The Fund had another strong month, generating a 2.9% return during May 2025. By way of comparison, the ASX All Ords Index and the RBA Cash rate plus 6% benchmark returned 4.2% and 0.8% respectively. On a rolling one-year basis, the Fund continues to comfortably outperform its benchmark, returning 13.8% versus 10.3% for the RBA cash rate +6%.
CIO and Senior Fund Manager
Senior Fund Manager
Senior Fund Manager
The Pengana Australian Equities Fund aims to enhance and preserve investor wealth over a 5- year period via a concentrated core portfolio of principally Australian listed securities. The Fund uses fundamental research to evaluate investments capable of generating the target return over the medium term. Essentially, we are in the business of seeking to preserve capital and make money – we are not in the business of trying to beat the market. We remain focused on acquiring and holding investments that offer predictable, sustainable and well-stewarded after-tax cash earnings yields in excess of 6% that will grow to double digit levels as a percentage of our original entry price in five years. We believe that building a well-diversified portfolio of these “gifts that keep on giving” represents a meaningful way to create and preserve financial independence for our co-investors.
1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. The benchmark of cash rate plus 6% p.a. is included in the chart as it relates to the Fund’s investment objective and performance fee. The Fund may invest up to 100% of its assets in equity securities. The greater risk of investing in equities is reflected in the addition of a margin above the cash rate. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. Inception 1st July 2008.
3. Annualised standard deviation since inception.
4. Relative to ASX All Ordinaries Index. Using daily returns.
*(including GST, net of RITC) of the increase in net asset value subject to the RBA Cash Rate & High Water Mark. For further information regarding fees please see the PDS available on our website.
COMMENTARY
As would be expected during a robust month, most of the holdings were positive. Key positive contributors included Evolution Mining (on the back of the robust gold price), Ramsay Healthcare (due to the potential consolidation of the private hospital industry following the demise of Healthscope), Telstra (positive strategy day) and NAB (banks generally have been very strong). The detractors were minor and included Aristocrat Leisure.
Purchases included additional holdings in Westpac and Bluescope Steel, with the only sale of consequence being that of gaming machine operator Light and Wonder, following its investor day.
In past updates, we have written extensively about our search for value created by the significant gap between housing demand and constrained supply. In addition to our Metcash exposure, discussed further below, the Fund has exposure to the underserved housing market through Stockland, Mirvac, Maas Group, BSL and James Hardie.
Metcash, one of the Fund’s largest holdings, represents a compelling investment opportunity in our view. It has three earnings streams, namely grocery wholesaling via its IGA brand, Liquor wholesaling and Hardware retail. The latter is the largest division with its combined franchise and company owned stores. Both grocery and Liquor offer non labour or rental intensive distribution business exposure without the commensurate operating leverage (or deleverage). Given the subdued turnover growth environment and high cost growth for both labour and rents, we are attracted to the underlying defensive nature of this business. In addition, Metcash owns a large hardware business, including the Mitre 10 and Total Tools brands. This is the largest business segment of the group and represents exciting upside when residential housing construction activity recovers. Furthermore, being able to acquire MTS shares on a sub 14 multiple represents good value in our view.
On an overall basis, the Fund closed the month with approximately 7% in cash. Following the sharp rally from the April lows, opportunities to deploy cash have become increasingly scarce. Furthermore, we have become net sellers of equities on valuation grounds, thereby building cash levels as a consequence.