Global equity markets bounced back strongly in November following three months of falling share prices. Data indicated that inflationary pressures are easing further, while statements from the US Federal Reserve (Fed) indicated interest rates could fall more rapidly next year than had been previously expected.
Growth stocks outperformed value again during November as falling interest expectations brought lower bond yields. This particularly benefitted growth stocks whose earnings lie further out into the future.
Inflation continues to slow across the major global economies. In the US, the Core Personal Consumption Expenditure (PCE) Price Index, a metric closely watched by the Federal Reserve, fell to 3.2% year-on-year in October from 3.7% in September. Expectations that the Fed will begin to reduce interest rates ahead of other major central banks saw the US dollar weaken by 3.0% against a basket of its key trading partners’ currencies in November.
Economic growth data remains mixed. While the US consumer remains resilient, retail sales are continuing to contract in the Eurozone. In China, the manufacturing sector is again starting to expand modestly, although the broader China “re‑opening” continues to disappoint expectations. Consumer spending is sluggish, while the highly leveraged property sector continues to slow the economy.
The Fund retains its focus on dynamic growth stocks, where positive revisions to earnings per share (EPS) drives outperformance as global economic growth moderates. The Fund continues to overweight information technology, consumer discretionary, and health care, while underweighting financials, energy, and materials.
Strong stock performance in information technology, industrials, health care, and consumer staples, an overweight position in information technology, and a zero weighting to energy contributed to relative returns. Weak stock performance in communication services and an overweight to health care were the main detractors.
US technology consultancy Gartner outperformed after it reported better than expected contract value growth and operating leverage. Its 2023 earnings guidance was also upgraded and the company highlighted that technology vendor spending is beginning to stabilise.
US enterprise software company ServiceNow continued to perform well after reporting better than expected earnings results as the software sector strengthens.
US technology company Uber reported better than expected bookings and profitability. The company also posted positive trailing twelve months (TTM) net income for the first time, enabling it to be included in the S&P 500 Index.
US luggage manufacturer and retailer Samsonite underperformed after it reported strong earnings but disappointing forward guidance as China-related travel remains subdued. The company remains well positioned to deliver strong revenue and earnings growth, given its more efficient cost structure.
The Fund’s underweight positions in technology groups Apple and Meta Platforms detracted from performance as technology stocks rallied during November upon lower global bond yields.
The Fund only re-established its position in Meta Platforms, the dominant global social media platform, during November. It is experiencing accelerating digital advertising revenue growth upon improved targeting and increased monetisation of short-form videos. The global advertising market is resilient, and the competitive environment has improved significantly since the Fund last owned the stock in 2021/2022. The Fund engaged with the company prior to establishing the position to discuss ESG concerns and suggested actions to make improvements.
A position was also initiated in Starbucks, the largest global operator and licensor of specialty coffee shops. The Fund expects that the company’s recent earnings improvements are being driven by better-than-expected same store sales, while operating leverage remains ahead of guidance. The new CEO is driving operational improvements that have yet to be reflected in earnings forecasts.
The Fund established a position in Tokyo Electron which is a Japanese semiconductor equipment company. Following a period of low investment due to weak supply/demand dynamics, the Dynamic Random Access Memory (DRAM) industry is seeing fundamental improvements in inventory levels and increased demand. AI-driven investment and stabilising demand in PC/smartphone end markets will drive increased capital investment in 2024 and 2025, benefitting the company.
The Fund created a position in MongoDB the leading independent provider of cloud-based document databases, the fastest growing segment of the database market. The global database market exceeds US$90 billion, providing ample room for its organic revenue growth (US$1.5 billion in 2023) to grow well above consensus expectations.
The Fund exited its positions in Chinese technology groups Baidu and Alibaba to cut its exposure to China as the post-COVID recovery and broader economic trends continue to disappoint.
The Fund also exited the small position it held in Veralto following its spin-off from Danaher, to allocate capital to holdings which offer more attractive opportunities to grow earnings.
During November, the company engaged with the management team of ServiceNow as part of the Fund’s ongoing ESG due diligence process. ServiceNow highlighted how it offers a tool that allows companies to track ESG-related metrics for internal and external reporting purposes. It believes this should help accelerate adoption of ESG initiatives more broadly. The Fund advised that upgrading its Global Impact and Diversity, Equity, and Inclusion (DEI) reporting should improve transparency.
The Fund also engaged with Cadence Design Systems, the US leader in electronic design automation (EDA), on ESG issues. It noted that it is recognised as an enabler of sustainability within the EDA sector, but acknowledged that more widespread acceptance of this takes time. The company feels that it is important to provide products that can be integrated with renewable energy infrastructure, given the high energy requirements of large data centre customers. Other initiatives designed to reduce Cadence’s own carbon footprint include providing EV charging ports and installing solar panels at its locations.
As we move into the final month of the calendar year we will look to deliver a ‘year in review’ in early 2024. Please let us know any questions you would like us to cover, either specific to the sector, Portfolio, or any portfolio holdings below.
Managing Director/Portfolio Manager
CEO/Chief Investment Officer
The Pengana Axiom International Fund invests in companies that are dynamically growing and changing for the better, more rapidly than generally expected and where the positive changes are not yet reflected in expectations or valuation.
The Global Equity Strategy seeks dynamic growth by concentrating its investments in global developed markets, and may also invest in companies located in emerging markets.
The investment manager is Axiom Investors, a Connecticut-based global equity fund manager formed in 1998 with over US$19billion in assets under Management.
Prior to June 2021, the Axiom Global Equity Strategy performance (shown in the shaded area) includes the strategy performance simulated by Pengana from the monthly gross returns of the Axiom 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. The simulation does not include the Pengana ethical screen. From June 2021 the strategy performance is the performance of the Pengana Axiom International Ethical Fund.
1. Axiom was appointed fund manager as of 5 May 2021. June 2021 represents the first full month of Axiom managing the Fund.
2. Inception date 1 July 2017. Figures shown are calculated from the continuous performance of both the current and previous strategies. For performance see row labelled Fund: APIR (HOW0002AU) in the table above which is the continuous performance of both the current and previous strategies.
3. Axiom Global Equity Strategy inception 1 Jul 2004.
4. Prior to June 2021, the Axiom Global Equity Strategy performance (labeled ‘Strategy (Partial Simulation)’ and shown in the shaded area) includes the strategy performance simulated by Pengana from the monthly gross returns of the Axiom 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. The simulation does not include the Pengana ethical screen. From June 2021 the strategy performance is the performance of the Pengana Axiom International Ethical Fund.
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. Annualised standard deviation since inception.
8. Relative to the MSCI All Country World Total Return Index in AUD.
*For further information regarding fees please see the PDS available on our website.
