Ethical Investment February 25 Report
Dear Investor,
I am pleased to announce the release of our February 2025 Monthly Report for our Funds. During the month of February, the ELMRI ANZ Conviction Fund decreased by 12.0% and the ELM Responsible Investments Global Fund decreased by 7.1%. Over a 12-month period ending February, the ELMRI ANZ Conviction Fund increased by 11.2% and the ELM Responsible Investments Global Fund increased by 17.3%.
Market Update:
Global equity markets have faced turbulence in the early months of 2025, with US equities leading declines. The S&P 500 and Nasdaq 100 experienced notable declines in February, dropping 1.4% and 4.0% respectively, as investors felt the impact of increasing trade tensions, tariff uncertainties, and inflationary pressures from increased US federal spending. Despite the panic-driven sell-off, we remain confident in our holdings. Our focus continues to be on assessing and re-evaluating the Key Value Drivers of our investments, and we see no reason to revise our forecasts downward—in fact, we anticipate even greater growth opportunities. This period of volatility is creating compelling investment opportunities across our portfolio.
We invest in a universe of innovative and impactful companies aligned with key themes: Digitisation, Environment & Climate, Healthcare, and Housing. Importantly, we maintain a diversified portfolio across these themes, which is particularly valuable during periods of heightened volatility. Our approach ensures that we are not overly reliant on any single sector or macroeconomic trend, allowing us to navigate market turbulence while continuing to capture long-term growth opportunities.
We remain particularly optimistic about the long-term potential of AI and technological innovation, which continue to drive progress in our core themes of Digitisation and Environment & Climate. Opportunities in fintech, climate solutions, and automation remain strong. While near-term policy shifts and political uncertainty may create headwinds, they are unlikely to derail the broader AI investment cycle, which is expected to surpass $2 trillion. Holdings such as Nvidia and Microsoft remain well-positioned, with valuations that still underestimate their long-term potential.
Technology stocks have historically endured multiple downturns—from the Dot-com crash and the financial crisis to the COVID-driven decline, and now the early 2025 drawdown. Rather than seeing this as a reason to exit, we view the current market as an attractive entry point for long-term investors. History has shown that periods of uncertainty often present the best buying opportunities, and key companies—including Tesla, Nvidia, and ASML—are well-positioned for substantial gains.
While economic growth is moderating, the data does not indicate a severe downturn. In fact, a slower economy often benefits high-growth companies that are gaining market share—such as those we invest in—because they offer superior products and greater value than incumbents. Economic slowdowns frequently act as catalysts for increased technology adoption. Additionally, a weaker economy increases the likelihood of the Federal Reserve cutting interest rates throughout 2025, which would further support our investment approach. The market is now anticipating more interest rate cuts this year.
Investment Outlook: Tesla
Looking back at Q4 2024, Tesla achieved record-breaking performance in both vehicle deliveries and energy storage deployments. Tesla's total revenues for 2024 reached $97.69 billion, a modest increase of 1% compared to $96.77 billion in 2023. The energy business achieved its highest-ever gross profit, following the completion of the Megafactory in Shanghai and record Powerwall deployments as production of Powerwall 3 ramped up globally.
Tesla's focus on affordability remains paramount, with Q4 2024 seeing the cost of goods sold per vehicle reach its lowest level ever at under $35,000. This achievement, driven largely by raw material cost improvements, has allowed them to offer more competitive financing and lease options without compromising profitability.
The Model Y continues to be the cornerstone of Tesla's success, as the world's best-selling vehicle in 2023 and 2024 with annual sales of 1.2 million units. While Tesla's decision to refresh the Model Y has led to a temporary sales slowdown in early 2025 due to production halts for retooling, the upcoming launch of the next-generation "Juniper" model in Q2 2025 positions the model for continued market dominance. Juniper introduces significant improvements, including simplified manufacturing processes and structural battery enhancements designed to boost gross margins. Early demand for Juniper is strong; Tesla received 50,000 orders on the day of its unveiling in China alone. To meet this demand, the Shanghai plant is undergoing upgrades to optimise output.
Looking ahead, 2025 is set to be a transformative year for Tesla, with the company advancing its Full Self-Driving (FSD) technology and planning to launch its Robotaxi business in select US markets. The company is confident it will introduce unsupervised FSD cars as a paid service in Austin, Texas, in June, with plans to expand to other markets, including California later this year.
While traditional vehicle sales generate approximately $5,000 profit per unit, Tesla's Cybercab platform presents a compelling economic model. With a production cost of ~$15,000, each Cybercab could generate $25,000 in annual profit at scale, based on a rate of $.50 per mile across 50,000 miles. This model leverages Tesla's AI software stack and unparalleled manufacturing capabilities, with capacity to produce at a rate of 1 million Cybercabs per year. In comparison, competitors like Waymo face capacity constraints with production numbers that are far lower, with cost per vehicle estimates at ~$150,000-$200,000.
