Market Review
Global equity markets performed strongly in local currency terms during July. The US Federal Reserve increased interest rates by 0.25% to 5.25% – 5.50% in a move which was seen by some investors as the final interest rates hike in this cycle as inflationary pressures ease.
In Emerging Markets, China’s share market surged nearly 11% as the government unveiled a series of measures which are intended to boost domestic consumption. International stocks in the materials sector rallied on the prospect of a recovery in China that will boost activity in its construction industry. Meanwhile, enthusiasm for the prospects of companies with business models aligned to innovation in artificial intelligence (AI) brought strong outperformances by some stocks in the communication services sector.
Having contributed to relative performance during the first half of the year, the Fund’s quality style detracted from returns in July. The lowest quality quintile of companies in the MSCI ACWI Index (i.e. the bottom 20% of stocks, which the investment manager ranks on quality characteristics such as profitability, balance sheet strength and earnings growth) is a segment in which the Fund is underinvested. However, it outperformed the highest quality quintile by over 4.0% during July. This reflected optimism that the US will avoid a recession following publication of more resilient economic data.
Portfolio Comment
The Fund benefitted from strong stock performance in North America, health care and communications services in July. However, this was offset by weak stock performance in industrials and information technology, and an overweight position in health care.
Medical equipment suppliers have performed well this year thanks to the continued recovery in the numbers of surgical procedures, following weaker activity levels during COVID.
Intuitive Surgical is US-based company that develops and manufactures robotic-assisted, minimally invasive surgical systems. It reported that procedures using its flagship da Vinci Surgical System grew 22% in the second quarter compared to the same period last year.
Meanwhile, Edwards Lifesciences, a US company which specialises in the manufacture of heart valves, reported 12% year-on-year organic earnings growth in the second quarter.
Despite their strong performances, neither company met the elevated expectations of the market, and their shares underperformed. This underperformance is expected to be short-term as it does not reflect the fundamental strength of either company. They both provide critical supplies – which are not easily replaceable – for surgical procedures that help resolve severe, often urgent, health issues.
The underperformance of high-quality companies weighed heavily on relative performance in July. Many of the Fund’s most significant detractors from relative returns, such as France-based digital automation and energy management group Schneider Electric, are among its highest-quality holdings.
Sweden-based global information technology company Hexagon, an industrial sensor and digital reality company, underperformed in July. This followed publication of an inflammatory report from short seller Viceroy which accused Hexagon of value-destructive acquisitions and inadequate corporate governance. This underperformance is expected to be temporary as there are strong reasons to disagree with the allegations.
Google-owner Alphabet outperformed during the month when its cloud division reported better-than-expected earnings in the second quarter.
US-based multinational technology group Meta Platforms which owns Facebook, outperformed when it announced improved user engagement and rapid adoption of its newest product – Threads – which aims to challenge X (formerly Twitter).
The spike in oil prices helped US-based oilfields services company Schlumberger to outperform during the month.
Portfolio Manager
Portfolio Manager
Portfolio Manager
An International Fund targeting superior risk-adjusted returns through investing in high-quality and durable growing companies at reasonable prices.
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The Pengana Harding Loevner International Fund invests in high-quality, growing companies identified through fundamental research with a long-term, global perspective.
Pengana has appointed Harding Loevner to managed the Fund. Harding Loevner is a New Jersey-based global equity fund manager formed in 1989 with over US$86billion in Assets under Management.
Harding Loevner’ analysts search the world for companies that meet their high quality and durable growth criteria, conduct fundamental research, then value and rate their stocks to make them available to PMs for investment.
1. Harding Loevner was appointed fund manager as of 10 May 2021. June 2021 represents the first full month of Harding Loevner managing the Fund.
2. Class B Inception date 1 July 2015. Figures shown are calculated from the continuous performance of both the current and previous strategies. For performance see row labelled Fund (APIR PCL0026AU) in the table above which is the continuous performance of both the current and previous (shaded) strategies.
3. Harding Loevner Global Equity Strategy inception 1 Dec 1989
4. Prior to June 2021, the Harding Loevner Global Equity Strategy performance (labelled ‘Current Strategy (Partial Simulation)’ and shown in the shaded area) includes the strategy performance simulated by Pengana from the monthly gross returns of the Harding Loevner Global Equity strategy. This simulation was done by: 1) the conversion of US-denominated gross returns to AUD, 2) applying the fee structure of Class B. From June 2021 the strategy performance is the performance of the Pengana Harding Loevner International Fund Class B.
5. MSCI All Country World Total Return Index in AUD.
6. Performance for periods greater than 12 months are annualised. 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.
7. The Harding Loevner Global Equity Strategy performance (shown in the shaded area in the chart, and in the performance table as row labeled ‘Harding Loevner Global Equity Strategy) has been simulated by Pengana from the monthly gross returns of the Harding Loevner Global Equity strategy. This simulation was done by: 1) the conversion of US-denominated gross returns to AUD, 2) applying the fee structure of the stated class. Strategy Inception 30 November 1989.
8. Annualised standard deviation since inception.
9. Relative to MSCI All Country World Total Return Index in AUD
* For further information regarding fees please see the PDS available on our website.
