The Fund rose 2.5% in March, outperforming the Small Industrials by 0.8% and outperforming the Small Ordinaries by 1.7%. For the 12 months to March, the Fund was up 61.5%, outperforming the Small Industrials Index by 11.8% and outperforming the Small Ordinaries Index by 9.4%.
Senior Fund Manager
Senior Fund Manager
The Pengana Emerging Companies Fund combines the skills of highly experienced small company investors (collectively over 45 years’ experience) with a limited fund size and an objective of providing above market returns over the medium term. Our benchmark is the S&P/ASX Small Ordinaries Accumulation Index. The fund managers Steve Black and Ed Prendergast are part owners of the business and investors in the Fund, providing a strong incentive to perform. The Fund has strong research ratings from all major research houses and over the period since its inception has delivered returns well above benchmark.
1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. 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 1 November 2004.
* For further information regarding fees please see the PDS available on our website.
** The Fund does not invest in resource stocks.
COMMENTARY
Global markets were again strong in March, with the US market rising 4.2% shaking off recent nerves in bond markets about a potential uptick in inflation putting pressure on interest rates. The risk of inflation stems from rising input costs in some sectors, which may reflect pressure on supply chains more than a genuine rise in broader prices. This theme, however, remains a key risk for markets which are undoubtedly buoyed by the expectation of very low interest rates for the medium term.
The Australian market rose 1.8% driven by lower domestic bond yields which aided sectors such as utilities, real estate, etc at the expense of tech stocks which corrected sharply.
Our key winners for the month were:
Hansen Technologies (+32%) reacted well to a large contract win, and a management presentation which showed strong medium-term growth opportunities. Moelis (+11%) continues to find favour as it grows its diversified fund management and advisory operations. Johns Lyng Group (+9%) has shown a highly resilient core business, boosted by revenue opportunities from East Coast storms during March. Vocus (+8%) moved higher as the takeover offer from Aware Super was made unconditional. Charter Hall (+8%) rose in line with the local property index which performed well as bond rates drifted lower again. Uniti Wireless (+7%) was firmer as the market appreciates the dramatic improvement in income quality and growth opportunities following the merger last year with Opticom.
Our key detractors were:
Praemium (-12%) gave up ground after a strong start to the year. MacMillan Shakespeare (-12%) fell in line with comparable company Smart Group with some investors concerned that novated lease volumes may come under pressure given the global shortage of new cars. EQT Holdings (-7%) fell following its mildly disappointing interim result. Carsales (-5%) drifted in line with many local tech stocks which have seen some heat come out of valuations recently.
There has now been a full year since the major correction in March 2020 driven by the covid crisis. We are pleased to have shown a 12-month return of 61.5% from the end of March 2020, which is well ahead of the overall market return. The key contributors to our strong performance are relatively low-risk companies such as Lifestyle Communities, Uniti Wireless, Mainfreight, and Hansen Technologies in which we are heavily invested. We remain happy to have a strong skew towards less cyclical stocks given the uncertainty around economic disruption as stimulus payments wind off and further lockdowns can’t be ruled out.