The Fund rose 2.4% in January, outperforming the Small Industrials by 0.5% and outperforming the Small Ordinaries by 1.5%. For the 12 months to January, the Fund was up 9.2%, outperforming the Small Industrials Index by 2.4% and outperforming the Small Ordinaries Index by 7.1%.
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
The US market rose 1.6% in January in an extension of the very positive move in December, driven by optimism over inflation and interest rates. Since the October market lows, when US 10-year bond yields spiked to nearly 5%, yields have retraced to below 4%, and the US stock market has risen a remarkable 18%. While the Fed has poured water on the hopes of short-term rate cuts, the market is clearly embracing the notion that rates have peaked, and inflation is largely under control. The fluidity of the situation over the past two years is a reminder that things can change quickly, so we remain reasonably conservative in our assumptions over inflation and pricing power when valuing companies.
Our positive contributors in January included:
Megaport (+38%) released its Q2 results, which showed 31% revenue growth and strong profitability. The market was spooked by a mildly soft Q1 result in October, and this updated release removed fears of a downturn. AUB Group (+11%), NIB Holdings (+10%), and EQT Holdings (+8%) bounced following a marked underperformance in the strong December rally – presumably catching up as December’s market was driven by lower-quality stocks. Jumbo Interactive (+13%) rallied as the lotto jackpot hit $200 bringing renewed interest from occasional players.
Our negative contributors in January included:
Perenti (-22%) fell away due to weakness in the nickel price, and the announced closure of Independence Group’s Cosmos mine where Perenti provides contract mining services. Chrysos (-17%) is a small investment for us and has risen 174% in the past 12 months. The stocks retraced as the company announced a slight delay in the deployment of its photon assay equipment – an event that we do not believe changes the fundamental value of the opportunity. Worley (-15%) retraced as press reports emerged of a subcontractor in Ecuador being charged with corruption, which Worley emphatically denies being a party to. Cosol (-7%) is a very small investment for us, and, given its low liquidity can move in the absence of news due to shorter-term slows in the stock. Seven Group (-2%) drifted as the market focussed on stocks with stronger leverage to lower expected interest rates.