SUMMARY
The Fund was up 0.7% in April, underperforming the Small Industrials by 1.2% and underperforming the Small Ordinaries by 1.1%. For the 12 months to April, the Fund was up 12.2%, outperforming the Small Industrials Index by 9.1% and outperforming the Small Ordinaries Index by 8.5%.
We recently recorded an investor update where Co-Portfolio Manager Ed Prendergast shares how the Pengana Emerging Companies Fund is navigating market cycles, covering performance, outlook, key holdings, and investor questions.
COMMENTARY
April saw chaotic volatility in global markets driven by the White House trade policies. Uncertainty abounded, tariff strategies were altered without warning, rhetoric was combative, and implications were very difficult to calmly assess. The US market fell 15%, only to recover and close the month up by 1.7%. Bond markets were also erratic, with yields initially falling on a safe-haven basis, only to rise sharply due to concerns about the US debt position. The oil price fell 16% on fears of a global economic slowdown, while the gold price rallied a further 5%, again as a safe-haven asset. The Australian market fell 12% at the lows, only to recover to show a positive monthly gain of 3.6%. Smallcap stocks rose 1.8%, notwithstanding a dramatic 13% drop in the first two weeks of April.
Making sense of this volatility is difficult. Our portfolio has minimal exposure to stocks affected by US tariffs (Breville and Lovisa, both small positions in the fund), and the vast majority of our positions are companies whose earnings have little or no reliance on the strength of the economy. We do not see the need to dramatically adjust our portfolio, and will watch for more certainty about trade policies and economic risks as the situation evolves.
Our key positive contributors in April were:
ALS Group (+12%) rose after a positive trading update, and increasing confidence that high gold prices will drive exploration activity through its laboratories. Various high growth stocks that had earlier underperformed in the market correction recovered very strongly during the month in the absence of any stock specific news – for example, Catapult (+18%), CAR Group (+6%), Technology One (+8%), and Netwealth (+10%).
Our key negative contributors in April were:
Generation Development (-17%) corrected sharply following a quarterly update, which showed a slight delay in the on-boarding of a larger account in the newly acquired Evidentia business. The market wiped off almost 100% of the purchase price of Evidentia, which we saw as a major overreaction. Breville (-9%) fell due to fears that tariffs will prove disruptive to their US sales (we note the 2018 tariffs had no material impact on earnings growth, and will monitor this closely). Sentiment toward Worley (-14%) was impacted by the lower oil price. Propel Funerals (-3%) and EQT Holdings (-5%) faded as their relatively defensive business models were overlooked in the volatility.