in significantly stronger than anticipated. Third-quarter operating earnings are expected to post a quarterly record of $599 billion, with around 82% of companies beating consensus estimates.
In Australia, the ASX 200 rose a modest 0.4% in October, with bank stocks providing support while materials and technology sectors faced headwinds. The Reserve Bank of Australia maintained the official cash rate at 3.6% at its September meeting and held again in early November, citing inflation that came in "materially higher than expected" in the September quarter. Trimmed mean annual inflation rose to 3% in the September quarter, up from 2.7% in the June quarter, marking the first increase since December 2022.
The US Federal Reserve delivered its second consecutive rate cut in October, lowering the federal funds rate by 25 basis points to a range of 3.75%-4.00%, bringing borrowing costs to their lowest level since 2022. The Fed also announced it would conclude the reduction of its balance sheet on December 1, signalling a shift in monetary policy stance.
Market Outlook:
The macroeconomic environment remains supportive for growth-oriented investments, though with more nuanced regional dynamics than earlier in the year. While the Fed continues its easing cycle with inflation moderating to 3% in September, Australia faces a more complex picture with inflation proving stickier than expected and the RBA adopting a more cautious stance.
Corporate earnings strength, particularly in the technology sector, continues to underpin market valuations. However, we have observed a notable rotation in Australian market leadership recently. Quality growth companies, particularly in technology companies not directly linked to AI and healthcare companies, experienced profit-taking and valuation compression, while more cyclical sectors including banks, materials, and some speculative names rallied on the back of easier monetary conditions and commodity price strength.
ANZ Conviction Fund: Navigating a Technical Rotation
Our ELMRI ANZ Conviction Fund has lagged in recent months as the Australian market has experienced a pronounced rotation out of high-quality growth companies and into banks, miners, and more speculative names. Commonwealth Bank, trading at over 28 times forward earnings, gained 2.8% in October, while major banks collectively benefited from stable interest rates and improving sentiment around the peak of the tightening cycle.
We view this rotation as largely technical and short-term in nature. The banking sector's stretched valuations, with CBA's forward P/E ratio significantly exceeding historical averages and net interest margins facing increasing pressure from deposit competition, suggest limited upside from current levels. Meanwhile, mining stocks have rallied on expectations of Chinese stimulus and commodity price strength, though the sustainability of these drivers remains uncertain.
Our portfolio remains 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 valuation 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 currently forecast strong forward returns as the market refocuses on earnings quality and sustainable growth.
AI and Digital Transformation: Driving Innovation Across Sectors
The acceleration of AI adoption continues to reshape industries and create substantial opportunities for companies at the forefront of this transformation.
ServiceNow launched its AI Experience platform in October, introducing a role-based interface where employees can access AI agents that work across applications, workflows, and data. This represents a significant shift toward making AI more intuitive and embedded in the flow of work, with the company positioning its AI Control Tower as a centralised point for enterprises to deploy, monitor, and govern AI agents across their entire technology stack.
In healthcare, AI integration continues to transform both diagnostics and treatment. Medical imaging platforms are embedding AI to provide automated analysis directly within radiologist workflows, while robotic surgical systems are incorporating computer vision and machine learning to guide instrument placement in real time. These advances promise not only better patient outcomes, but also shorter hospital stays and lower overall costs of care.
Company Spotlight: Pro Medicus
Pro Medicus continued its impressive growth trajectory in October, with the company announcing a significant 5 year, A$10 million contract with University Hospital Heidelberg in Germany. This marks an important milestone in Pro Medicus' European expansion strategy and demonstrates the global appeal of its Visage 7 imaging platform.
Company Spotlight: CSL
CSL faced significant headwinds in October, with the share price declining 15% following a downgrade to earnings and revenue forecasts and the postponement of plans to spin off its vaccines division. The company cited unprecedented volatility in the US influenza vaccine market, with vaccination rates dropping more sharply than anticipated.
CSL now no longer expects to complete the spin-off of CSL Seqirus in fiscal 2026, having originally planned to separate the vaccine business into a publicly traded entity by mid-2026. The company observed that US influenza vaccination rates have fallen significantly below expectations, forcing a downward revision to Seqirus revenue projections for FY26. Despite the near-term challenges in the vaccines business, CSL's core plasma therapies business known as CSL Behring remains solid.
While governance and execution concerns need to be addressed, CSL's leadership in plasma-derived therapies, extensive global collection network, and strong R&D pipeline position the company well for long-term value creation once the vaccines business stabilises.
Company Spotlight: ResMed
ResMed delivered a strong start to fiscal year 2026, with first-quarter results released at the end of October showing revenue growth of 9% year-over-year to $1.3 billion (up 8% on a constant currency basis). The company achieved impressive margin expansion, with non-GAAP gross margin up 280 basis points to 61.5%, resulting in 16% non-GAAP earnings per share growth.