Despite facing short-term headwinds and noise surrounding the company, Tesla's long-term outlook remains promising. Tesla’s continued focus on innovation, cost reduction, and expansion into new markets, particularly in autonomous driving positions it well for sustained growth and leadership in the evolving landscape of electric vehicles, FSD technology and sustainable energy solutions.Company Update: TSMC
Semiconductor design and manufacturing company TSMC reported a net profit of NT$374.68 billion (approximately $11.37 billion) in Q4 2024, a 57% increase from the same period in the previous year. This profitability was driven by strong demand for the company's industry leading 3nm and 5nm technologies, which together accounted for 60% of total wafer revenue. The company's revenue for the quarter reached NT$868.46 billion ($26.88 billion), marking a 38.8% YoY increase. TSMC's gross margin for the quarter was 59.0%, with an operating margin of 49.0% and a net profit margin of 43.1%. These strong financial metrics reflect the company's effective operational management and its ability to capitalise on the growing demand for advanced semiconductors, particularly those used in AI applications. Looking ahead, TSMC projects first-quarter 2025 revenue between $25.0 billion and $25.8 billion, with gross profit margins ranging from 57% to 59%.
Investment Outlook: NVIDIA
The AI landscape experienced a significant shift in January 2025 with the launch of DeepSeek's R1 open source reasoning model. This Chinese-developed AI system claimed to match the performance of pre-existing models at a fraction of the cost, triggering a significant market reaction.
Initially, DeepSeek's assertion of developing R1 for just $6 million raised eyebrows and caused a sharp decline in market valuations across the semiconductor manufacturing AI value chain. However, industry analysts suspect that the actual investment may have been substantially higher, and while there is an element of Chinese tech efficiency, deflation has also led to decreasing production costs in the AI sector overall. NVIDIA chips also remain a critical hardware component for DeepSeek’s operations.
NVIDIA’s trajectory continues to highlight the power of AI to transform industries. In Q4 FY 2025, NVIDIA reported revenue of $39.3 billion, up 78% year-over-year, with data center revenue reaching a record $35.6 billion. This strong growth is driven by the increasing demand for AI infrastructure, particularly in cloud computing and enterprise sectors.
NVIDIA's GPUs are critical for AI training and inference workloads, enabling faster model development and deployment across various industries, including healthcare, finance, automotive, robotics, and telecommunications, while significantly improving productivity and driving innovation. The company's Blackwell product launch achieved the fastest growth rate in NVIDIA's history, generating $11 billion in revenue during Q4 alone.
NVIDIA projects continued robust growth, with expected revenue of approximately $43 billion for Q1 FY 2026, reflecting a 65% year-over-year increase driven by sustained demand for AI infrastructure and data center innovations.
Investment Outlook: ASML
ASML continues to demonstrate its pivotal role in the semiconductor industry. Despite lowering its 2025 revenue forecast in late 2024, the company's long-term prospects remain strong. ASML expects 2025 net sales to range between €30 billion and €35 billion, indicating growth between 7% and 25%.
As the sole producer of extreme ultraviolet lithography (EUV) machines, ASML holds a unique position in the market. These advanced systems, essential for manufacturing cutting-edge processor chips, are priced at approximately €350 million each. ASML's EUV machines are indispensable for producing the small, powerful, and energy-efficient chips needed for smartphones, AI, and other advanced technologies.
This monopoly in EUV technology positions ASML as integral to the semiconductor industry's future. The sector is poised for significant growth, with projections indicating a 9.5% increase in 2025 and expansion to over $1 trillion by 2030. This growth is primarily driven by increasing demand for artificial intelligence and advanced computing technologies.
Investment Outlook: Block
Block continues to make financial services more accessible to underserved populations through its innovative platforms, Square and Cash App, empowering small businesses and individuals worldwide. This commitment has positioned Block as an impactful company in the financial technology sector.
In Q4 2024, the company reported $2.31 billion in gross profit, reflecting 14% year-over-year growth, and adjusted EBITDA of $725 million, representing a 31% margin. However, these figures fell slightly short of market expectations, contributing to a temporary decline in stock value. Despite this, the company remains committed to strong fundamentals and long-term growth, with its ability to scale digital financial services continuing to drive future potential.
Block has maintained its focus on efficiency and profitability, reaffirming its target of achieving the Rule of 40, a key performance metric that balances revenue growth and profitability. The company reported a 36% combined metric for FY 2024, demonstrating resilience even amid short-term challenges. Although Q4 results missed expectations, Block remains on track to hit its full-year financial goals to demonstrate its ability to sustain long-term growth. With increasing adoption of digital payments, expanding financial inclusion efforts, and ongoing innovation across its ecosystem, we continue to see significant upside for the company as it strengthens its leadership in fintech.
Conclusion
Both the ELMRI Global Fund and the ANZ Conviction Fund are well-positioned to deliver long-term returns while capitalising on the transformative opportunities presented by innovation in technology and sustainability. 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.