The Fund rose 5.3% in December, underperforming the Small Industrials by 3.2% and underperforming the Small Ordinaries by 1.9%. For the 12 months to December, the Fund was up 11.6%, outperforming the Small Industrials Index by 0.2% and outperforming the Small Ordinaries Index by 3.8%.
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 rallied in December, with the US market up 4.8% driven by a further correction in bond yields. Smallcap stocks notably outperformed in the US, rising 12%. Falling oil prices added comfort to the inflation outlook, with gas prices in the US tailing off to close the year on the 2023 low.
The Australian market rose 7.3% with interest rate sensitive stocks especially firm – real estate stocks bounced 11.2% in the month, reversing some of the losses over the past 18 months driven by higher interest rates. Mining stocks also outperformed slightly during the period, with iron ore prices buoyed by renewed optimism around the Chinese economic outlook. Smallcap stocks in Australia rose 7.3%, with industrials up 8.4%.
When markets rally suddenly, it is often accompanied by dramatic bounces in lower quality stocks. Given our Fund’s focus on high quality earnings streams, it is not surprising to see us slightly underperform in the shorter term.
Positive contributors to our portfolio in December included:
Charter Hall (+18%) is highly leveraged to the listed real estate sector, which was up over 11% in the month. Cosol (+18%) posted an update at its recent AGM, reaffirming expected profit growth for FY24, which saw new buying support. Seven Group (+15%) hit all-time highs in December, perhaps driven by the improved outlook for iron ore, giving us the opportunity to take further profits. CAR Group (+12%) was well supported, in line with various other premium stocks whose valuations are leveraged to lower bond yields. Webjet (+12%) and other travel stocks such as Flight Centre, Corporate Travel, etc all bounced in December following a lackluster 2023.
Negative contributors to our portfolio in December included:
There were no notable negative moves in our portfolio for any specific reason. The negative contributors were largely characterised by defensive earnings streams which were deemed unexciting in a market driven by a sharp return to riskier sectors and stocks. These include Hansen Technologies (-5%), Infomedia (-3%), NIB Holdings (-3%), AUB Group (-1%) and EQT Holdings (-1%).