The strong performance was driven by increased demand for ResMed's portfolio of sleep devices, masks, and accessories, with revenue in the US, Canada, and Latin America (excluding Residential Care Software) growing 10%. The company also announced publication of a landmark study in The Lancet Respiratory Medicine projecting approximately 77 million US adults with obstructive sleep apnoea by 2050, a 35% relative increase versus 2020, underscoring the need for earlier diagnosis and scalable care pathways.
Company Spotlight: Sigma Healthcare
Sigma Healthcare delivered strong momentum in the first quarter of FY26 following its transformational merger with Chemist Warehouse Group. Total Chemist Warehouse Network sales grew 17.9%, while like-for-like sales increased 14.7%. The integration is progressing ahead of expectations, with management upgrading expected annual synergy benefits from $60 million to $100 million by year four, reflecting better-than-anticipated operational efficiencies.
The company held its first AGM as the merged entity in October, with management highlighting strong performance across key product categories and a notable contribution from GLP-1 weight loss drugs such as Ozempic. Sigma continues to roll out new stores domestically and internationally, with an objective to achieve network growth in line with historical patterns, while also expanding its exclusive and own-brand product ranges to support margins and differentiation.
With a market capitalisation approaching $35 billion, Sigma now ranks in the ASX top 20. The company's combined scale as Australia's leading retail pharmacy franchisor and pharmaceutical wholesaler, supporting nearly 900 franchise stores and servicing some 3,000 wholesale pharmacy customers, positions it well for sustained growth as integration synergies are delivered.
Company Spotlight: Microsoft
Microsoft delivered another strong quarterly performance in October, reporting fiscal first-quarter 2026 results that exceeded expectations. The company posted earnings of $3.72 per share, surpassing the anticipated $3.67, while revenue reached $77.7 billion, above the expected $75.3 billion, an 18% increase compared to the prior year.
The Intelligent Cloud division, which encompasses Azure, achieved $30.9 billion in revenue, reflecting a 28% rise and exceeding analyst expectations of $30.3 billion. Azure's growth outperformed predictions as well, with the company continuing to demonstrate leadership in cloud computing and AI infrastructure investments. Microsoft revealed that its investment in OpenAI had a $3.1 billion impact on net income during the quarter.
CEO Satya Nadella emphasised that "Cloud and AI is the driving force of business transformation across every industry and sector," noting that Azure surpassed $75 billion in annual revenue, up 34%, driven by growth across all workloads. Microsoft Cloud revenue reached $46.7 billion for the quarter, up 27% year-over-year.
For the fiscal second quarter, Microsoft expects revenue in the range of $79.5 billion to $80.6 billion. The company's strong execution across cloud, productivity software, and AI positions it well to capitalise on enterprise digital transformation trends. Microsoft's combination of commercial strength, R&D focus, and operational excellence continues to drive market share gains against competitors.
Company Spotlight: ASML
ASML reported solid third-quarter results in mid-October, with total net sales of €7.5 billion and a gross margin of 51.6%. The company's operating margin stood at 32.8%, while net income reached €2.1 billion, representing 28.3% of total net sales. Basic earnings per share came in at €5.49.
Quarterly net bookings in Q3 totalled €5.4 billion, of which €3.6 billion was for EUV (extreme ultraviolet) lithography systems. CEO Christophe Fouquet noted that the third quarter reflected "a good quarter for ASML" with results in line with guidance.
ASML provided guidance for Q4 2025 expecting total net sales between €9.2 billion and €9.8 billion, with a gross margin between 51% and 53%. For the full year 2025, the company expects an increase of around 15% in total net sales and a gross margin of around 52%, with an expected very strong fourth quarter.
As the sole manufacturer of EUV lithography systems essential for producing the most advanced semiconductors, ASML maintains an unassailable competitive position. The company's technology is critical to the continued advancement of semiconductor manufacturing, and we believe ASML will remain a key enabler of innovation across AI, computing, and electronics for decades to come.
Conclusion
These companies are all actively investing in innovation and expanding into new markets, with proven track records of execution and strong competitive positions. While near-term market rotations may create volatility, we remain excited about the long-term prospects of our portfolio holdings and maintain conviction in our investment approach.
Both the ELM Responsible Investments Global Fund and the ELMRI ANZ Conviction Fund are well-positioned to deliver long-term returns by focusing on quality businesses with sustainable competitive advantages and exposure to transformative secular trends including AI adoption, healthcare innovation, and digital transformation. By adhering to a disciplined investment strategy and focusing on companies driving innovation and positive change, ELM Responsible Investments continues to create value for investors while supporting a sustainable future.
If you wish to discuss any aspect of this report in greater detail, please do not hesitate to reach out. I would be more than happy to arrange a meeting at your convenience. Those interested in investing with us can explore our investment portal and review our fund documentation by clicking the "Invest Now" buttons provided below.
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).
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.